Announcements

Curro Holdings Limited – Senior Secured Notes, final, public ratings affirmed

Johannesburg, 22 December 2015 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term ratings of ‘A-(ZA)’ with ‘Stable’ Outlooks accorded to the 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 affirmation of the abovementioned notes stems from Curro entering into a new Term Funding agreement which will see the Banking Facilities/Term Funding secured by the same portfolio of schools securing the Senior Notes increasing in size from R450m to R800m.

RATING RATIONALE

The aggregate R1,075m in total debt, comprising of R275m in Senior Notes along with the respective Bank Facilities 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 R2.1bn. The existing Noteholders, and Standard Bank South Africa (‘SBSA’) (the ‘Facility Provider’) acceded to changes in the transaction documentation; thus the Senior Notes and the Facilities/Term Funding will be uniformly governed from a legal perspective.

The Transaction was analysed by estimating the recovery prospects arising from enforcement by Curro Security SPV (Pty) Ltd (RF) (the ‘Security SPV’) of the underlying collateral that serves as security for the benefit of the Senior Secured Noteholders. The ratings of the Senior Notes was derived by applying a notching approach, given the recovery prospects, starting from the long term corporate credit rating of the Issuer. Based on fundamentals and prospects of the Issuer, GCR has accorded a ‘BBB-(ZA)’ long term national scale corporate credit rating with a ‘Positive’ outlook to the Issuer. A rating uplift of 3 national scale notches was deemed appropriate in this particular transaction, given the “Excellent Recovery Prospects” equating to a ‘A-(ZA)’ rating on the Transaction.

The final, public ratings accorded to the Senior Notes relates 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 ratings accorded to the Issuer change, the rating of the Senior Notes may also change, but potentially not in the same scale. For more information on the Transaction, please read GCR’s Tap-Issuance Report on this Transaction to be published on 22 December 2015.

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 (30 September 2015)

COH002 Notes: A-(ZA); Stable outlook (30 September 2015)

ANALYTICAL CONTACTS

Mark Vrdoljak

Credit Analyst

+27 11 784 1771

markvrd@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 ’15;

GCR’s Global Master Criteria for Rating Corporate Entities – Feb ’15;

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

Curro Holdings Corporate Rating Report – May ’15.

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

Applicable Pricing Supplement A transaction document that describes the particulars of notes issued.
Average Life The average lifetime of an asset or obligation. Typically measured from origination to cancellation or termination date.
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.
Co-arranger Arrangers who share responsibility of a transaction.
Corporate Credit Rating A credit rating accorded to a corporate entity.
Credit Rating A rating accorded to the performance of either ultimate or timely payment of obligations.
Credit Rating Agency A party that provides an opinion on the credit quality of assets, debt securities and companies.
Credit Risk The probability or likelihood that a borrower will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).
EBITDA Earnings before interest, taxes, depreciation and amortisation.
Executed Documents Final signed transaction documents.
Floating Rate Notes Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.
Insolvency A debtor unable to pay a judgement of debt or who cannot meet its financial obligations and does not have sufficient realisable assets that can be attached in satisfaction of judgement or obligations. The debtor can apply for an administration order interims of the Magistrates’ Court Act 32 of 1944 (South Africa).
Irrevocable Not able to be changed, reversed, recovered and final.
JIBAR Johannesburg Interbank Agreed Rate. A reference rate.
Legal Opinion An opinion regarding the validity and enforceable of a transaction’s legal documents.
Lien A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made.
Liquidity Risk The risk that a financial instrument cannot be traded on its market price due to the size of the market.
Negative Pledge A pledge made by a creditor that it will not incur any debt or event that may negatively impact the transaction or entity or material subsidiary.
Novation An agreement between a creditor and debtor, where the old agreement is extinguished and a new obligation is created in its place.
Owner Trust Owner of a securitisation vehicle that acts in the best interest of the Noteholders.
Pari Passu Side by side; at the same rate or on an equal footing.
Property Movable or immovable asset.
Rated Securities Debt securities that have been accorded a credit rating.
Rating Outlook A Rating Outlook indicates the potential direction of a rating over the medium term, typically a one to two years period. 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).
Real Security Obtained by a creditor when either as a consequence of agreement with a debtor or operation of law, the creditor acquires the right to be reimbursed from the proceeds of movable or immovable property of the debtor in the event of the debtor default.
Reference Rate A rate that is the basis of the calculation such as JIBAR.
Securitisation Vehicle A Special Purpose Vehicle that has been created to guarantee the performance of the obligations of the Issuer that sold its assets to the Guarantee SPV.
Special Purpose Vehicle A Special Purpose Vehicle that has been created to guarantee the performance of the obligations of the Issuer that sold its assets to the Guarantee SPV.
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.
Tranche In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.
Unsecured Claim Unsecured debt.
Weighted Average An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities.

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 Issuer and 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 credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating; however, the Arranger did contest the use of replacement cost for the value of the security. Resultantly, through discussion and a panel vote, the Open Market Values were used as the basis for the value of the security. Following this, given discrepancies in desktop valuations an extensive engagement between GCR, Appraisal Corporation, Quadrant Properties, Curro and PSG took place so as to allow GCR to gain a deeper understanding of the valuation process and the value of the schools portfolio.

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 interim financials for the 6 month period ended 30 June 2015; an overview of the Issuer’s Schools portfolio as per 30 September 2015; a performance forecast for the period beginning December 2012 and ending December 2025; the insurance policies covering the ceded schools; the applicable Valuation Reports; 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 rating/s 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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