Announcements

Commissioner Street No. 4 (RF) Ltd – Ratings Upgraded and placed on ‘Positive’ Outlook

Commissioner Street No. 4 (RF) Ltd – Ratings Upgraded and placed on ‘Positive’ Outlook

Johannesburg, 24 October 2016 — Global Credit Ratings (‘GCR’) has upgraded the final, public long term credit ratings of the below mentioned senior secured credit linked notes (‘Notes’) and placed the ratings on ‘Positive’ outlook:

  • R250.0m Class A-4 Secured Floating Rate Notes, stock code MEFSA4, due 5 January 2019: ……..‘AA(ZA)(sf)’, Positive Outlook
  • R 65.0m Class A-4 Secured Fixed Rate Notes, stock code MEFSB4, due 5 January 2019: ………….‘AA(ZA)(sf)’, Positive Outlook
  • R215.0m Class A-5 Secured Fixed Rate Notes, stock code MEFSB5, due 5 January 2022:…………. ‘AA(ZA)(sf)’, Positive Outlook
  • R465.7m Class A-6 Secured Floating Rate Notes, stock code MEFSA6, due 5 July 2026:……………‘AA(ZA)(sf)’, Positive Outlook

RATING RATIONALE

Commissioner Street No. 4 (RF) Ltd (the “Issuer”) acquired the rights, title and interest in two loans (the ‘Loans’) provided by Absa Bank Limited to eThekwini Municipality (the “Borrower”) through an outright cession. The Loans are both amortising and pay a fixed interest rate. R1.89bn of Notes were issued on 10 October 2011. An aggregate principal amount of R489.5m of the Class A-1 and Class A-2 Notes was redeemed on 5 October 2014. Subsequently, the R405.8m Class A-3 Notes were redeemed on 5 October 2016.

The ratings of the Notes are credit linked to the local currency Long Term Public Debt credit rating of the Borrower. The performance of the Notes is predominantly linked to the ability of the Borrower to make payments due under the Loans. The ratings accorded to the Notes relate to timely payment of interest and principal. The ratings excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. GCR upgraded the national scale long term public debt rating accorded to eThekwini to ‘AA(ZA)’ on 24 October 2016, and affirmed the ‘A1+(ZA)’ short term rating, with a Positive Outlook.

If the rating of the Borrower changes then the rating of the Notes may also change. The rating of the Notes may also change if relevant risk presenting entities are not considered to be of sufficient credit quality anymore and no appropriate remedial action is undertaken when necessary. For more information please refer to the Commissioner Street No. 4 (RF) Limited Metro Funding Series 2011-1 Surveillance Report published on 24 October 2016.

RATINGS HISTORY

Stock code
Stock code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
Class A-3 Notes*
MEFSA3
7 November 2011
AA-(ZA)(sf)
n.a
Stable
Class A-3 Notes*
MEFSB3
7 November 2011
AA-(ZA)(sf)
n.a
Stable
Class A-4 Notes
MEFSA4
7 November 2011
AA-(ZA)(sf)
n.a
Stable
Class A-4 Notes
MEFSB4
7 November 2011
AA-(ZA)(sf)
n.a
Stable
Class A-5 Notes
MEFSB5
7 November 2011
AA-(ZA)(sf)
n.a
Stable
Class A-6 Notes
MEFSA6
7 November 2011
AA-(ZA)(sf)
n.a
Stable
 
 
Stock code
Stock code
Last Rating
Long Term Rating
Short Term Rating
Outlook
Class A-3 Notes*
MEFSA3
22 October 2015
AA-(ZA)(sf)
n.a
Positive
Class A-3 Notes*
MEFSB3
22 October 2015
AA-(ZA)(sf)
n.a
Positive
Class A-4 Notes
MEFSA4
22 October 2015
AA-(ZA)(sf)
n.a
Positive
Class A-4 Notes
MEFSB4
22 October 2015
AA-(ZA)(sf)
n.a
Positive
Class A-5 Notes
MEFSB5
22 October 2015
AA-(ZA)(sf)
n.a
Positive
Class A-6 Notes
MEFSA6
22 October 2015
AA-(ZA)(sf)
n.a
Positive

*Paid in full on 5 October 2016

ANALYTICAL CONTACTS

Corné Els

Senior Credit Analyst

cornee@globalratings.net

+27 11 784 1771

Bridget Masendeke

Junior Analyst

bridgetm@globalratings.net

+27 11 784 1771

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

fulcher@globalratings.net

+27 11 784 1771

APPLICABLE METHODOLOGIES

Global Credit-Linked Note and Repackaging Vehicle Rating Criteria – May ’16;

Global Master Criteria for Rating Public Entities – Feb ’16;

eThekwini Municipality Rating Announcement – Oct ’16; and

Absa Financial Institutions Rating Report – Apr’16.

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

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.
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.
Borrower The party indebted or the person making repayments for its borrowings.
Capital The sum of money that is used to generate proceeds.
Cash Flow A financial term for monetary changes in operations, investing and financing 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).
Debt An obligation to repay a sum of money.
Fixed Interest An interest rate that does not change as the repo or reference rate changes.
Fixed Rate Notes Debt securities that have a fixed interest rate over its.
Floating Rate Notes Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.
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.
Junior A security that has a lower repayment priority than senior securities.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
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.
Rating Outlook A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
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.
Securities Various instruments used in the capital market to raise funds.
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.
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.
Spread The interest rate that is paid in addition to the reference rate for debt securities.
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.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
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.
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.


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 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 Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

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

The information received from the Arranger and other reliable third parties to accord the credit ratings included:

  • Final, executed and signed transaction documents together with the relevant legal and tax opinions;
  • A spread sheet with expected transaction cash flows;
  • A spread sheet with performance triggers;
  • Quarterly investor reports from 5 January 2012 up to 5 October 2016;
  • Services Agreement between Absa Capital and Maitland Trust Limited;
  • The Borrower’s financial statements for the year ended 30 June 2016; and
  • The Issuer’s financial statements for the year ended 31 December 2015.

Commissioner Street No. 4 (RF) Ltd – Ratings Upgraded and placed on ‘Positive’ Outlook

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