Announcements

Curro Holdings Limited – GCR upgrades Curro Senior Secured Notes Ratings

Johannesburg, 20 December 2016 — Global Credit Ratings (‘GCR’) has upgraded the final, public long term ratings accorded to the following Senior Secured Notes (collectively the ‘Senior Notes’) issued by Curro Holdings Limited (the ‘Issuer’) in December 2013 and April 2014 respectively (the ‘Transaction’):

  • ZAR 150m, Senior Secured Floating Rate Notes, maturing 26 November 2018, stock code COH001………… A(ZA); Stable Outlook.
  • ZAR 125m, Senior Secured Floating Rate Notes, maturing 15 April 2019, stock code COH002…………………… A(ZA); Stable Outlook.

The abovementioned Senior Notes have been upgraded by a single notch, from a rating of ‘A-(ZA)’, following the upgrade to the corporate credit rating of Curro in May 2016. Curro also benefits from a Banking Facility/Term Funding through the Standard Bank of South Africa (‘SBSA’ or the ‘Facility Provider’) secured by the same portfolio of schools that serves as security for the Senior Notes. The facility limit is R800m.

RATING RATIONALE

Curro is a listed independent private school educator operating in South Africa, and is majority owned by PSG Group Limited (“PSG”). Since listing in 2011, the group has attained rapid growth through the development and acquisition of campuses, with it reporting a portfolio of 47 schools and more than 41,000 learners as of January 2016. Management has demonstrated an ability to effectively plan for and achieve targets, with progress significantly supported by ongoing financial backing by PSG.

The aggregate R1,075m in total debt, comprising of R275m in Senior Notes along with the SBSA Bank Facility of R800m, is secured by a portfolio of Curro Holdings Limited (‘the Issuer’s) Schools (the underlying collateral) that have a total property portfolio value of R2.2bn (based on GCR’s conservative use of property valuations). The existing Noteholders and SBSA share in the same security package and are uniformly governed from a legal perspective.

The security portfolio currently comprises of 27 school properties, with the latest addition over the review period being the acquisition and transfer of Windhoek Gymnasium (based in Windhoek, Namibia) to the Security Portfolio. GCR has received confirmation that the mortgage bond on the Windhoek Gymnasium property has been registered in favour of Curro Security SPV (Pty) Ltd (RF) (the ‘Guarantee SPV’).

The Transaction was analysed by estimating the recovery prospects arising from enforcement by the Guarantee SPV from the underlying collateral that serves as security, for the benefit of the Senior Secured Noteholders. The ratings of the Senior Notes were derived by applying a notching approach, starting from the long term corporate credit rating of the Issuer. Based on the fundamentals and prospects of the Issuer, GCR upgraded the corporate credit rating of the Issuer to ‘BBB(ZA)’ with a Stable Outlook in May 2016. Given the estimated overall recovery rate of around 95% carries the qualification ‘Excellent Recovery Prospects’, a rating uplift of three national scale notches is deemed to still be appropriate for this particular Transaction. As such, the ratings of the Senior Notes have been upgraded by one notch to ‘A(ZA)’, with a Stable Outlook.

The final, public ratings accorded to the Senior Notes relate to ultimate payment of interest and principal (as opposed to timely, akin to a loss severity rating). The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties. If the rating accorded to the Issuer changes, the ratings of the Senior Notes may also change, but potentially not in the same scale. For more information on the Transaction, please read GCR’s Curro Holdings Limited – R275m Senior Secured Notes Programme Surveillance Report to be published on 20 December 2016.

NATIONAL SCALE RATINGS HISTORY

Initial rating

COH001 Notes: A-(ZA); Stable outlook (26 November 2013)

COH002 Notes: A-(ZA); Stable outlook (17 April 2014)

Last rating

COH001 Notes: A-(ZA); Stable outlook (22 December 2015)

COH002 Notes: A-(ZA); Stable outlook (22 December 2015)

ANALYTICAL CONTACTS

Rishentra Naidoo

Senior Credit Analyst

+27 11 784 1771

rishentran@globalratings.net

Tinashe Mujuru

Junior Analyst

+27 11 784 1771

tinashem@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Head: Structured Finance Ratings

+27 11 784 1771.

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Structurally Enhanced Corporate Bonds Rating Criteria – Oct ’16;

GCR’s Global Master Criteria for Rating Corporate Entities – Feb ’16;

Curro Holdings R275m Senior Secured Notes – New Issuance Report – Apr ’14;

Curro Holdings R275m Senior Secured Notes – Tap Issuance Report – Dec ’15; and

Curro Holdings Corporate Rating Report – May ’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

Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Collateral An asset pledged as security in event of default.
Corporate Credit Rating A credit rating accorded to a corporate entity.
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.
Debt An obligation to repay a sum of money.
Enforcement To make sure people do what is required by a law or rule et cetera.
Floating Rate Notes Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.
Guarantee An undertaking for performance of another’s obligations in event of default.
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.
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.
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.
Notching A movement in ratings.
Noteholder Investor of capital market securities.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Property Movable or immovable asset.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
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.
Security Package Security offered to Noteholders for debt securities issued that should increase the recoveries in an event 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.
Stock Code A unique code allocated to a publicly listed security.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
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.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were 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 Issuer and 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 ratings have been disclosed to the Issuer and the Arranger with no contestation of the ratings.

The information received from the Arranger and other reliable third parties to accord the credit ratings included the latest Issuer’s audited annual financial statements for the year ending December 2014 and the December 2015; an overview of the Issuer’s Schools portfolio as per 30 September 2015; an updated summary of the security portfolio; a performance forecast for the period beginning December 2012 and ending December 2025; the insurance policies covering the ceded schools; the applicable Valuation Reports; legal opinion in respect of the Namibian held school; and the signed and executed transaction documents together with the relevant signed legal and tax opinions as well as the applicable signed Facility/Funding agreements.

The ratings above were solicited by the Issuer of the Transaction; and therefore GCR has been compensated for the provision of the ratings.

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