Announcements Rating Alerts Structured Finance

Commissioner Street No. 10 (RF) Ltd – GCR withdraws CS002 note’s rating, affirms CS003 note’s rating at AA(ZA)(sf) and revises outlook to Negative.

Rating Action

Johannesburg, 21 December 2020 – GCR Ratings (“GCR”) has withdrawn the national scale issuer ratings for the Series 2 Notes issued by Commissioner Street No. 10 (RF) Ltd (the “Issuer”) following their payment in full on 11 December 2020. GCR has affirmed the national scale long term issue credit rating assigned to the Series 3 Notes, issued by the Issuer and revised the outlook to Negative from Stable:

Security Class Stock Code Amount Outstanding Rating Class Rating Scale Rating Outlook / Watch
Series 2 Notes CS002 nil Issue Long Term National WD n.a
Series 3 Notes CS003 R700,000,000 Issue Long Term National AA(ZA)(sf) Negative

The rating of the Series 3 Notes is credit-linked to the long-term unsecured credit ratings of the underlying Borrower and the Facility Agent.

The credit ratings accorded to the Series 3 Notes relate to timely payment of interest and timely payment of principal by their Final Redemption Date. The ratings exclude an assessment of the ability of the Issuer to pay either any (early repayment) penalties or any default interest rate penalties.

Rating Rationale

The performance of the Notes in respect of each Series is credit linked to the ability of each respective Borrower and/or Facility Agent to make the payments due in respect of the underlying security (the “Finance Asset”). As such, in its analysis GCR looks through to the long-term unsecured credit rating of the underlying Borrower, the IDC, and/or Facility Agent for the Series 3 Notes. The rating on the Series 2 Notes was withdrawn following their final Capital Redemption on 11 December 2020.

Rating sensitivities were not tested due to the nature of the Transaction being credit linked to the underlying Borrower and/or Facility Agent.

The Finance Asset in relation to the Series 3 Notes consists of the rights, title and interest in a loan provided by Absa to the respective Series Borrower. The Issuer utilised the proceeds from the issuance of the Notes to fund the purchase the Finance Assets from Absa Corporate and Investment Banking (“Absa CIB”) in respect of each Series, in accordance with the terms of the respective Sale Agreements. None of the Events of Default described in the Transaction documentation have occurred and all of each Series’ financial covenants were complied with at September 2020.

The Issuer binds itself to the Programme by executing the Applicable Issuer Supplement, which outlines the Terms and Conditions applicable to the Series of Notes issued by the Issuer. The Programme is administered by Absa CIB, a division of Absa Bank Ltd.

Regarding the Series 3 Notes, GCR looked through to the underlying Borrower’s long-term national scale credit rating, being that of the Industrial Development Corporation (“IDC”). To discharge its obligations under the Series 3 loan, the IDC makes payment to the Facility Agent’s bank account. The funds are transferred on an intraday basis by the Facility Agent to the Issuer’s Collection Account. Given the absence of replacement language should the Facility Agent be downgraded or be declared insolvent, and in light of the counterparty risk criteria embedded in GCR’s Criteria for Rating Structured Finance Transactions, Noteholders are viewed to have some exposure to the credit risk of the Facility Agent. As a result, the rating of the Series 3 Notes is credit-linked to the long-term unsecured credit ratings of both the underlying Borrower and the Facility Agent. The IDC has a long-term national scale credit rating of ‘AA+(ZA)’ with a Negative Outlook and a ‘A1+(ZA)’ short-term national scale credit rating.

Absa Bank Ltd and Absa CIB perform several supportive functions to the Transaction, including that of Administrator, Facility Agent, Account Bank and Seller. Absa’s long-term national scale credit rating was affirmed by GCR as ‘AA(ZA)’ with an outlook change from Stable to Negative, whilst maintaining the ‘A1+(ZA)’ short-term national scale credit rating. The Issuer and Security SPV are set up as bankruptcy remote vehicles with limited activities, as such, they are not considered to be risk presenting entities.

