Vineyard Road Investments (RF) Ltd Vineyard Series Transaction 1

Transcription

1 Vineyard Road Investments (RF) Ltd Vineyard Series Transaction 1 South Africa Structured Finance Analysis New Issuance Report 29 August 2017 Security class Programme Limit Short-term rating Review date Class A Notes R10,000,000,000 A1+ (ZA)(sf) 21 August 2018 Key counterparties: Issuer: Vineyard Road Investments (RF) Ltd ( VRI ) Asset Allocator: Liberty Group Ltd ( LGL ) Liquidity Facility Provider and Programme Dealer: LGL Issuer Owner Trust: The Multi-Issuer Owner Trust (IT020780/2014) Administrator/Account Bank/Arranger/ Settlement Agent/Transfer Agent: Rand Merchant Bank ( RMB ), a division of FirstRand Bank Ltd Guarantor: Liberty Holdings Ltd ( LBH ), where applicable. Issuer Owner Trust Trustee: Maitland Group South Africa Ltd Summary of transaction: Asset Class: Asset-Backed Notes Status of Notes: Limited Recourse: Listing: Senior Notes Yes Yes Closing Date: 29 August 2017 Series Participating Assets: Negotiable certificates of deposit from the five largest South African Banks. Negative Pledge: Yes Early Redemption: Taation: Yes Change in Law: Yes Change in Control: Yes Ratings history: Initial Short-term Rating Class rating rating outlook A Notes 29 Aug 17 A1+ (ZA)(sf) n.a Last Short-term Rating Class rating rating outlook A Notes 29 Aug 17 A1+ (ZA)(sf) n.a GCR contacts: Primary Analyst Corné Els Senior Structured Finance Analyst CorneE@globalratings.net Committee Chairperson Emma-Jane Fulcher fulcher@globalratings.net Analyst Location: Johannesburg, ZA Tel: Website: Transaction Summary Global Credit Ratings ( GCR ) has accorded a final, public short-term credit rating of A1+ (ZA)(sf) to the Class A Notes to be issued by Vineyard Road Investments (RF) Ltd under its Vineyard Series Transaction 1 ( VST1 ) ( the Transaction ). The final, public rating accorded to the Class A Notes relates to timely payment of interest and principal. The Issuer may also issue Class B Notes that will be unrated. The ratings are derived from the short-term credit rating of the Participating Assets and the Liquidity Facility Provider - please refer to the Rating Considerations section of the Report. The rating ecludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. Rating Panel Highlights VRI, under the VST1, is a serialised Programme that allows the issuance of different serialised Notes with different serialised assets. The Participating Assets of VST1 will consist of: Negotiable certificates of deposit ( NCDs ) that will be purchased on an outright basis, with a tenor of up to five years, issued by the five largest banks in South Africa. The NCDs will be acquired through LGL, acting in its capacity as Programme Dealer, in terms of the Transaction s portfolio covenants. Given the Maturity Amount of the Participating Assets and a portfolio covenant to Single Bank NCD may not be more than 50% should the Maturity Amount of Notes be less than or equal to R1bn. Should the Maturity Amount of Notes be more than R1bn then the single bank NCD eposure may not be more than 40% to FirstRand Bank Ltd, Absa Bank Ltd, Nedbank Ltd and Standard Bank of South Africa Ltd and 30% to Investec Bank Ltd, and at least three of FirstRand Bank Ltd, Absa Bank Ltd, Nedbank Ltd, Standard Bank of South Africa Ltd and Investec Bank Ltd. All of the eisting eligible banks referenced in the portfolio covenant have a short-term national scale credit rating of A1+ (ZA) and a long-term national scale credit rating of at least AA- (ZA) with a stable outlook. LGL has been appointed as the Liquidity Facility Provider to fund any potential liquidity shortfalls that may occur from time to time. LGL has a AAA and A1+ long-term and short-term national scale credit rating. Following a Credit Event, defined as where the Participating Asset/s becomes Non-Performing, the Issuer shall apply a mandatory conversion that will convert the nominal value of the Class A Notes to Class B Notes of the same value at no consideration. The Class B Notes being the work out Notes will only be redeemed after all recoveries and work out arrangements have been completed. The portfolio will consist of highly rated counterparts, albeit non-granular given the portfolio covenants. Therefore, GCR will take rating action on the Class A Notes should the short-term national scale ratings of the eligible banks Negotiable certificates of deposits held by the Transaction be downgraded to below A1+ (ZA). GCR analysed the Transaction by applying its: Global Master Structured Finance Rating Criteria Feb 17, Global Credit- Linked Note and Repackaging Vehicle Rating Criteria May 17, Global Master Criteria for Rating Banks and Other Financial Institutions Mar 17, and the Financial Institution ratings for: FirstRand Bank Ltd Nov 16, ABSA Bank Ltd May 17, Nedbank Ltd May 17, Standard Bank of South Africa Ltd May 17, and Investec Bank Ltd Oct 16. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating

