Johannesburg, 31 August 2016 — Global Credit Ratings (‘GCR’) has affirmed the final, public ‘A+(ZA)’ long term rating and ‘Stable’ outlook accorded to the following Senior Secured Notes (the ‘Notes’) issued by Delta Property Fund Limited (the ‘Issuer’) under its R2bn DMTN Programme:
- R462 million, Senior Secured Floating Rate Notes, maturing 09 December 2016, stock code DLTB02.
The rating is premised on Delta fully redeeming the Senior Secured Notes upon the pending maturity. The Issuer has indicated that the Notes will potentially be redeemed through proceeds from disposal of non-core assets and/or bank facilities. Should the Notes be refinanced, GCR would need to review the secured portfolio to assess the rating.
Delta has identified the properties at 1 & 3 Ferreira Street, Nelspruit, as non-core assets, and subsequently accepted an offer to sell both of the aforementioned properties. The sale is already underway and should be finalised by mid-October 2016, according to Delta’s management. Delta has committed and indicated that an unencumbered property from the Redefine portfolio, Hollard House & Parkade, will replace the properties that are being disposed of. As at 30 June 2016, Hollard House & Parkade had a greater open market valuation than the two assets being disposed of, subsequently increasing the value of the secured portfolio. As such, GCR has assumed, based on the timeline provided by the Issuer, that by the time the disposal is finalised, the mortgage bond over Hollard House & Parkade would have been registered in favour of the Security SPV. It should be noted that neither this substitution, nor the disposal, would result in a breach of any covenant.
The Notes were issued under the Issuer’s R2bn DMTN Programme with Nedbank Capital, a division of Nedbank Limited, as the Arranger. The rating of the Notes was derived by applying a notching up approach, starting from the long term corporate credit rating of the Issuer. Based on fundamentals and prospects of the Issuer, GCR accorded a long term national scale corporate credit rating of ‘BBB+(ZA)’ with a ‘Stable’ outlook to the Issuer. A rating uplift of three national scale notches was deemed appropriate in this particular transaction given the “Excellent Recovery Prospects”, equating to a long term national scale rating of ‘A+(ZA)’ on the Senior Secured Notes. The rating of the Notes relies on the recoveries from the properties contained within the security portfolio, which is largely constituted by offices predominately occupied by Government, with some diversification benefits drawn from the inclusion of a number of industrial properties also occupied by Government tenants.
The rating accorded to the Senior Secured Notes relates to ultimate payment of the principal and interest (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). If the ratings accorded to the Issuer change, the rating of the Senior Secured Notes may also change, but potentially not in the same scale. The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. For more information on the Transaction, please refer to GCR’s Delta Property Fund Limited R462m Senior Secured Floating Rate Notes Surveillance Report to be published on 31 August 2016.
NATIONAL SCALE RATINGS HISTORY
Senior Credit Analyst
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Sector Head: Structured Finance Ratings
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Structurally Enhanced Corporate Bonds Rating Criteria (Oct’15);
- Criteria for Rating Property Funds (May’16); Criteria for Rating Corporate Entities (Feb’16);
- Delta Property Fund Limited’s Corporate Rating Report (Jul’16);
- Delta Property Fund Limited R462m Senior Secured Floating Rate Notes – Credit Rating Announcement (Mar’16); and
- Delta Property Fund Limited R462m Senior Secured Floating Rate Notes – Surveillance Report (Apr’16).
RATING LIMITATIONS AND DISCLAIMERS
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|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.|
|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.|
|Asset||An item with economic value that an entity owns or controls.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Capital||The sum of money that is used to generate proceeds.|
|Corporate Credit Rating||A credit rating accorded to a corporate entity.|
|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.|
|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.|
|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 X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|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.|
|Lease||Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.|
|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.|
|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.|
|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.|
|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.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|Property||Movable or immovable asset.|
|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).|
|Rating Watch||Indicates that a rating is under review for possible change in the short term and the movement may be either positive or negative.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Refinance||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|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.|
|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.|
|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.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
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 information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to the Issuer and the Arranger with 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 ratings included the financials for the year ended 29 February 2016; an overview of the property portfolio serving as security for the Senior Secured Notes as per 30 June 2016; the applicable Valuation Reports effective at 29 February 2016; tenancy lease schedules as per 30 June 2016; the relevant executed Transaction documents; the relevant final signed legal and tax opinions; a letter confirming non-dual cession and a signed letter of asset substitution commitment.