OREANDA-NEWS. Fitch Ratings has assigned The Thekwini Fund 12 (RF) Limited's (Thekwini 12) third tap issue notes final National Long-term ratings, as follows:

ZAR160m class A10 notes: 'AAA(zaf)'; Outlook Stable
ZAR326m class A11 notes: 'AAA(zaf)'; Outlook Stable
ZAR214m class A12 notes: 'AAA(zaf)'; Outlook Stable
ZAR51m class B4 notes: 'A+(zaf)'; Outlook Stable
ZAR33m class C4 notes: 'BBB-(zaf)'; Outlook Stable
ZAR16m class D4 notes: Not rated

Fitch has simultaneously affirmed the existing tranches of Thekwini 12, as follows:

ZAR280m class A1 notes: 'AAA(zaf)'; Outlook Stable
ZAR83m class A2 notes: 'AAA(zaf)'; Outlook Stable
ZAR450m class A3 notes: 'AAA(zaf)'; Outlook Stable
ZAR279m class A4 notes: 'AAA(zaf)'; Outlook Stable
ZAR130m class A5 notes: 'AAA(zaf)'; Outlook Stable
ZAR300m class A6 notes: 'AAA(zaf)'; Outlook Stable
ZAR100m class A7 notes: 'AAA(zaf)'; Outlook Stable
ZAR9m class A8 notes: 'AAA(zaf)'; Outlook Stable
ZAR471m class A9 notes: 'AAA(zaf)'; Outlook Stable
ZAR58m class B1 notes: 'A+(zaf)'; Outlook Stable
ZAR60m class B2 notes: 'A+(zaf)'; Outlook Stable
ZAR32m class B3 notes: 'A+(zaf)'; Outlook Stable
ZAR40m class C1 notes: 'BBB-(zaf)'; Outlook Stable
ZAR35m class C2 notes: 'BBB-(zaf)'; Outlook Stable
ZAR29m class C3 notes: 'BBB-(zaf)'; Outlook Stable
ZAR19m class D1 notes: Not rated
ZAR20m class D2 notes: Not rated
ZAR11m class D3 notes: Not rated

The transaction is a securitisation of residential mortgages originated by SA Home Loans (Pty) Ltd. (SAHL) in South Africa, which closed on 26 September 2014. Thekwini 12 has issued additional tranches under this third tap where the rated notes total ZAR784m. Including the unrated class D4 notes and a subordinated loan, the total new issue is ZAR820m.

Credit enhancement (CE) is provided by over-collateralisation and a reserve fund of 2.5% of the aggregate note balance as at the latest tap issue. After this tap issue, CE total 15% for the class A notes, 8.7% for the class B notes and 4.4% for the class C notes.

KEY RATING DRIVERS

Strong Originator Performance
Fitch views the performance of mortgages originated by SAHL as slightly better than the average for the South African market at comparable loan-to-values (LTVs) and other loan features. SAHL's servicing and arrears management processes result in lower property sale discounts and shorter average work-out timelines than its peers. Fitch has consequently applied a 10% downward lender adjustment to the default probability at 'B(zaf)'.

Short Revolving Period
The transaction originally featured a revolving period of 18 months, ending in February 2016, where principal collections may be used to purchase additional home loans. These purchases are subject to the portfolio's covenants, which Fitch considers sufficient to mitigate a material deterioration in performance.

Low LTVs Beneficial
The transaction features loans with a maximum LTV of 81% and a portfolio covenant that limits any increase in the weighted average (WA) current LTV of the initial portfolio to 1% during the revolving period. This covenant restricts any deterioration in the credit quality of the initial portfolio and limits the dilution of potential recoveries through replenishment. The WA committed current LTV for the portfolio is 66.5%.

Stable Asset Outlook
Fitch expects mortgage performance to remain broadly stable in the near term, given the stability of unemployment over 2014. The current limited inflationary pressure also makes the prospects of rising interest rates more distant. We still expect housing appreciation to be 7.5% in 2015 and 6.5% in 2016, despite strong 2014 figures. Housing affordability should deteriorate slightly over the coming years, as growth in household income slows down.

RATING SENSITIVITIES

Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. In particular, default rates and recoveries that are respectively 15% higher and lower than currently assumed by the agency would result in a downgrade of the class A notes to 'AA(zaf)' from 'AAA(zaf)'.