2 Introduction The Notes to be issued may consist of Fied Rate Notes, Floating Rate Notes and Zero Coupon Rate Notes and the initial issuance will occur in August 2017, and continue to be issued, by VRI under VST1 which is a serialised Programme. The Programme Memorandum, the Applicable Issuer Supplement and the Applicable Transaction Supplement have been approved by the JSE Ltd. The Notes may be unlisted or may be listed on the JSE Ltd, as described in the Applicable Pricing Supplements. Words in capitals are defined in the transaction documents, unless indicated otherwise. Transaction Structure Multi-Issuer Note Programme ( Programme ) The Programme entails the repackaging of debt instruments into distinct transactions funded by the notes ( debentures ) issued to investors. The debentures are issued by different Issuers. The debentures may be secured or unsecured, listed or unlisted collectively referred to as the Notes. The Notes (including limited recourse secured Notes and Security Structured Notes) may be issued under the Multi-Issuer Note Programme. The proceeds of each issuance are used to acquire the underlying security that is associated with a specific transaction. Such underlying security forms the basis of determining the credit risk profile of the debentures and provides the cash flows underpinning each specific transaction. Claims against the Multi-Issuer Programme are limited to the proceeds from the underlying security for a specific transaction, although payments may also rely on associated instruments (e.g. a guarantee see below). Payments are subject to a priority of payments that applies to each specific transaction. The Transaction The Transaction documents will consist of amongst others: Applicable Issuer Supplement (AIS), Applicable Transaction Supplement (ATS) and Applicable Pricing Supplement (APS). According to the Programme, the Notes may be either secured or unsecured. The Issuer Programme in relation to each Issuer Class B Note being the work out Note will only be redeemed after all recoveries and work out arrangements have been completed. Each Issuer Programme will have an agreement between the relevant Issuer, Arranger and Programme Dealer in relation to the establishment of such Issuer Programme and the placement of the Notes. The Transaction has a Mandatory Conversion option applicable to the Class A Notes following a Credit Event. Each Series Transaction shall have Series Assets which are separate contractually segregated sub-sets of assets of the Issuer, including the Issuer s right, title and interest in and to the following: 1. Participating Assets; 2. Permitted Investments; 3. Series Transaction Documents; 4. Series Transaction Account and amounts standing to the credit of the Series Transaction Account; 5. Any other assets of the Issuer in respect of that Series Transaction; and 6. Income, or amounts in the nature of income, accrued from investments in respect of that Series Transaction. Use of Proceeds & Transaction Rationale The Issuer shall use the net proceeds of the Notes issued under each Series Transaction as operating capital to: 1. Acquire or invest in Participating Assets; 2. Redeem outstanding Notes; 3. Repay any drawings under the Liquidity Facility; and 4. For such other purpose in respect of that Series Transaction as may otherwise be described in the APS and/or ATS. The Notes will be issued to fund the acquisition of / or investment in Participating Assets. Participating Assets & Eligibility Criteria The Participating Assets, defined in the Eligibility Criteria, of VST1 will consist of NCDs with a tenor of up to five years. Further to this, the Participating Assets are limited to registered bank NCD s of the five largest banks in South Africa namely FirstRand Bank Ltd (FSR), Absa Bank Ltd (ABL), Nedbank Ltd (NED), the Standard Bank of South Africa Ltd (SBK) and Investec Bank Ltd (INL). Portfolio Covenants The Asset Allocator (LGL) shall ensure that the following portfolio covenants of the Participating Assets held (immediately following the acquisition of or disposal of a Participating Asset is met): Maturity Amount of the Notes are less than or equal to R1bn: Maturity Amount of the Notes are more than R1bn: Negotiable certificates of deposit 1. Single bank NCD eposure may not be more than 50% of the Maturity Amount of the Notes. 1. Single bank NCD eposure may not be more than 40% to FSR, ABL, NED and SBK and 30% to INL. 2. The Issuer must hold Bank NCDs issued by at least three of FSR, ABL, NED, SBK and INL. The table below lists the short-term and long-term national scale ratings accorded by GCR to the eligible banks which are in line with the Transaction s Eligibility Criteria. Bank NCDs carry the short-term rating accorded to the entity, although NCDs may have tenors in ecess of one year. Typically, GCR would accord an A1+ (ZA) short-term national scale rating should a long-term national scale rating be equal to or above AA- (ZA). GCR may deviate from this approach should liquidity be constrained. The ratings accorded to the banks listed below are adequate to accord the ratings to the Notes issued under the Transaction. Bank Accounts Short-term Long-term Outlook Absa Bank Ltd A1+ (ZA) AA+ (ZA) Negative FirstRand Bank Ltd A1+ (ZA) AA (ZA) Positive Investec Bank Ltd A1+ (ZA) AA (ZA) Stable Nedbank Ltd A1+ (ZA) AA (ZA) Stable Standard Bank of South Africa Ltd A1+ (ZA) AA+ (ZA) Stable Source: GCR Bank NCD is defined in section 65 of the regulations relating to banks, published under section 90 of the Banks Act. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 2

