Johannesburg, 21 May 2019 — GCR Ratings (“GCR”) has upgraded the final, public long-term credit rating accorded to the Notes issued under Series 2 by Commissioner Street No. 10 (RF) Ltd (the “Issuer”) to ‘AA+(ZA)(sf)’ from ‘AA(ZA)(sf)’ and maintained the Stable Outlook. GCR concurrently downgraded the final, public long-term credit rating accorded to the Notes issued under Series 3 by the Issuer to ‘AA(ZA)(sf)’ from ‘AA+(ZA)(sf)’ and maintained the Stable Outlook.
- Series 2 Notes, due 17 December 2020; ‘AA+(ZA)(sf)’ with a Stable Outlook.
- Series 3 Notes, due 12 August 2021; ‘AA(ZA)(sf)’ with a Stable Outlook.
The rating of the Series 2 Notes is credit-linked to the long-term unsecured credit ratings of the underlying Borrower. 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 ratings accorded to the Notes relate to timely payment of interest and ultimate payment of principal. The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties.
GCR Methodology update
GCR has reviewed the ratings of the abovementioned securities using its updated Global Master Structured Finance Rating Criteria (September 2018) and its Global Credit-Linked Note and Repackaging Vehicle Rating Criteria (November 2018) (“Criteria”). Both Criteria are deemed applicable to these Transactions – Series 2 Notes and Series 3 Notes. GCR noted no discrepancies from the Criteria in regard to the Series 2 Notes. However, a discrepancy from the Criteria in regard to the Series 3 Notes resulted in a one notch downgrade of their rating.
RATING RATIONALE
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 Corporate and Investment Banking (“Absa CIB”), a division of Absa Bank Ltd. The Notes were issued in two (three initially) separate Series, whereby the assets and liabilities in relation to each Series are ring fenced, such that the Noteholders in respect of any Series of Notes will have no recourse to the assets from any other Series of Notes.
The underlying security (the “Finance Assets”) in relation to each Series consists in the rights, title and interest in loans provided by Absa to the respective Series 2 and Series 3 borrowers. The Issuer utilised the proceeds from the issuance of the Notes to fund the purchase of the Finance Assets from the Absa CIB in respect of each Series in accordance with the terms of the respective Sale Agreements. None of the Event of Defaults described in the transaction documentation have occurred and all of each Series’ financial covenants were complied with as at November 2018.
The rating of the Series 2 Notes was derived from the long-term national scale credit rating accorded by an international rating agency to the Series 2 Borrower.
Regarding the Series 3 Notes, GCR considered the underlying Borrower’s long-term national scale credit rating, being 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. GCR has been advised that such 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 even insolvent, and in light of its counterparty risk criteria embedded in its Global Master Structured Finance Rating Criteria, GCR is of the view that the Noteholders are also exposed to 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. Absa Bank Limited, the Facility Agent, has a long-term national scale credit rating of ‘AA(ZA)’ with a Stable Outlook.
R50m quarterly redemption payments are made under the CS002 Notes. The last R50m principal payment to the CS002 Notes was made on 18 March 2019 resulting in R350m worth of Notes being outstanding. As a result, R1.05bn of Financial Assets are outstanding (R700m and R350m). December 2018 cash balances were reported at R875,000.
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 a Stable outlook 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.
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 Finance Assets. As such, in its analysis GCR looks through to the long-term unsecured credit ratings of the underlying Borrowers and/or Facility Agent in respect of each Series. GCR relied on publicly available credit ratings to determine the rating of each Series of Notes. No rating sensitivities were applied to the ratings due to the nature of the Transaction being credit linked to the underlying Borrowers and/or Facility Agent.
NATIONAL SCALE RATINGS HISTORY
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| Series 2 Notes | ||||
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| Series 3 Notes |
ANALYTICAL CONTACTS
Primary analyst Secondary analyst
Corné Els
Senior Structured Finance & Securitisation Analyst
+27 11 784 1771
corneE@GCRratings.com
Committee Chairperson
Yohan Assous
Sector Head: Structured Finance & Securitisation
+27 11 784 1771
yohan@GCRratings.com
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Structured Finance Rating Criteria – Sep ’18;
Global Credit-Linked Note and Repackaging Vehicle Rating Criteria – Nov ’18;
Global Master Criteria for Rating Banks and Other Financial Institutions – Mar ’17;
Criteria for Rating Corporate Entities – Feb ’18,
Commissioner Street No. 10 (RF) Ltd New Issuance Report – Jun ’17 with reference to the publicly available ratings for Telkom and the IDC.
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 AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. 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 process was influenced by any other business activities of the credit rating agency; b.) the ratings are 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 Arranger participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to the Issuer.
The information received from the Arranger and other reliable third parties to accord the credit ratings included:
- Management Report packs for May 2018 to November 2018;
- SENS announcement listing the 18 March 2019 payments;
- STRATE payment confirmation of the 18 December 2018 CS002 interest and capital payment;
- IDC Compliance Certificate dated 1 August 2018 for the measurement period ending 31 March 2018; and
- Telkom SA SOC Ltd Compliance Certificate dated 22 November 2018 for the measurement period ending 20 September 2018.
The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE 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. |
| Agreement | A negotiated and usually legally enforceable understanding between two or more legally competent parties. |
| Asset | An item with economic value that an entity owns or controls. |
| Bankruptcy | Court proceedings at which an individual or a company is declared unable to pay its creditors. The liability of a bankrupt company typically exceeds its assets. |
| 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. |
| Borrower | The party indebted or the person making repayments for its borrowings. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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. |
| 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. |
For a detailed glossary of terms please click here