Announcements

Adcorp Holdings Limited – Existing Ratings Affirmed, Rating Watch Negative Withdrawn

Johannesburg, 15 August 2014 — Global Credit Rating Co. (‘GCR’) has affirmed the final, public short term rating of ‘A1(ZA)’ and withdrawn the Rating Watch Negative previously accorded to the following Senior Secured Notes issued on 25 February 2014:

• R100m Secured Commercial Paper, stock code ADCP06, maturity 25 August 2014 (“Secured Commercial Paper”).

Concurrently, GCR has also affirmed the final, public long term ratings of ‘A(ZA)’, withdrawn the Rating Watch Negative and accorded a Stable Outlook to the following Senior Secured Notes:

• R400m 5 Year Secured Term Notes, stock code ADCB01, maturing 8 March 2018 (“5 Year Secured Term Notes”); and

• R100m 3 Year Secured Term Notes, stock code ADCB02, maturing 31 July 2016 (“3 Year Secured Term Notes”).

The rating of the ZAR100m, Secured Commercial Paper, stock code ADCP06, is valid until 25 August 2014.

The ratings of the ZAR400m, Secured Term Notes, stock code ADCB01 and ZAR100m, Secured Term Notes, stock code ADCB02, are valid until November 2014 unless an earlier rating is conducted on the Secured Commercial Paper or Secured Term Notes.

The Secured Term Notes and the Secured Commercial Paper are collectively referred to as the Group 1 Notes.

RATING RATIONALE

The rating of the Group 1 Notes is derived by applying a notching approach, starting from the long term unsecured corporate credit rating of Adcorp (‘BBB(ZA)’) with a rating uplift of three national scale notches deemed appropriate for the Group 1 Notes. The ratings of the Group 1 Notes incorporate the recoveries from the ceded trade receivables. The ratings accorded to the Group 1 Notes relate to the ultimate (as opposed to timely, akin to a loss severity rating therefore) repayment of the principal and interest.

The Debtors Cover Ratio reached an all-time low of 1.50x as at 31 May 2014, followed by an all-time high of 2.86x as at 30 June 2014. This is largely due to Adcorp reducing their Interest Bearing Debt from R788.6m in May 2014 to R614.0m in June 2014. It is Adcorp’s intention to raise short term instruments on an unsecured basis. The Interest Bearing Debt portion of the Debtors Cover Ratio calculation does not include unsecured encumbrances of any sort as defined in the Finance Documents.

Although the debtors book changes on a month to month basis and the high concentration of debtors are factors that was considered for the Rating Watch Negative. GCR expects the Debtors Cover Ratio covenant to remain within an acceptable range above the covenant limit until the next review date primarily because of the change in Adcorp’s short term funding strategy. Accordingly, GCR has withdrawn the Rating Watch Negative previously accorded to the Group 1 Notes and accorded a Stable Outlook to the Secured Term Notes.

On 19 May 2014 Adcorp announced that they acquired 29.8% of Kelly Group Limited (‘Kelly’) shares and submitted an expression of interest to Kelly’s board of directors to acquire the balance of the issued shares. On 26 June 2014, Adcorp announced that they authorised 8 750 000 ordinary unlisted shares, which were placed under the control of the directors for the purpose of funding the purchase consideration for the acquisition of up to 100% of Kelly Group Limited.

RATINGS HISTORY

Stock code

Initial Rating

Long Term Rating

Short Term Rating

Outlook/Rating Watch

ADCB01

8 March 2013

A(ZA)

n.a

Stable Outlook

ADCB02

11 October 2013

A(ZA)

n.a

Stable Outlook

ADCP06

25 February 2014

n.a

A1(ZA)

Rating Watch Negative

Stock code

Previous Rating

Long Term Rating

Short Term Rating

Rating Watch

ADCB01

20 May 2014

A(ZA)

n.a

Rating Watch Negative

ADCB02

20 May 2014

A(ZA)

n.a

Rating Watch Negative

ADCP06

20 May 2014

n.a

A1(ZA)

Rating Watch Negative

ANALYTICAL CONTACTS

Analyst
Corné Els
Analyst
+27 11 784 1771
CorneE@globalratings.net

Committee Chairperson
Emma-Jane Fulcher
Head: Structured Finance Ratings
+27 11 784 1771
fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – Oct ’13;
Adcorp Holdings Limited Senior Secured Term Notes Surveillance Report – May ’14;
Global Master Criteria for Rating Corporate Entities – Aug ’13;
Adcorp Holdings Limited Rating Report – Nov ’13

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.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of info received was considered adequate and has been independently verified where possible.

The rating/s above were solicited by the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.

The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.

The information received from the Arranger / Issuer:
• Historical trade receivables data of the total and ceded portfolio from January 2008 to June 2014;
• Debtors aging statistics for the abovementioned period;
• Provisions for bad debts and actual write-offs from provisions for the abovementioned period;
• Monthly collections for the abovementioned period;
• Audited financial statements of the Issuer for the year ended 28 February 2014 and year-to-date (June 2014) management accounts;
• Adcorp Holdings Credit Policy, credit application and terms & conditions;
• Compliance Certificate dated 30 June 2014; and
• Adcorp Legal Report as at 4 August 2014.

GLOSSARY OF TERMS/ACRONYMS USED AS PER GCR’S STRUCTURED FINANCE GLOSSARY IN THIS ANNOUNCEMENT

Bad Debt

Amounts in arrears, i.e. overdue, and often classified as defaulted or written-off.

Commercial Paper

A debt security of short term nature, less than a year.

Corporate Credit Rating

A credit rating accorded to a corporate entity.

Credit Rating

A rating accorded to the performance of either ultimate or timely payment of obligations.

Credit Rating Agency

A party that provides an opinion on the credit quality of assets, debt securities and companies.

Credit Risk

The probability or likelihood that a borrower will not meet it’s debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).

Lien

A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made.

Liquidity Risk

The risk that a financial instrument cannot be traded on it’s market price due to the size of the market.

Long Term Rating

A credit rating based on the opinion of the ability to repay long term (more than a year) obligations.

Property

Movable or immovable asset.

Rating Watch

Indicates that a rating is under review for possible change in the short-term and the movement may be either positive or negative.

Short Term Rating

A credit rating based on the opinion of the ability to honour short term (less than a year) obligations.

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.

Trade Receivables

A legally enforceable claim for payment to a business by its customer or clients for goods supplied and or services rendered in execution of the customer’s order.

Adcorp Holdings Limited – Existing Ratings Affirmed, Rating Watch Negative Withdrawn

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