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Securitisation Symposium SAHL Case Study by S imon Stockley 27 th September 2002

Securitisation Symposium SAHL Case Study by S imon Stockley 27 th September 2002. Presentation Summary…. Securitisation Checklist What you need to know P ricing. Overview : SAHL What is SAHL? Activities since launch. Securitisation Defined Global growth Structure. Case Study

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Securitisation Symposium SAHL Case Study by S imon Stockley 27 th September 2002

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  1. Securitisation Symposium SAHL Case Study by Simon Stockley 27th September 2002

  2. Presentation Summary… • Securitisation Checklist • What you need to know • Pricing • Overview : SAHL • What is SAHL? • Activities since launch • Securitisation • Defined • Global growth • Structure • Case Study • Product • Positioning • Funding

  3. “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 personever enjoyed visiting a bank” Martin Mayer

  4. 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?

  5. l It is a management organisation that links institutional investors with borrowers. 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. l What is SA Home Loans?

  6. 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

  7. 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

  8. Securitisation Defined The effect then is ……. The conversion of illiquid individual loans to marketable securities, which are generally asset backed.

  9. 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.

  10. EMBEDDED VALUE SOCIAL HOUSING LOANS EXPORT RECEIVABLES SUB-PRIME AUTO LOANS BOAT LOANS STUDENT LOANS HEALTH CARE RECEIVABLES EQUIPMENT LEASES DELINQUENT TAXES INSURANCE PREMIA ENTERTAINMENT RECEIVABLES RV’s COLLATERAL MORTGAGE OBLIGATIONS AUTO LOANS UTILITY RECEIVABLES SMALL BUSINESS LOANS ROAD TOLLS HOME EQUITY LOANS COMMERCIAL MORTGAGES CREDIT CARDS TRADE RECEIVABLES LOTTERY RECEIVABLES Early 1980’s Mid 1980’s Late 1980’s Early 1990’s Mid 1990’s 1970’s USA UK Canada FRANCE SPAIN NETHERLANDS VENEZUELA MEXICO GERMANY, ITALY, TURKEY, ARGENTINA, BRAZIL, INDONESIA, MALAYSIA, THAILAND, SOUTH KOREA, PHILLIPINES, CHINA ETC. Geographic Expansion & Product Innovation Securitisation RESIDENTIAL MORTGAGES

  11. Banks - cash rich. l l Big is best. l Rating agencies. l Exposure to international markets. Historically little incentive for banks to securitise. l Structural Impediments

  12. l Banks Act. l Government Notice 153 as published inGovernmentGazette No 13723 - 3 January 1990. l Government Notice 2172 aspublished in Government Gazette No 16167 –14 December 1994. l Tacit approval / endorsement / co-operation. l New Regulations/January 2002 Basle Accord. Legal Impediments

  13. l Need to originate. l Time to originate. l Cost associated with origination. Registration process. Costs of transferring assets. l Origination Impediments

  14. l Lack of silver bullet applications. l Costs. l Integration. Information Technology Impediments

  15. l The product. l Its positioning. l Funding. SA Home Loans A case study

  16. 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. The Product

  17. Positioning

  18. How much will I save monthly? Get a discount on your home loan – for life

  19. Traditional Bank Funding Reserving Requirements Loans To Public Deposits Bank Margin : 4 - 5%

  20. Securitisation Structure Control Independent Trustee External Auditor Senior Securities Special Purpose Vehicle Trust Loans To the Public Institutional Investors Public Subordinated Securities JIBAR Rate Plus 2.1% Purchase Securities 1.6% Yield pick up Origination & Management Fee : 0.5%

  21. SECURITIES AND AGREEMENTS THE PUBLIC SA HOME LOANS SPECIAL PURPOSE VEHICLES MORTGAGE BACKED SECURITIES INSTITUTIONAL INVESTORS Public Senior MBS SPV INVESTORS Junior MBS Public Senior MBS Public SPV Junior MBS Public Senior MBS INVESTORS SPV Public Junior MBS Short Term Insurer MARKET MAKER Life Insurer Auditors Interim Funder External Directors SAHL SAHL Legal Structure

  22. A Class 92 % AAA Rating JIBAR + 70 Points Thekweni I Special Purpose Vehicle R1.25 Billion Public B Class 8 % BBB Rating JIBAR + 230 Points C Class 2.5 % Unrated 0.5% Management Fee Loans JIBAR + 2.1% SAHL Pay away 1.6% to investors Standard Bank Deloitte & Touche Standby Administrator Investment Structure

  23. SecuritisationA Practical Guide • Size does count • Quality of data • System reporting ability • Time, money, personnel • Timing – Market conditions • Ratings • Pricing

  24. Thank you. Simon Stockley (Pty) Ltd CEO - SA Home Loans Phone : (031) 560 5392 Fax : (031) 562 4266 Cell no : 083 276 0068 e-mail : simons @ sahomeloans .com

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