Securitisation Symposium
SAHL Case Study
by
Simon Stockley
27th September 2002
Presentation Summary…
Overview : SAHL
•What is SAHL?
•Activities since launch
Securitisation
•Defined
•Global growth
•Structure
Case Study
•Product
•Positioning
•Funding
Securitisation
Checklist
•What you need to
know
•Pricing
“Banking establishments are more
dangerous than standing armies”
Thomas Jefferson
“Except for con-men borrowing money
they shouldn’t get, and widows who have
to visit with handsome men in the trust
department, no sane person ever enjoyed
visiting a bank”
Martin Mayer
What is SA Home Loans?
l The first South African company to discount
home loans on a national basis.
l The first South African company to fund its loan
book through the internationally recognised
practice of “securitisation.”
l The first South African company to operate with
a transparent pricing policy with regard to home
loans.
What is SA Home Loans?
l It is a management organisation that links
institutional investors with borrowers.
l The company is owned by Peregrine Holdings
Limited, Chase JP Morgan, Standard Bank,
International Finance Corporation (the commercial
arm of the World Bank) and Management.
South African Home Loans
Activities since launch: February 1999
Number of loans processed :
20 000
Value of loans processed
:
R5billion
Value of loans approved
:
R3billion
Breakdown by region
:
Gauteng 30%
KZN 35%
W Cape 35%
Securitised Portfolio
Thekwini Fund
:
R1,25billion (December 2001)
Unsecuritised
: R1,75billion
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Millions
SAHL COMBINED ORIGINATION
600
Not Taken Up
Declined
Registered
Attorney Instructed
Needs Approval
400
300
200
100
0
Securitisation Defined
Definition…
“The packing of individual loans and other
debt instruments, converting the package into
a security, enhancing its credit for the further
sale to a third party.”
Kendall
Securitisation Defined
The effect then is …….
The conversion of illiquid individual
loans to marketable securities,
which are generally asset backed.
Securitisation Defined
In practical terms …
Securitisation pulls apart financial
transactions and allocates the risk
and rewards to those entities that
are best able to accept and
therefore price for them.
Geographic Expansion &
Product Innovation
Securitisation
BOAT
LOANS
COLLATERAL
MORTGAGE
OBLIGATIONS
RESIDENTIAL
MORTGAGES
1970’s
USA
COMMERCIAL
MORTGAGES
Early
1980’s
EMBEDDED
VALUE
SOCIAL HOUSING
LOANS
EXPORT
RECEIVABLES
SUB-PRIME
AUTO LOANS
STUDENT
LOANS
HEALTH CARE
RECEIVABLES
EQUIPMENT
LEASES
DELINQUENT
TAXES
INSURANCE
PREMIA
ENTERTAINMENT
RECEIVABLES
AUTO
LOANS
RV’s
UTILITY
RECEIVABLES
SMALL BUSINESS
LOANS
HOME EQUITY
LOANS
ROAD
TOLLS
CREDIT
CARDS
TRADE
RECEIVABLES
LOTTERY
RECEIVABLES
Mid
1980’s
UK
Canada
Late
1980’s
FRANCE
Early
1990’s
SPAIN
NETHERLANDS
VENEZUELA
MEXICO
Mid
1990’s
GERMANY, ITALY, TURKEY,
ARGENTINA, BRAZIL,
INDONESIA, MALAYSIA,
THAILAND, SOUTH KOREA,
PHILLIPINES, CHINA ETC.
Structural Impediments
l Banks - cash rich.
l Big is best.
l Rating agencies.
l Exposure to international markets.
l Historically little incentive for banks to
securitise.
Legal Impediments
l Banks Act.
l Government Notice 153 as published in
Government Gazette No 13723 - 3 January
1990.
l Government Notice 2172 as published in
Government Gazette No 16167 – 14 December
1994.
l Tacit approval / endorsement / co-operation.
l New Regulations/January 2002 Basle Accord.
Origination Impediments
l Need to originate.
l Time to originate.
l Cost associated with origination.
l Registration process. Costs of
transferring assets.
Information Technology
Impediments
l Lack of silver bullet
applications.
l Costs.
l Integration.
SA Home Loans
A case study
l The product.
l Its positioning.
l Funding.
The Product
l 20 year, variable rate, reducing term mortgage.
l No prepayment or redemption penalties.
l Discounted legal and administrative fees.
l No ongoing administrative charges.
l Re-advance facility twelve times a year.
l Fixed margin above cost of money.
Positioning
How much will I save monthly?
Get a discount on your home loan – for life
Monthly
Savings
R300 000
R200 000
R100 000
1.00%
R235
R158
R79
1.50%
R254
R236
R118
2.00%
R471
R314
R157
2.50%
R587
R391
R196
3.00%
R703
R464
R234
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2
SOURCE BANK ON APPROVAL
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
ABSA
BOE
FNB
Nedbank
Other
Perm
Saam bou
SBSA
Traditional Bank Funding
Reserving
Requirements
Deposits
Bank
Margin : 4 - 5%
Loans
To
Public
Securitisation Structure
Control
Independent
Trustee
Public
Loans
To the
Public
JIBAR Rate
Special
Purpose
Vehicle
Trust
External
Auditor
Senior
Securities
Institutional
Investors
Subordinated
Securities
Purchase
Securities
Plus 2.1%
1.6% Yield pick up
Origination & Management
Fee : 0.5%
SAHL Legal Structure
SECURITIES AND AGREEMENTS
THE PUBLIC
SA HOME LOANS
Public
SPECIAL
PURPOSE
VEHICLES
SPV
MORTGAGE BACKED
SECURITIES
INSTITUTIONAL
INVESTORS
Senior MBS
INVESTORS
Junior MBS
Public
Senior MBS
Public
SPV
Junior MBS
Public
Senior MBS
SPV
Public
Short
Term
Insurer
Life
Insurer
SAHL
Interim
Funder
External
Directors
INVESTORS
Junior MBS
Auditors
MARKET
MAKER
Investment Structure
Thekweni I
Public
A Class
92 %
Special
AAA Rating
Purpose
JIBAR + 70 Points
Vehicle
B Class
R1.25 Billion
8%
BBB Rating
JIBAR + 230 Points
0.5% Management Fee
Loans
JIBAR + 2.1%
SAHL
C Class
2.5 %
Unrated
Pay away
Standard Bank
Deloitte & Touche
Standby Administrator
1.6% to investors
Indicative terms - Thekwini
Key terms
Transaction
Residential Mortgage Backed Securities (RMBS)
Issuer
The Thekwini Fund 1 Limited
Servicer/Originator
SAHL
Standby Servicer
Standard Bank
Collateral
First ranking residential loans on SA properties which meet the eligibility criteria
Tranching of the Notes
Class A
Class B
Ratings Moody’s/ Fitch
Aaa.za/AAA(zaf)
Baa2.za/BBB(zaf)
Tranche size
[92%]
[8%]
Coupon
Floating, spread vs. 3mJIBAR Floating, spread vs. 3mJIBAR
Coupon frequency
Quarterly
Quarterly

