October 23, 2013 / 9:55 AM / 4 years ago

RPT-Fitch Assigns Temese Funding 1 Expected Ratings

Oct 23 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Temese Finding 1 Plc’s notes expected rating as follows:

Class A notes due November 2021: ‘AAA(EXP)sf’; Outlook Stable

Class B notes due November 2021: ‘AA(EXP)sf’; Outlook Stable

Class C notes due November 2021: ‘A(EXP)sf’; Outlook Stable

Class D notes due November 2021: ‘BBB(EXP)sf’; Outlook Stable

Class E notes: not rated

The final ratings are contingent on receipt of final documents conforming to information already received.

The transaction is the first securitisation of UK equipment lease receivables originated by Investec Asset Finance plc (IAF), a wholly owned subsidiary of Investec Bank plc (BBB-/Negative/F3), and granted to small/medium-size companies, corporates and public bodies.

KEY RATING DRIVERS

Broker Origination Risk Mitigated

IAF’s business is wholly sourced via brokers and not directly via the originator. The ratings are supported by the following: the brokers are required to have a relevant business licence; each broker’s portfolio is monitored monthly for performance deterioration, with claw-back of the commission in case of underperformance; and IAF carries out all underwriting directly, and therefore each applicant is subject to the originator’s standard policy checks before credit is granted.

Limited Historical Data after Policy Modifications

New originations slowed in 2009 while IAF carried out an overhaul of origination policies and strategies. The data provided based on the new strategies is limited and does not cover the full product life. Fitch has taken this factor into consideration when assessing asset performance assumptions.

Default Expectation

Fitch expects the transaction’s lifetime default to be 4.25%. The expectation is based on the static nature of the transaction, historical performance on contracts originated since 2009 and Fitch’s expectation of stable economic conditions in the UK for the next two to three years.

Potential Recovery Source Weakness

The originator has recourse to the assets, but it is often not economic to repossess and sell them due to the nature of the equipment. Therefore recovery have historically tended to come via “promises to pay” arranged with the obligors. Fitch has taken this aspect into consideration in setting recovery assumptions at 35%.

Junior Note Interest Deferral

Deferral of interest payments on the class B, C and D notes will not trigger an event of default. Timely payment of interest on class B note is ensured by the presence of a liquidity reserve fund.

Stable Asset Outlook

Fitch expects the performance of UK ABS transactions to remain stable, with a flat unemployment rate at around 8% throughout 2013 and 2014, GDP growth of 0.8% in 2013, and stable interest rates.

TRANSACTION CHARACTERISTICS

The transaction is static and will therefore amortise from close. The credit enhancement consists of over-collateralisation based on a provisional asset pool of GBP265m and the reserve fund of 1% of the rated notes. Additionally, the transaction benefits from initial excess spread of approximately 11% p.a.

RATING SENSITIVITIES

Rating sensitivity to default rate (Class A/Class B/Class C/Class D)

Current default rate (DR) base case: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Increase in DR base case by 10%: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Increase in DR base case by 25%: ‘AA+sf’/‘AA-sf’/‘Asf’/‘BBBsf’

Increase in DR base case by 50%: ‘AAsf’/‘Asf’/‘BBB+sf’/‘BBB-sf’

Rating sensitivity to recovery rate (Class A/Class B/Class C/Class D)

Current recovery rate (RR) base case: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Decrease in RR base case by 10%: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Decrease in RR base case by 25%: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Decrease in RR base case by 50%: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Rating sensitivity to shifts in multiple factors (Class A/Class B/Class C/Class

D)

Current recovery rate (RR) base case: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Increase in DR, decrease in RR by 10%: ‘AAAsf’/‘AAsf’/‘Asf’/‘BBBsf’

Increase in DR, decrease in RR by 25%: ‘AAsf’/‘A+sf’/‘A-sf’/‘BBB-sf’

Increase in DR, decrease in RR by 50%: ‘AA-sf’/‘A-sf’/‘BBBsf’/‘BBsf’

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.

Link to Fitch Ratings’ Report: Temese Funding 1 plc

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