Analytical contacts

Primary Analyst Corné Els Senior Structured Finance & Securitisation Analyst
Johannesburg, ZA CorneE@GCRratings.com +27 11 784 1771
Secondary Analyst Kyle Bales Analyst: Structured Finance & Securitization
Johannesburg, ZA KyleB@GCRratings.com +27 11 784 1771
Committee Chair Yohan Assous Sector head: Structured Finance & Securitisation
Johannesburg, ZA Yohan@GCRratings.com +27 11 784 1771

Related criteria and research

Criteria for Rating Structured Finance Transactions – Sep ’18
Criteria for Rating Credit Linked Notes and Repackaging Vehicles – Nov ’18
Commissioner Street No. 10 (RF) Ltd Surveillance Ratings Announcement – Dec ’19
Criteria for Rating Financial Institutions – May ’19
Absa Bank Ltd Financial Institution Rating Report – Jul ‘20

Ratings history

Commissioner Street No. 10 (RF) Ltd

Notes Class Stock Code Review Rating Scale Rating Outlook Date
Series 3 Notes CS003 Initial National AA(ZA)(sf) Stable Outlook Jun. 2017
Last National AA(ZA)(sf) Stable Outlook Dec. 2019

Glossary

Account Bank A bank where the transaction account is held.
Administrator 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.
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.
Asset/s A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Bankruptcy Remote A feature, through real security and guarantees that reduces the enforceability of a creditor against a Special Purpose Vehicle. Typically a Security Special Purpose Vehicle should be bankruptcy remote.
Bankruptcy Court proceedings at which an individual or a company is declared unable to pay its creditors. The liabilities of a bankrupt company typically exceed its assets.
Borrower The party indebted or the person making repayments for its borrowings.
Capital The sum of money that is invested to generate proceeds.
Cash Funds that can be readily spent or used to meet current obligations.
Commission A certain percentage of premiums produced that is received or paid out as compensation by an insurer.
Conditions Provisions inserted in an insurance contract that qualify or place limitations on the insurer’s promise to perform.
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 Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
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 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Discharge Performance of obligations in a natural way according to a contractual relationship.
Downgrade The rating has been lowered on its specific scale.
Facility The grant of availability of money at some future date in return for a fee.
Financial Institution An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.
Insolvent When an entity’s liabilities exceed its assets.
Interest Rate The charge or the return on an asset or debt expressed as a percentage of the price or size of the asset or debt. It is usually expressed on an annual basis.
Interest Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
Issuer The party indebted or the person making repayments for its borrowings.
Liabilities All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Noteholder Investor of capital market securities.
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.
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.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Recourse A source of help in a difficult situation.
Redemption The repurchase of a bond at maturity by the issuer.
Repack Rearrangement of securities with the intent to be more attractive for investment. Junior tranches (that have a higher degree of default risk) of a securitisation transactions that have been repackaged into separate debt securities (according to their degree of risk) that utilise credit-enhancement techniques to mitigate the risk. A CDO is created to distribute the prepayment risk amongst different classes of Notes.
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.
Risk The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.
Securitisation A process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
Security One of various instruments used in the capital market to raise funds.
Senior A security that has a higher repayment priority than junior securities.
Short Term Current; ordinarily less than one year.
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.
Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
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.

For a detailed glossary of terms utilised in this announcement please click here.

Salient Points 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, securities or financial instruments being rated; and c.) such rating were an independent evaluation of the risks and merits of the rated entity, securities or financial instruments.

The credit ratings have been disclosed to the Absa CIB. The rating was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings. The rated entity participated in the rating process via face-to-face management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The information received from Absa CIB and other reliable third parties to accord the credit rating included:

  • Management Report packs to September 2020;
  • IDC Compliance Certificate dated 06 December 2019 for the measurement period ending 30 September 2019;
  • IDC Compliance Certificate dated 15 October 2020 for the measurement period ending 31 March 2020;
  • IDC Compliance Certificate dated 27 November 2020 for the measurement period ending 30 September 2020;
  • Telkom SA SOC Ltd Compliance Certificate dated 10 December 2019 for the measurement period ending 30 September 2019;
  • Telkom SA SOC Ltd Compliance Certificate dated 6 July 2020 for the measurement period ending 31 March 2020;
  • Telkom SA SOC Ltd Compliance Certificate dated 30 November 2020 for the measurement period ending 30 September 2020; and
  • SENS announcements.

SOEVER.

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