Coupon Step-up
[40]% of Class A coupon
[25]% of Class B coupon

Step-up and call date
November 2005
November 2005

Clean-up call
May be exercised when 20%
of all notes are outstanding
May be exercised when 20%
of all notes are outstanding

Legal Maturity
2024
2024
2024
Listing
BESA
BESA

Reserve Fund

[2-2.2%]
4
Securitisation
A Practical Guide
•
•
•
•
•
•
•
Size does count
Quality of data
System reporting ability
Time, money, personnel
Timing – Market conditions
Ratings
Pricing
As an asset class, RMBS spreads
have been extremely stable
European RMBS spreads
Spread to LIBOR (bp)
160
140
120
100
5 Yr AAA Ra ted Euro MBS
5 Yr AAA Rated UK MBS
5-7 Yr A Rate d Euro MBS
5-7 Yr A Rated UK MBS
5-7 Yr BBB Rated Euro MBS
5-7 Yr BBB Ra ted UK MBS
80
60
40
20
1
Se
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Ju
l-0
1
01
Ap
r-
Ja
n01
0
O
ct
-0
0
Au
g0
ay
-0
0
M
00
Fe
b-
No
v99
99
Se
p-
-9
9
Ju
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Ja
n99
0
Relative Pricing
AAA European structured credit products yield curve
Spread to LIBOR (bp)
1 20
1 00
80
60
AAA Structured Products Credit Curve
40
20
0
US c re dit
ca rds
(be s t)
US c re dit
ca rds
(wo rs t)
US a uto
Europ e a n Europ e a n Europ e a n E urop e a n
cre dit
a uto
MBS
MBS
ca rds
(be s t)
(wors t)
CLO
(tighte s t)
CLO
(wide s t)
S ynthe tic C BO - HY* CBO CLO
e m e rging
m a rke ts
Schematic Diagram of Thekweni II
Indemnity and Mortgage first lien over the Home Loan Borrower’s property
Transfer of security
Servicing
Guarantee
Trust
SA Home Loans
Reserve
fund
Loan
origination
Security
Trust
Excess spread
Servicing
Guarantee
Cash
proceeds
Monthly payments
Home Loan
Borrower
The Thekwini Fund 2
Limited
Loan
Transfer of
mortgages
Home Loan
Borrower
Loan
Mortgage first
lien
Committed loan facility
Redraw Facility
Quarterly
obligations
Purchase of
mortgages
Main Street 65 (Pty)
Limited
Investors
Notes issue
Repayment of the
Wholesale loan
Wholesale
loan
Hedging
Hedge Counterparty
Bank Funding
V a lu e o f N o te s O u ts ta n d in g
Highlights of Thekwini Fund II
S AH L
BB
B BB
A
A A A -A 2
A A A -A 1
C a ll D ate
5
10
15
 The AAA Notes will be split into two tranches
 An
A
amortising Note to pick up all the pre-payment
5-year bullet with minimal pre-payment risk (Fixed Rate potential)
 The bullet AAA Note may be structured as a fixed interest rate instrument
20
Highlights of Thekwini Fund II
Tra nch ing
AAA - A1
AAA - A2
A
BBB
BB
SA H L Loa n
WAL
3 .5
5 .0
5 .0
5 .0
5 .0
P o r t io n
2 5 .0 0 %
6 7 .4 0 %
5 .1 0 %
1 .5 0 %
1 .0 0 %
1 .0 0 %
S iz e ( R m )
2 5 0 .0
6 7 4 .0
5 1 .0
1 5 .0
1 0 .0
1 0 .0
1 0 1 .0 0 %
1 ,0 1 0 .0
Indicative tranching levels were modeled on a per R1billion basis
 Indicative modelling and discussions with Moody’s indicate that:

The tranching levels shown above are achievable

The Equity may be structured as a 1.0% start-up loan growing to 1.5% within the first
18 months

Ability to reduce the minimum Equity at some future point in time depending on
Thekwini Fund No2 having achieved pre-determined performance targets
Thank you.
Simon Stockley
CEO - SA Home Loans (Pty) Ltd
Phone : (031) 560 5392
Fax :
(031) 562 4266
Cell no : 083 276 0068
e-mail : simons@sahomeloans.com