Announcements

AFB (Ghana) Plc Senior Unsecured Notes – Ratings Accorded

Johannesburg, 19 August 2015 — Global Credit Rating Co. (‘GCR’) has accorded a final, public long term credit rating of ‘BBB(GH)’ with a Stable Outlook to the following debentures (the ‘Notes’), collectively referred to as the Senior Unsecured Notes:

  • GHS3,271,450
  • 3 Year Fixed Rate Senior Unsecured Notes, Series Number AFB100, due 16 July 2018;

  • GHS13,827,000
  • 3 Year Floating Rate Senior Unsecured Notes, Series Number AFB200, due 16 July 2018;

  • GHS9,456,450
  • 2 Year Floating Rate Senior Unsecured Notes, Series Number AFB300, due 17 July 2017; and

  • GHS4,000,000
  • 3 Year Floating Rate Senior Unsecured Notes, Series Number AFB400, due 3 August 2018.

    The Senior Unsecured Notes benefit from a Negative Pledge that acts as structural protection and a contractual restriction to the Notes which restricts the Issuer from creating any additional security (except for Permitted Encumbrances).

    The final, public ratings accorded to the Senior Unsecured Notes relate to 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). The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

    RATIONALE

    The Issuer is an unsecured lender licenced by the Bank of Ghana as a non-banking financial institution (‘NBFI’), having met the minimum capital requirement of GHS7m, under the Financial Institutions (Non-Banking) Law of 1993 and under the Banking Act, 2004 (Act 673) as amended under the Non-Bank Financial Institution Act, 2008 (Act 774). The Issuer has a payroll lending model targeting primarily Ghanaian government employees.

    The Issuer is required to maintain the Receivables to Net External Debt Ratio financial covenant above the 150% limit, for as long as there are Notes outstanding. The Issuer shall be required to measure the covenant within 180 days of the end of the interim or financial year end. The Receivables to Net External Debt Ratio financial covenant is expected to be measured and reported to GCR on a monthly basis.

    It is the Issuer’s intention to replace all of its USD debts with local currency debt, primarily to limit and ultimately remove the USD foreign exchange losses. The Issuer planned to use the proceeds of the Senior Unsecured Notes to repay all of the USD External Debt (Mezzanine Loan GHS27.0m as at 30 June 2015) and part of the intercompany loan from the Issuer’s Holding Company (GHS24.9m). Due to the Ghanaian Cedi appreciation against the US Dollar, the Issuer used the proceeds of the Senior Unsecured Notes, as planned, to repay all of the USD External Debt (Mezzanine Loan GHS22.9m / USD6.5m at 31 July 2015) and part of the intercompany loan (GHS3.5m / USD1.0m). The balance of the intercompany loan will be converted to equity at the calendar year end.

    The Issuer plans to increase its Medium Term Note Programme (‘MTN’) Notes in issuance (external debt) up to the Receivables to Net External Debt Ratio Financial Covenant limit of 150%. Consequently, there may be further MTN Notes issued. GCR expects to be notified in advance if any further Notes are intended to be issued in order to assess the transaction on its merits.

    The Issuer and Material Subsidiary undertake not to create any Encumbrance, other than Permitted Encumbrance, over any present or future business undertakings, assets or revenue to secure any present or future indebtedness.

    The rating of the Senior Unsecured Notes is derived by applying a notching approach, starting from the long term unsecured credit rating of the Issuer. In determining the appropriate number of rating notches to be applied, GCR compares the estimated overall recovery rate after a potential default of the Senior Unsecured Notes with an assumed average corporate senior unsecured debt obligation recovery rate. If overall estimated recoveries are higher than the assumed average recovery rate, a notching uplift may be applicable. Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rates of 83.1% carries the qualification “Superior Recovery Prospects”.

    A three notch national scale rating uplift on the Ghanaian national scale long term rating of the Issuer was deemed to be appropriate for the Senior Unsecured Notes. Accordingly, GCR has accorded a long term national scale rating to the Senior Unsecured Notes of ‘BBB(GH)’ with a Stable Outlook.

    RATINGS HISTORY

    Stock code
    Initial Rating
    Long Term Rating
    Short Term Rating
    Outlook
    AFB100
    19 August 2015
    BBB(GH)
    n.a.
    Stable
    AFB200
    19 August 2015
    BBB(GH)
    n.a.
    Stable
    AFB300
    19 August 2015
    BBB(GH)
    n.a.
    Stable
    AFB400
    19 August 2015
    BBB(GH)
    n.a.
    Stable
     
     
    Stock code
    Last Rating
    Long Term Rating
    Short Term Rating
    Outlook
    AFB100
    19 August 2015
    BBB(GH)
    n.a.
    Stable
    AFB200
    19 August 2015
    BBB(GH)
    n.a.
    Stable
    AFB300
    19 August 2015
    BBB(GH)
    n.a.
    Stable
    AFB400
    19 August 2015
    BBB(GH)
    n.a.
    Stable

