A portion of Vukile’s property portfolio serves as security for the R1.02bln Senior Notes (the ‘Transaction’). The Transaction entails the public listing of the Senior Notes on the Interest Rate Market of the Johannesburg Stock Exchange and forms part of a newly established R5bln Domestic Medium Term Note Programme. The Transaction sponsor is FirstRand Bank Limited, acting through its Rand Merchant Bank division (‘RMB’). RMB also serves as the arranger for the transaction.
The Transaction was analysed by calculating the estimated recoveries arising from an enforcement by Vukile Security SPV 1 Trust (the ‘Security SPV’) of a guarantee provided by the Vukile Security Company No. 1 (Pty) Ltd (the ‘Guarantee SPV’). The guarantee provided by the Guarantee SPV is backed by security which includes, amongst others, the registration of first ranking continuing coverage mortgage bonds (relating to the properties that have been chosen to serve as security in the Transaction) in favour of the Guarantee SPV, the underlying lease agreements and the insurance policies and proceeds relating to the properties that serve as security in the Transaction.
The rating of the Senior Notes is derived by applying a notching approach, starting from the long term senior unsecured corporate credit rating of Vukile. In determining the appropriate number of rating notches to be applied, GCR compares the estimated overall recovery rate after a potential default of the Senior Notes with an assumed average corporate senior unsecured debt obligation recovery rate. If overall estimated recoveries are higher than the assumed average recovery rate, a notching uplift may be applicable. Under such a scenario, the recovery prospects on the Senior Notes is deemed to be commensurate with a 3 notch national scale rating uplift from the long term senior unsecured corporate credit rating of Vukile.
The rating accorded to the Senior Notes is a ZAR currency long term national scale rating. The rating accorded to the Senior Notes relates to ultimate payment of interest and principal (as opposed to timely, akin to a loss severity rating therefore). The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. The rating of the Senior Notes incorporates recoveries potentially arising from the sale of the underlying collateral and can therefore not be compared with, for example, a traditional corporate credit rating (the latter typically refers to probability of default only). If the rating of the Issuer changes, the rating of the Senior Notes may also change, but not necessarily in the same quantum. The rating of the Senior Notes may also change if the estimated stressed value of the underlying collateral materially changes.
Vukile is a property loan stock company established in 2004 and is listed on the JSE. GCR has accorded Vukile a ZAR currency national scale long term and short term senior unsecured credit rating of ‘A’ and ‘A1’ respectively.
The new issuance report entitled “Vukile Property Fund Limited – R1.02bln Senior Secured Floating Rate Notes”, dated 10 May 2012, replaces the prefunding report published on 10 April 2012. The new issuance report is available to subscribers of GCR’s structured finance subscription service. GCR analysed the Transaction by applying its Criteria for Rating Property Funds and Globally Structurally Enhanced Corporate Bonds Rating Criteria. The criteria reports are available at www.globalratings.net.
Rishentra Naidoo, Credit Analyst – Structured Finance, Johannesburg, email@example.com, +27 11 784 1771.
Alfons Ideler, Head of Structured Finance, Johannesburg, firstname.lastname@example.org, +27 11 784 1771.
Eyal Shevel, Head of Corporate Sector, Johannesburg, email@example.com, +27 11 784 1771.
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