3 Mandatory Conversion Following a Credit Event (Participating Asset/s that become Non-Performing), the Issuer shall apply a Conversion Amount (principal & interest), calculated as percentage holding by value, to convert the non-performing portion of Class A Notes to Class B Notes deemed as Recovered Notes. The Class B Notes will be unrated. These Class B Notes will be unlisted, non-interest bearing Notes to be recovered on a pass through basis. Therefore any recoveries from the Non-Performing Assets will be set aside to redeem the Class B Notes. These Recovered Notes have a separate Priority of Payments - please refer to Appendi B. Stop-Issuance Events A Stop-Issuance event is defined as the occurrence and continuation of the following events in respect of the Series Transaction: 1. If an Enforcement Notice has been delivered which remains in effect; 2. If the Maturity Date of the proposed issue of Notes is a date less than 5 days from the epiry of the commitment under the Liquidity Facility; 3. If the Liquidity Facility Agreement is illegal or unenforceable for any reason; 4. If the rating assigned by the Rating Agency to the Class A Notes in issue is downgraded to below A3 (ZA) ; 5. If the Liquidity Facility Provider gives written notice to the Issuer that a default has occurred under the Liquidity Facility Agreement which triggers such Stop Issuance Event. Liquidity Facility LGL has been appointed as the Liquidity Facility provider for the Transaction to provide the said facility, in the form of a loan facility. The Liquidity Facility Limit is the maimum aggregate amount that can be drawn under the Liquidity Facility, being an amount equal to: The Maturity Amount of the Notes (ecluding the Recovery Notes) then in issue in respect of the Series Transaction and not yet redeemed at that time; plus The Senior Epenses (items 1 to 3 of the respective Series Enforcement Priority of Payments) payable at that time; less The face value of Permitted Investments held in cash. The Borrowing Base is defined as the Principal Outstanding plus accrued unpaid interest of the performing assets. The Liquidity Shortfall is defined as an amount equal to: The aggregate Maturity Amount of the Notes (ecluding the Recovery Notes) of the Series Transaction, payable on that Payment Date; plus The Senior Epenses (items 1 to 3 of the respective Series Enforcement Priority of Payments) payable on that Payment Date; less The funds available in the relevant Priority of Payments on such Payment Date to fund such amount, provided that the reason for such shortfall is a Payment Mismatch or a Market Disruption Event. Therefore the facility may not be used to fund Liquidity Shortfalls to the etent that: The Asset Quality Test (Following a Liquidity Facility advance, the Borrowing Base will be sufficient to repay the Liquidity Facility Outstandings) is not satisfied; In respect of the Notes with a maturity of more than 13 months; To acquire any Participating Assets; As a permanent revolving facility in order to provide credit enhancement or to cover losses incurred by the Issuer; or By any Noteholder directly, and may only be used by the Issuer. The Liquidity Facility shall be used by the Issuer to fund Liquidity Shortfalls and the Issuer shall not be entitled to use the facility for any other purpose whatsoever, such as to cover Liquidity Shortfalls in respect of the Class A Notes that are issued with a maturity of more than 13 months. The Liquidity Facility is granted for 13 months which is automatically renewed on a rolling basis for a further 13 months, until the Issuer gives notice, causing the facility to epire on the last day of the 13 month term which commences on the epiry of one month notice period. The Liquidity Facility has downgrade language that seeks to replace the Liquidity Facility Provider should its short-term national scale rating decrease below A1+ (ZA). GCR epects to be notified sufficiently in advance should the Liquidity Facility be cancelled and/or the Liquidity Provider be replaced. The Liquidity Facility shall be cancelled if the Borrowing Base (Principal Outstanding plus accrued unpaid interest of the performing assets) is insufficient to repay the Liquidity Facility Outstandings, insolvency of the Issuer or if it becomes unlawful to do so. Asset Allocator and Asset Allocation Agreement LGL has been appointed as the Asset Allocator for the Transaction. The duties of the Asset Allocator are to: 1. Identify and evaluate whether Participating Assets fall within the Eligibility Criteria; 2. Consider and approve the acquisition of, or investment in, and (where appropriate) disposal of, Participating Assets by the Issuer; 3. Procure that all necessary steps, on behalf of the Issuer are in place to acquire, invest in, hold and (where appropriate) dispose of the Participating Assets on an arms-length basis, at market-related prices and in accordance with market practice and procedures for investments in assets (and associated security) of the kind that constitute the Participating Assets; 4. Ensure that the obligations of the Issuer to acquire or invest in Participating Assets does not eceed the cash available in the Series Priority of Payments to make such acquisitions or investments from time to time; 5. Ensure that immediately following the acquisition of, or investment in, a Participating Asset or the disposal of any Participating Asset, the Portfolio Covenants are satisfied and that the rating of the Notes is not adversely affected as a result of such acquisition, investment or disposal; South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 3