    ANALYTICAL CONTACTS

    Corné Els

    Structured Finance Analyst

    CorneE@globalratings.net

    +27 11 784 1771

    Committee Chairperson

    Omega Collocott

    Sector Head: Financial Institution Ratings

    omegac@globalratings.net

    +27 11 784 1771

    APPLICABLE METHODOLOGIES AND RELATED RESEARCH

    Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – Oct ’14;

    Global Master Structured Finance Rating Criteria – Feb ’15;

    Global Consumer Asset Backed Securitisation Rating Criteria – Apr ’15;

    Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’15;

    AFB (Ghana) Plc Rating Announcement – Jul ’15.

    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

    Advance A lending term, to transfer funds from the creditor to the debtor.
    Agent 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.
    Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
    Applicable Pricing Supplement A transaction document that describes the particulars of notes issued.
    Arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
    Asset An item with economic value that an entity owns or controls.
    Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
    Capital The sum of money that is used to generate proceeds.
    Claim A formal request or demand.
    Conduit A commercial lending entity that is established to purchase assets to securitise.
    Covenant 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.
    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.
    Credit Rating Agency An entity that provides credit rating services.
    Credit Risk 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).
    Creditor A credit provider that is owed debt obligations by a debtor.
    Creditworthiness An assessment of a debtor’s ability to meet debt obligations.
    Debenture A long term debt instrument issued by either: a company, institution or the government to raise funds.
    Debt An obligation to repay a sum of money.
    Debtor The party indebted or the person making repayments for its borrowings.
    Deed A legal document that is signed and delivered, especially one regarding the ownership of property or legal rights.
    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.
    Enforceable / enforcement To make sure people do what is required by a law or rule et cetera.
    Issuer The party indebted or the person making repayments for its borrowings.
    Legal Opinion An opinion regarding the validity and enforceablity of a transaction’s legal documents.
    Lender A credit provider that is owed debt obligations by a debtor.
    Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
    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. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.
    Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
    Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
    Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
    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.
    Mortgage Loan A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
    Mortgagee A creditor under a mortgage agreement.
    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.
    Negative Pledge A pledge made by a creditor that it will not incur any debt or event that may negatively impact the transaction or entity or material subsidiary.
    Notching A movement in ratings.
    Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
    Obligor The party indebted or the person making repayments for its borrowings.
    Pledge Constituted by an agreement between the pledgor, who undertakes to deliver the article, and the pledgee, and subsequent delivery of the property in question as security for debt. A pledge is only applicable to movable property.
    Pricing A process of determining the price of a debt security.
    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.
    Provision An amount set aside for expected losses to be incurred by a creditor.
    Ranking A priority applied to obligations in order of seniority.
    Receivables General term for economic benefit derived from an asset.
    Recovery The action or process of regaining possession or control of something lost. To recoup losses.
    Redemption The repurchase of a bond at maturity by the issuer.
    Rent Payment from a lessee to the lessor for the temporary use of an asset.
    Repayment Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.
    Secured Debt Debt backed with or secured by collateral to reduce lending risk and thus the interest rate charged.
    Securities Various instruments used in the capital market to raise funds.
    Securitisation Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
    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.
    Senior Unsecured Debt Securities that have priority ahead of all other unsecured or subordinated debt for the payment in the event of default.
    Servicer A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.
    Servicing The calculation of interest and repayments, collection of repayments, advancing of loans, foreclose procedures, maintaining records and seeing that the proceeds of each loan are passed on to the respective party.
    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.
    Subordinated Debt Debt that in the event of default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.
    Taxation A source of government revenue levied on income and accruals.
    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.
    Trust Deed A deed of conveyance creating and setting out the conditions of a trust.
    Trustee 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.
    Unsecured debt Debt securities that have no collateral.
    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 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 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 Issuer 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 Issuer and other reliable third parties to accord the credit ratings included:

    • Payment Projection Rundown of the loan book as at 3 June 2015;
    • Loan Book performance from October 2013 to June 2015;
    • Signed Applicable Pricing Supplements for the Senior Unsecured Notes;
    • Executed Programme Memorandum;
    • Issuer’s Management Account/Performance Report from September 2014 to June 2015;
    • Issuer’s Audited Annual Financial Statements for 28 February 2011; 29 February 2012; 31 December 2012, 31 December 2013 and 31 December 2014;
    • Signed legal opinion on the transaction from Bentsi-Enchill, Letsa & Ankomah;
    • Signed taxation opinion on the transaction from Bentsi-Enchill, Letsa & Ankomah;
    • Trust Deed entered into between the Issuer and the Trustee; and
    • Signed Agency Agreement between the Issuer and Fidelity Bank.

    AFB (Ghana) Plc Senior Unsecured Notes – Ratings Accorded

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