Accelerate Property Fund Ltd Senior Secured Notes – Final Ratings Accorded and Existing Ratings Affirmed
Johannesburg, 25 August 2017 — Global Credit Ratings (“GCR”) has accorded final, public long-term national scale credit ratings of ‘AA-(ZA)’ with a ‘Stable’ outlook to the following Senior Secured Notes (the “New Notes”) issued by Accelerate Property Fund (“Accelerate” or the “Issuer”) on 24 August 2017:
- R325.00m Senior Secured Notes, stock code APF05, margin 3M JIBAR + 1.89%, due 24 August 2020;
- R200.00m Senior Secured Notes, stock code APF06, margin 3M JIBAR + 2.14%, due 24 August 2022.
Concurrently, GCR has affirmed the final, public long term national scale credit ratings of ‘AA-(ZA)’ and ‘Stable’ outlooks accorded to the following Senior Secured Notes (collectively the “Existing Notes”) previously issued by Accelerate under its R5bn DMTN Programme:
- R86.04m Senior Secured Notes, stock code APF01, coupon 3M JIBAR + 1.70%, due 26 September 2017;
- R285.00m Senior Secured Notes, stock code APF02, coupon 3M JIBAR + 2.30%, due 26 September 2019;
- R452.00m Senior Secured Notes, stock code APF03, coupon 3M JIBAR + 1.75%, due 7 August 2018;
- R225.00m Senior Secured Notes, stock code APF04, coupon 3M JIBAR + 2.30%, due 21 October 2021.
The New Notes and the Existing Notes (collectively referred to as the “Senior Secured Notes”) were issued under Accelerate’s R5bn Domestic Medium Term Note Program (“DMTN” or the “Programme”). The Issuer has confirmed that the proceeds from the issuance of the New Notes were utilised to partially redeem the APF01 Notes (R177.96m repayment) which are scheduled to mature on 26 September 2017, as well as to repay Permitted Term Facilities (R347.04m repayment) maturing in December 2017 and 2018.
The final, public ratings accorded to the Senior Secured Notes relate to the ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity) by the final maturity date of the Senior Secured Notes, respectively.
GCR has received satisfactory final signed transaction documents relating to the issuance of the New Notes, including updated legal and tax opinions.
SUMMARY RATING RATIONALE
Accelerate is a mid-sized Real Estate Investment Trust (“REIT”) that listed on the JSE in December 2013. As at 31 March 2017 Accelerate’s portfolio comprised of 69 properties, with nine of them offshore, having an aggregate value of R11.6bn. The fund’s focus is to maintain a strong retail bias and as at 31 March 2017, 56% of the fund’s aggregate gross lettable area (“GLA”) in South Africa was made up of retail properties. The remainder of the fund’s GLA was split between office (29%) and industrial (15%), with around 65% of the fund’s revenue coming from large national tenants. GCR affirmed Accelerate’s local currency national scale corporate credit ratings of ‘BBB+(ZA)’ and ‘A2(ZA)’ on the long and short term respectively, with a Stable Outlook, in August 2017.
The Senior Secured Notes, together with the Permitted Term Facilities and Permitted Hedging Facilities are currently secured against 45 properties of the Issuer (the “Secured Properties”). The Senior Secured Noteholders, the Permitted Term Facility Providers and the Permitted Hedging Facility Counterparty (collectively the “Secured Lenders”) will share pro rata in the underlying security (being the first ranking mortgages in favour of the Security SPV over the Secured Properties and a cession of all the Issuer’s lease agreements and insurance policies relating to the Secured Properties).
Accelerate has advised GCR that one of the properties in the secured portfolio (Tyger Manor) is in the process of being sold, with the agreed purchase price resulting in a profit relative to the latest external valuation of the property. The proceeds from the sale will be utilised to reduce debt in the SPV. Accelerate also disposed of two other properties from the secured portfolio (Venter Center and Highveld Centurion) in the period leading up to March 2017.
The Secured Properties portfolio has significant concentration towards two properties (Cedar Square and Fourways Mall), which comprise approximately 51% of the latest aggregate external market value of the Secured Properties (albeit comprising a lower 42% and 27% of aggregate annual gross rentals and GLA respectively). This is expected to increase post the development which is currently taking place in the Fourways node.
The rating of the Senior Secured Notes is derived by applying a notching approach, starting from the long term, ‘BBB+(ZA)’, senior unsecured, corporate credit rating of the Issuer. A rating uplift of 4 national scale notches was deemed to still be appropriate for the Transaction, given the “Superior Recovery Prospects”. Should overall estimated recovery rate calculations decline to the lower end of the recovery range, then the ratings accorded to the Senior Secured Notes may potentially be notched downwards.
For more information on the Transaction and ratings accorded to the Senior Secured Notes, please refer to the “Accelerate Property Fund – Senior Secured Notes New Issuance Report”, to be published on 25 August 2017. The New Issuance Report will be available to subscribers of GCR’s Structured Finance subscription service. GCR analysed the Transaction by applying its Criteria for Rating Property Funds (Feb’17); Criteria for Rating Corporate Entities (Feb’17); Global Structurally Enhanced Corporate Bonds Rating Criteria (Sep’16); with reference to Accelerate Property Fund Ltd Corporate Rating Report (Aug’17), Accelerate Property Fund Ltd Senior Secured Notes New Issuance Report (Sep’14) and subsequent Tap Issuance Report (Oct’16).
The criteria reports are available for download on the GCR website.
NATIONAL SCALE RATINGS HISTORY
Structured Finance Analyst
+27 11 784 1771
Senior Structured Finance Analyst
+27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Structurally Enhanced Corporate Bonds Rating Criteria (Sep’16);
- Criteria for Rating Property Funds (Feb’17); Criteria for Rating Corporate Entities (Feb’17);
- Accelerate Property Fund Ltd Corporate Rating Report (Aug’17)
- Accelerate Property Fund Ltd Senior Secured Notes – New Issuance Report (Sep’14);
- Accelerate Property Fund Senior Secured Notes – Tap Issuance Reports (Oct’16).
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS . IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Corporate Credit Rating||A credit rating accorded to a corporate entity.|
|Coupon||Interest payment on a security.|
|Credit||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|
|Credit Rating||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.|
|Debt||An obligation to repay a sum of money.|
|Default||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 X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Gross Lettable Area||Used in commercial property to indicate the amount of floor space rented or available for rental.|
|Hedging||A financial risk management process or function to take a market position to protect against an eventuality. Taking an offsetting position in addition to an existing position. The correlation between the existing and offsetting position is negative.|
|Insurance||Provides protection against a possible eventuality.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Lease||Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Notching||A movement in ratings.|
|Noteholder||Investor of capital market securities.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|Property||Movable or immovable asset.|
|Ranking||A priority applied to obligations in order of seniority.|
|Rating Outlook||A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Real Estate||Property that consists of land and / or buildings.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Refinance||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Rent||Payment from a lessee to the lessor for the temporary use of an asset.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Stock Code||A unique code allocated to a publicly listed security.|
|Structured Finance||A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.|
|Transaction||A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.|
|Trust||A third party that acts in the best interest of another party, according to the trust deed, usually the investors. Owner of a securitisation vehicle that acts in the best interest of the Noteholders.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Issuer participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to the Issuer and Arranger, with no contestation of the ratings.
The information received from the Issuer and other reliable third parties to accord the credit ratings included:
The ratings above were solicited by the Issuer of the transaction; GCR has been compensated for the provision of the ratings.