4 6. Determine whether the Issuer's cash on hand is less than the amount required to meet the obligations of the Issuer in terms of the Series Priority of Payments, and, if so, to determine how best to fund such shortfall, including determining whether the Issuer is required to draw under the Liquidity Facility, issue Notes or sell Participating Assets, and instruct the Administrator accordingly; 7. Determine when there must be a draw under the Liquidity Facility; 8. Assist and advise the Issuer (or the Administrator appointed on behalf of the Issuer) in relation to the issue of Notes; 9. Approve the issue of Notes, in order to fund the acquisition of or investment in Participating Assets or to re-finance eisting Notes, and instruct the Administrator accordingly; 10. Procure that Note proceeds are applied by the Issuer in the acquisition of, or investment in, Participating Assets or the re-financing of Notes in issue or as otherwise permitted in accordance with the Series Priority of Payments; 11. Determine when the Issuer must enter into Hedging Transactions; 12. Approve the acquisition of, or investment in, Permitted Investments, and instruct the Administrator accordingly; 13. Ensure that the Asset Allocator is covered by the Asset Allocator's general professional indemnity, directors', officers' and fidelity insurance policies in respect of its activities under the Asset Allocation Agreement. 14. Procure and ensure that the Debt Sponsor releases a SENS announcement, where necessary; 15. Procure and ensure that the Administrator prepares all monthly and other reports to Noteholders on behalf of the Issuer; 16. Procure and ensure that the Administrator maintains the accounting records of the Issuer and provides such other administrative, bookkeeping and clerical personnel and services, as may be necessary for the affairs of the Issuer; 17. Procure and ensure that the Administrator is required to arrange that the annual financial statements of the Issuer are prepared and are audited by registered auditors; and 18. Procure and ensure that the Administrator prepares or procures the preparation and the timeous filing of all applicable ta returns which the Issuer is required to prepare and file in accordance with applicable law and regulations. The Asset Allocator may delegate the functional responsibility, but remains liable to the Issuer for performance. The appointment of the Asset Allocator may be terminated on certain Events of Default or insolvency on its part. The Asset Allocator is entitled to terminate its appointment by providing least three months prior written notice to the Issuer and Security SPV, provided that an alternative Asset Allocator is appointed. Furthermore, an Asset Allocator Termination Event will constitute an Event of Default under the Series of Notes and therefore no new Notes may be issued and no new Participating Assets may be acquired. The Asset Allocator is not responsible for any losses or to make good with Noteholders for any losses incurred by the Issuer. Administrator and Administration Agreement RMB has been appointed as the Administrator for the Transaction. The duties of the Administrator consist of: 1. Take all such actions as may be appropriate to implement the Series Transaction; 2. Deliver drawdown notices under the Liquidity Facility Agreement, following confirmation by the Asset Allocator that a draw down under the Liquidity Facility is required; 3. Take all necessary steps on behalf of the Issuer for the Issuer to acquire or invest in, the Participating Assets, and (where appropriate) dispose of the Participating Assets, in each case selected for acquisition or investment or disposal by the Asset Allocator; 4. Monitor and eercise the rights and obligations of the Issuer under the Participating Assets on behalf of the Issuer; 5. Procure that the Issuer enters into the relevant Series Transaction Documents, including, without limitation, the Series Indemnity and Series Security Cession; 6. In relation to the Series Security (if applicable): 6.1. Take all necessary steps on behalf of the Issuer to acquire the Series Security (if applicable); 6.2. In general, to manage the Series Security (if applicable) on a regular basis to ensure that the interests of the Issuer in relation to the Series Security (if applicable) are reasonably protected, including, without limitation, attending to the collection of all payments due in terms of the Series Security (if applicable) and/or the realisation of the Series Security (if applicable) subject to, and in accordance with, the provisions of the Series Transaction Documents; 6.3. Eercise all rights and perform all obligations of the Issuer in accordance with the terms of the Series Security (if applicable); and 6.4. Subject to the Terms and Conditions, use reasonable endeavours in relation to the recovery under any defaulted Series Security (if applicable), which may include attending meetings of lenders, voting at such meetings and eercising any other rights that the Issuer may have as holder of the Series Security (if applicable), 7. Perform custodial and data maintenance duties; 8. Perform duties relating to audit and other reports and certificates; 9. Perform company secretarial and other related duties; 10. Perform general cash management duties; 11. Perform payments into and out of the Series Transaction Account; 12. Perform administrator of the Series Priority of Payments; and 13. Perform transfer funds into Permitted Investments. The appointment of the Administrator may be terminated on certain Events of Default on its part. Furthermore, the Administrator is entitled to terminate its appointment by providing at least si months prior written notice to the Issuer and Security SPV, provided that an alternative Administrator be appointed. The Administrator is not responsible for any losses or to make good with Noteholders for any losses incurred by the Issuer. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 4

