Johannesburg, 26 February 2019 — Global Credit Ratings (“GCR”) has affirmed the long-term national scale credit ratings accorded to the following Notes issued by Commissioner Street No. 4 (RF) Ltd (the “Issuer”) under the Metro Funding Series 2011-1 pursuant to the Commissioner Street Collateralised Note Programme:
R215,000,000 Class A5 Notes, stock code MEFSB5, due 5 January 2022………………….: ‘AA+(ZA)(sf)’ with a Stable outlook;
R465,716,739 Class A6 Notes, stock code MEFSA6, due 5 July 2026………………………..: ‘AA+(ZA)(sf)’ with a Stable outlook.
The final, public ratings accorded to the Notes issued by the Issuer relates to timely payment of interest and ultimate payment principal. The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties. The ratings have been reviewed by applying GCR’s updated Global Master Structured Finance Rating Criteria, published in September 2018, together with the updated Global Credit-Linked Note and Repackaging Vehicle Rating Criteria. Both Criteria reports are available on GCR’s website.
The Class A5 and Class A6 Notes are backed by the rights, title and interest to a loan provided by Absa Bank Limited (“Absa”) to the Borrower, eThekwini municipality in 2011 (the “Loan”), which was purchased by the Issuer using the proceeds from the issuance of the Notes. The Issuer utilises interest and principal payments made by the Borrower semi-annually to repay interest and principal on the Notes. As such, the ratings of the Notes are credit linked to the long-term national scale credit rating accorded to the Borrower. The Borrower’s rating was affirmed by GCR in November 2018.
The Issuer repaid R315m in outstanding Class A4 Notes in January 2019, resulting in the Class A4 Notes being paid in full. The outstanding balance under the eThekwini loan, together with the cash held in the Issuer’s Principal Account as at January 2019 is sufficient to make the principal repayment of the remaining Class A Notes as they mature. The loan matures in June 2026. GCR noted that there was a breach in one of the Loan covenants relating to the ‘Gross Consumer Debtor Movement’ in 2018, however, the breach was condoned as it does not impact the financial performance by the Borrower of its obligations. GCR does not consider this condoned breach to have an impact on the rating accorded to the Issuer’s Notes.
GCR reviewed the transaction documents in light of its updated Global Master Structured Finance Rating Criteria. It was noted that the provision in respect of the term to maturity of permitted investments in the documentation is not in line with GCR’s counterparty criteria. However, GCR received confirmation from Absa that all the cash held on behalf of the issuer is invested in call accounts at Absa, which is currently rated ‘A1+(ZA)’ on the short-term national scale by GCR and that the term of these deposits in each case will not exceed the next Payment Date. As such, GCR’s rating committee deemed this to have no impact on the ratings as the cash is managed in line with the rating criteria applied.
Absa performs several functions pursuant to this transaction, including that of Administrator, Hedge Counterparty and Account bank. GCR is comfortable that Absa’s current long-term national scale rating of ‘AA(ZA)’ with a Stable outlook is of sufficient credit quality to support the rating of the Notes.
NATIONAL SCALE RATINGS HISTORY
|Class of Notes|
|Primary Analyst||Secondary Analyst|
|Tinashe Mujuru||Charlene Chipoyera|
|Structured Finance Analyst||Structured Finance Analyst|
|+27 11 784 1771||+27 11 784 1771|
Sector Head: Structured Finance Ratings
+27 11 784 1771
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;
Absa Bank Limited’s Credit Rating Report – May ’18.
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
|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.|
|Advance||A lending term, to transfer funds from the creditor to the debtor.|
|Asset||An item with economic value that an entity owns or controls.|
|Commercial Paper||A debt security of short-term nature, less than a year.|
|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.|
|Derivative||A financial instrument that offers a return based on the return of another underlying asset.|
|Downgrade||The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.|
|Guarantee||An undertaking for performance of another’s obligations in event of default.|
|Guarantor||A party that gives the guarantee.|
|Hybrid||A form of security that has characteristics of various types of transaction or product.|
|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.|
|Irrevocable||Not able to be changed, reversed, recovered and final.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|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.|
|Medium Term Notes||Debt securities with a tenor ranging from 3 months to 15 years.|
|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.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|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.|
|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.|
|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.|
|Unconditional||Not subject to any conditions.|
For a detailed glossary of terms utilised please click here.
SALIENT FEATURES OF ACCORDED RATING
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 Arranger 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 rating has been disclosed to the Arranger with no contestation of the rating.
The rating above was solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the rating.
The information received from the Arranger and other reliable third parties to accord the credit rating included:
- Quarterly investor reports from January 2012 to January 2019.
Commissioner Street No. 4 (RF) Ltd – Ratings Affirmed