5 Security SPV The Vineyard Road Investments Security SPV Trust has been appointed as the Transaction Security SPV, which has been established for the purpose of holding and realising security for the benefit of the Series Secured Creditors. The Security SPV guarantees the Series Secured Creditors on the occurrence of a Guarantee Event. Should such an event occur, the Security SPV shall 1.) claim from the Issuer 2.) realise the Security, and 3.) pay each Series Secured Creditor, in accordance with the Series Guarantee in the order of Series Post-Enforcement Priority of Payments. A Guarantee Event shall be deemed to occur on the passing of an early redemption notice by the Controlling Class of Noteholders pursuant to an Event of Default; or a declaration by The Security SPV that the Notes are immediately due and payable. Similarly, a Guarantee Event shall be deemed to have occurred for a Series Secured Creditor if an Event of Default under the relevant Series Transaction Documents with the Series Secured Creditor or if the Notes are immediately due and payable. The Security SPV, under the Series Guarantee payments shall be limited to the net amount from realised recoveries. The Security SPV has two trustees. Account Bank RMB has been appointed as the Account Bank for the Transaction. RMB, acting as the Administrator, shall be the sole signatory to the Series Transaction Account (Vineyard Road Investments Series Transaction 1) unless an Enforcement Notice has been served that will cause the Security SPV to be the sole signatory to the Series Transaction Account. GCR currently rates the Account Bank as A1+ (ZA) on a short-term, and the credit rating is of sufficient credit quality not to constrain the ratings of the Notes. The Transaction makes provision for the Account Bank to be changed should the short-term rating of the bank be downgraded to below A1+ (ZA), following which remedial action will be taken. Permitted Investments The Issuer is entitled to invest funds standing in credit of the Series Transaction Account in compliance with the following: 1. Funds deposited with an Approved Entity; 2. Any debt instrument that has an A1+ (ZA) short-term rating and/or in the case of a money market fund it must have at least a AA- (ZA)(f) rating, or which is issued or secured or guaranteed by an Approved Entity; 3. Any negotiable instruments accepted, drawn or endorsed, by an Approved Entity; or 4. Investment in money market funds regulated in terms of the Collective Investment Schemes Control Act of The Permitted Investments being purchased in Rands and at or below face value. Guarantee The Issuer may issue Guaranteed Notes which will be specified in the APS. The guarantee will be a limited recourse, unconditional, irrevocable guarantee granted by the Guarantor to the Noteholders of the Guaranteed Notes. Pursuant to such Guarantee, the Guarantor undertakes in favour of each Noteholder to pay it the full amount then owing to it by the Issuer under the Guaranteed Notes, whenever it receives a demand for payment under the Guarantee from a Noteholder. LBH is the guarantor, that is unrated. The Guarantee will be held in custody by the Administrator. Priority of Payments The Transaction has a Pre-enforcement and Postenforcement Priority of Payments for each Series of Notes - see Appendi B. Therefore, any payments and or fees not related to a Series of Notes shall be made from the Series Transaction Account on a pro rata basis to the aggregate Principal Amount Outstanding of the Notes in respect of each Series Transaction at the end of each calendar month or quarter. Applicable Issuer Supplements and Applicable Transaction Supplements According to the Programme, each issuer will have its own AIS and each Series Transaction will have its own ATS. The purpose of these documents is to describe the offering, transaction structural features, terms and conditions, directorship and/or trustees. The Notes being issued will be either secured or unsecured. Each Series Transaction may have a separate Priority of Payments applicable. The current Programme Amount is R10bn. The sum of all series transactions established under the AIS may not eceed the Programme Amount. Corporate Governance The Holding Company will perform the Corporate Governance services for the Issuer. The Issuer has three directors, and requires an audit committee unless the Issuer is a subsidiary of another company that has an audit committee and the audit committee of that other company will perform the functions required in terms of the Companies Act on behalf of the Company. The Issuer is required to appoint a social and ethics committee in terms of the Companies Act, unless the Company is a subsidiary of another company that has a social and ethics committee that will perform the functions required in terms of the Companies Act on behalf of the Issuer. The Issuer shall have an independent Audit Committee that must consist of at least three independent members, unless the Issuer is a subsidiary of another company that has an audit committee; and the audit committee of that other company will perform the functions required in terms of the Companies Act on behalf of the Issuer. Capital structure The Transaction has an issued equity stake of 250 ordinary The Transaction may invest ecess cash in Permitted shares (two hundred and fifty Rand) and one issued Investments that must have a minimum short-term credit preference share (one hundred million Rand). The Unlisted rating of A1+ (ZA). Notes and the shares do not fall under the ambit of the JSE regulations. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 5

6 '09 HY '10 '10 HY '11 '11 HY '12 '12 HY '13 '13 HY '14 '14 HY '15 '15 HY '16 '16 Shares Ordinary Equity Shares Preference Share Amount R250 R100,000,000 Each of the Notes and subsequent issuances will have a different maturity profile, please review the APS of each of the Notes in issuance. The Preference Shareholder is not a Secured Creditor and will not share in the Security. Key Transaction Parties The Issuer The Issuer is a ring-fenced public company with limited liability with issued share capital of 250 (two hundred and fifty Rand) ordinary shares held by the Holding Company, and one authorised redeemable preference share with a stated capital of R100,000,000. The Issuer is structured to be an insolvency-remote special purpose vehicle that has been established in relation to the Issuer Programme that may issue various forms of Notes. The Issuer was incorporated on 20 February 2015 with limited liability in South Africa under the Companies Act. The Issuer Owner Trust is shareholder of the ordinary shares whilst LGL is the shareholder of the preference share. The Activities of the Issuer are restricted by the Series Transaction Documents and will be limited to the issue of Notes, redemption of Notes, the entry into agreements for the acquisition of and/or investment in the Participating Assets. The Issuer will seek to acquire the Participating Assets and/or issue Notes as set out in the AIS, ATS and APS, jointly referred to as the Placing Documents. The Multi- Issuer Investment Company (Pty) Ltd is the sole holder of the ordinary shares of the Issuer and thus will also fulfil the entire audit committee and social and ethics committee functions. PricewaterhouseCoopers Inc. has been appointed as the auditor of the Issuer and will conduct an audit on an annual basis. The Issuer has three directors, whilst the Administrator will provide the secretarial services. Holding Company The Holding Company, Multi Issuer Investment Company (Pty) Ltd, is a duly established and incorporated limited liability company which holds all of the ordinary shares in issued share capital of the Issuer, as specified in the AIS and/or APS. The shares of the Holding Company are in turn held by the Issuer Owner Trust. Guarantor LBH is a public company duly registered and incorporated with limited liability in accordance with the laws of South Africa under the Companies Act. LBH does not have a credit rating accorded to it, however the majority of its earnings is derived from LGL which is a wholly-owned subsidiary of LBH. LGL is a public company duly registered and incorporated with limited liability in accordance with the laws of South Africa under the Companies Act. LGL is a registered long-term insurer under the long-term Insurance Act, 52 of 1998 and a category 1 financial services provider under the Financial Advisory and Intermediary Services Act, 37 of LGL has a AAA and A1+ long-term and short-term national scale credit rating. 100% 50% 0% -50% -100% Legal Opinion LHL financial position distribution Non-current assets Non-current liabilities Equity (RHS) R'bn Current assets Current liabilities GCR received a legal opinion from Webber Wentzel dated 12 July GCR understands the following from the Legal Opinion: 1. The Issuer and Security SPV have the legal capacity, corporate power and authority to enter into the Relevant Documents to which they are a party and to perform their obligations under those documents and have taken all necessary corporate action in terms of their constitutional documents to authorise the eecution and performance of each such Relevant Document; 2. The Relevant Documentation by each entity partied thereto does not violate any eisting South African law applicable to persons generally; or the constitutional documents of each such Relevant Entity; 3. Each Relevant Document constitutes the legally binding, valid and enforceable obligations of each Relevant Entity party to it; 4. All of the relevant approvals, consents or similar authorisations have been obtained; 5. The security structure is structured for legitimate commercial reasons and should be enforceable; and 6. The Series Guarantee is likely to be regarded as an eecutory contract. The Security SPV has been structured so that the likelihood of liquidation proceedings being brought against it is remote. GCR noted that the Transaction legal opinion is subject to certain customary assumptions and qualifications. Ta Opinion GCR did not receive a ta opinion in respect of the Transaction. Rating Considerations Meaning of the Ratings of Vineyard Series Transaction 1 The rating accorded to the Class A Notes issued by VRI under its VST1 is a final, public short-term national scale rating. The rating accorded to the Class A Notes relates to timely payment of interest and principal. The Issuer may also issue Class B Notes that will be unrated. The rating ecludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. The rating is derived from the short-term credit ratings of FSR, ABL, NED, SBK and INL South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 6

7 Similarly, the Liquidity Facility is provided by LGL which is rated AAA and A1+ on a long-term and short-term national scale basis respectively. Any of the following events may prompt rating action on the Class A Notes: 1. The short-term national scale ratings of the eligible banks NCDs held by this Transaction are downgraded to below A1+ (ZA) ; 2. The short-term national scale ratings of the Account Bank, Hedge Counterparty, Liquidity Facility Provider, Permitted Investments or Administrator be downgraded to below A1+ (ZA) ; or 3. As events may warrant. Such rating action will be required given the non-granular portfolio. The first suffi code identifies to which country the rating relates; ZA means Republic of South Africa; the second suffi code sf means that the rating is of a structured finance nature. The ratings of the FSR, ABL, NED, SBK, INL and LGL will be monitored. GCR will perform regular surveillance on the Transaction. Surveillance reports will be made available to subscribers of GCR s information services. No rating sensitivities were applied to the rating due to the nature of the Transaction. Rating Criteria Application GCR has analysed the Transaction by applying its Global Master Structured Finance Rating Criteria, Global Credit- Linked Note and Repackaging Vehicle Rating Criteria and its Global Master Criteria for Rating Banks and Other Financial Institutions. The Criteria are freely available on Other Audit Opinion PricewaterhouseCoopers Inc. is the auditor of the Issuer. GCR received an audit opinion, dated 28 August 2017, stating that nothing has come to attention of the auditors to cause them to believe that the Issuer, under the Programme, pursuance to and per the Placing Documents that does not comply with the provisions of the Commercial Paper Regulations. Transaction Documents GCR has received final signed and eecuted copies of the Programme Memorandum; Administration Agreement; Agency Agreement; Asset Allocation Agreement; Bank Agreement; Common Terms Agreement; Issuer Supplement; Liquidity Facility; Programme Agreement; Series Guarantee; Series Indemnity; Series Security Cession and Transaction Supplement. Disclaimer Note that GCR is not a legal, ta or financial adviser, and only provides a credit opinion of the rated securities. For eample, a rating does not cover a potential change in laws nor can it be regarded as an audit. Moreover, GCR is not a party to the transaction documents. Users of our credit ratings should familiarise themselves with all aspects of the Transaction (including the Transaction legal opinion), and should form their own views in this respect. They should not rely on GCR for legal, ta or financial advice, and are encouraged to contact the relevant advisers. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 7

8 Appendi A Events of Default stated in the Programme Memorandum In respect of each Series Transaction, a Series Transaction Event of Default shall occur should: 1. The Issuer fail to pay any amount, whether in respect of interest, principal or otherwise, due and payable in respect of any of the Notes within three Business Days of the due date for the payment in question, to the etent permitted by available funds for that purpose in terms of the Series Priority of Payments; or 2. The Issuer fail duly to perform or observe any other material obligation binding on it under the Terms and Conditions or any of the other Series Transaction Documents, which breach is not remedied within the cure period permitted therefor in the relevant Series Transaction Document or, if no such cure period is provided (and an immediate default is not triggered under such Series Transaction Document), within 10 Business Days (or such other period as the Controlling Class Noteholders (by Etraordinary Resolution) in their reasonable discretion or the Series Security SPV (if any) in its reasonable discretion, may specify) after receiving written notice from the Controlling Class Noteholders (by Etraordinary Resolution) or the Series Security SPV (if any) or a party to the relevant Series Transaction Document requiring such breach to be remedied, and the other party to that Series Transaction Document has, as a result of such breach by the Issuer, and in accordance with the terms of such Series Transaction Document, delivered written notice to the Issuer cancelling such Series Transaction Document or demanding payment by the Issuer of amounts due and payable under such Series Transaction Document, unless the Controlling Class Noteholders (by Etraordinary Resolution) or the Series Security SPV (if any) has notified the Issuer in writing that such breach does not, in the opinion of the Controlling Class Noteholders (by Etraordinary Resolution) or the Series Security SPV (if any), have a Material Adverse Effect on the Issuer; or 3. The Issuer cease to be wholly owned by the Owner Trust or the Holding Company without the prior written consent of the Controlling Class Noteholders (by Etraordinary Resolution) or Series Security SPV (if any); or 4. If applicable, the Series Guarantee in favour of Series Secured Creditors, or any security interests in favour of the Series Security SPV (if any) pursuant to any of the Series Security Agreements be or become, or be reasonably claimed by the Series Security SPV (if any) to be or have become, wholly or partly void, voidable, illegal or unenforceable for any reason whatsoever or should any security pursuant to any of the Series Security Agreements be reasonably claimed by the Series Security SPV (if any) not to grant or cease to grant the Series Security SPV (if any) a first priority security interest over all the Series Assets; or 5. It be or become unlawful for the Issuer to perform any of its obligations under the Series Transaction Documents and the Controlling Class Noteholders (by Etraordinary Resolution) or the Series Security SPV (if any) has notified to the Issuer in writing that such event has, in their/its opinion, a Material Adverse Effect on the Issuer; or 6. The Issuer alienate or encumber any of the Series Assets (other than as provided for in terms of the Series Transaction Documents) without the prior written consent of the Controlling Class Noteholders (by Etraordinary Resolution) or the Series Security SPV (if any); or 7. An Issuer Insolvency Event occur; or 8. Any additional Series Transaction Event of Default specified in the Applicable Pricing Supplements. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 8

9 Statutory Appendi B: Priority of Payments Interest Costs/Epenses Recovery Costs due Statutory Costs/Epenses due Participatory fee Dividends Invest Dividends Principal & Principal Pay/Provide Costs/Epenses Participatory fee Dividends Invest Dividends Pre-enforcement (Notes other than Recovery Notes) Remuneration 2 Costs/Epenses 2 Costs/Epenses 2 Priority of Payment: Payee: Taation/Statutory et al. Holding Company Administrator Asset Allocator Other 1 Issuer epenses Hedge Counterparty 3 & Liquidity Facility Provider 4 Noteholders Noteholders Hedge Counterparty termination Seller to acquire Participating Assets Recovery Agent Asset Allocator Preference Shareholder Permitted Investments Ordinary shareholder Pre-enforcement (Recovery Notes) Costs/Epenses 2 Interest 2 /Principal 2 & other amounts amounts due 2 Priority of Payment: Payee: Asset Allocator Recovery Agent Hedge Counterparty Liquidity Facility Provider 4 Recovery Noteholders Post-enforcement Priority of Payment: Payee: Taation/Statutory et al. Holding Company Administrator Asset Allocator Other 1 Issuer epenses Noteholders Hedge Counterparty 3 Liquidity Facility Provider 4 Hedge Counterparty termination Asset Allocator Preference Shareholder Permitted Investments Ordinary Shareholder Remuneration 2 1. Costs, charges, liabilities and epenses incurred by the Issuer under the Series Transaction Documents, including Liquidity Facility commitment fees. 2. Pari passu and pro rata. 3. Other than costs in respect of termination payments following an event of default. 4. Interest, principal and all other amounts due and payable under the Liquidity Facility Agreement. Source: Applicable Issuer Supplement South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 9 Interest 2 /Principal 2 & other amounts Costs/Epenses 2

10 Appendi C: Transaction Diagram Liberty Holdings Ltd Guarantor Owner Multi-Issuer Owner Trust IT020780/2014 Vineyard Road Investments Security SPV Trust IT000845/2017 Owner Owner Liberty Group Ltd* Participating Assets Bank NCDs from: ABL, FSR, INL, NED, SBK Multi-Issuer Investment Company (Pty) Ltd Holding Company Owner Series Cession-in-security & Series Issuer Indemnity Security SPV Asset Allocator; Liquidity Facility; Preference Shareholder; Programme Dealer. VRI Issuer Proceeds Coupon & Principal Payment RMB AA (ZA)/A1+ (ZA) Account bank; Administrator; Arranger; Calculation agent; Paying agent; Transfer agent. Notes Noteholders Limited Recourse Guarantee Guarantee of Payment, where applicable. Guarantee: Real Rights of Security: Cash Flow or Ownership: Supportive functions: * Rated Entity South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 10

11 Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Appendi D: Eligible Banks Common Sized Statement of Financial Position (Source: Reserve Bank) 100% Absa Bank Ltd 84 75% 50% 25% % 69-25% -50% -75% % A: Central Bank Money/Gold A: Deposits Loans And Advances A: Investments And Bills A: Non-Financial Assets A: Other Assets L: Other Liabilities L: Total Liabilities - Public Equity (RHS)(R'bn) % 75% 50% 25% FirstRand Ltd % -25% -50% -75% % A: Central Bank Money/Gold A: Deposits Loans And Advances A: Investments And Bills A: Non-Financial Assets A: Other Assets L: Other Liabilities L: Total Liabilities - Public Equity (RHS)(R'bn) % 75% 50% 25% Investec Ltd % -25% -50% -75% % A: Central Bank Money/Gold A: Deposits Loans And Advances A: Investments And Bills A: Non-Financial Assets A: Other Assets L: Other Liabilities L: Total Liabilities - Public Equity (RHS)(R'bn) 23 South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 11

12 Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Appendi D: Eligible Banks Common Sized Statement of Financial Position (Source: Reserve Bank) Cont. 100% 75% Nedbank Group Ltd % 67 25% 0% -25% % 57-75% % A: Central Bank Money/Gold A: Deposits Loans And Advances A: Investments And Bills A: Non-Financial Assets A: Other Assets L: Other Liabilities L: Total Liabilities - Public Equity (RHS)(R'bn) % 75% 50% 25% The Standard Bank of SA Ltd % 90-25% 88-50% 86-75% % A: Central Bank Money/Gold A: Deposits Loans And Advances A: Investments And Bills A: Non-Financial Assets A: Other Assets L: Other Liabilities L: Total Liabilities - Public Equity (RHS)(R'bn) 82 South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 12

13 Appendi E: Eligible Banks NCD Liabilities (Source: Reserve Bank) R'bn 16 Liability % Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 ABL FSR INL NED SBK Liability 75% 50% 25% 0% R'bn 16 Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 ABL FSR INL NED SBK Liability Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Up to 1 day More than 1 day to 1 month More than 1 month to 6 months More than 6 months 100% Liability 75% 50% 25% 0% Jan '16 Mar '16 May '16 Jul '16 Sep '16 Nov '16 Jan '17 Mar '17 May '17 Up to 1 day More than 1 day to 1 month More than 1 month to 6 months More than 6 months South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 13

14 GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR'S STRUCTURED FINANCE GLOSSARY Account Bank Administration Administrator Advance Agent Agreement Applicable Pricing Supplement Arrears Asset Bond Calculation Agent Capital Cash Flow Claim Commercial Paper Corporate Governance Coupon Covenant Credit Credit Enhancement Credit Rating Credit Risk Creditor Debenture Debt Debt Sponsor Default Delegate Downgrade Drawdown Early Redemption Eligibility Criteria Enforceable Enforcement Eposure Fied Rate Notes Floating Rate Notes Guarantee Guarantor A bank where the transaction account is held. A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates' Court Act 32 of 1944 (South Africa). A transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance. A lending term, to transfer funds from the creditor to the debtor. An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal. A negotiated and usually legally enforceable understanding between two or more legally competent parties. A transaction document that describes the particulars of notes issued. General term for non-performing obligations, i.e. obligations that are overdue. An item with economic value that an entity owns or controls. A long term debt instrument issued by either: a company, institution or the government to raise funds. An agent appointed by the Issuer to calculate the: 1.) Coupon in accordance with the Applicable Pricing Supplement; 2.) Other related fees and epenses and Priority of Payments; and 3.) Transaction covenants. The sum of money that is used to generate proceeds. A financial term for monetary changes in operations, investing and financing activities. A formal request or demand. A debt security of short term nature, less than a year. Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the accountability of an entity to its stakeholders, as well as the transparency with which it operates. Interest payment on a security. A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers' activities. A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company Limited protection to a transaction against losses arising from the assets. The credit enhancement can be either internal or eternal. Internal credit enhancement may include: Subordination; over-collateralisation; ecess spread; security package; arrears reserve; reserve fund and hedging. Eternal credit enhancement may include: Guarantees; Letters of Credit and hedging. An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories. The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred). A credit provider that is owed debt obligations by a debtor. A long term debt instrument issued by either: a company, institution or the government to raise funds. An obligation to repay a sum of money. Usually as Investment bank that brings a transaction to the capital markets, similar to an Arranger. A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors. A form of novation, a change in creditor or debtor, co-operation of all parties to the agreement, both the old and new creditor or debtor. The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade. When a company utilises facilities availed by a lender. The repurchase of a bond by the issuer before it matures. Limitations imposed on the type and quality of assets that can be sold by the Originator / Servicer into the Securitisation vehicle which ensure the transaction will track the performance of historical data analysed as closely as possible. To make sure people do what is required by a law or rule et cetera. To make sure people do what is required by a law or rule et cetera. Eposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its eposure may relate to a particular product class or customer grouping. Eposure may also arise from an overreliance on one source of funding. Debt securities that have a fied interest rate over its. Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR. An undertaking for performance of another's obligations in event of default. A party that gives the guarantee. South Africa Structured Finance Analysis New Issuance Report Public Credit Rating Page 14