Lagos, Nigeria, 28 October 2021 – GCR Ratings (“GCR”) has assigned a national scale long term Issue rating of AAA(NG) to LFZC Funding SPV Plc’s N10.5bn Series 1 Senior Guaranteed Bond, with the Outlook accorded as Stable.
|Rated Issue||Rating class||Rating scale||Rating||Outlook|
|N10.5bn Series 1 Guaranteed Bonds||Long Term Issue||National||AAA(NG)||Stable Outlook|
LFZC Funding SPV Plc (“the Issuer”) is a special purpose vehicle sponsored by Lagos Free Zone Company (“the Sponsor” or “Co-Obligor”) as a funding entity, solely for the purpose of raising finance for its Sponsor. The Issuer has no business operation other than borrowing and passing through, as well as receiving funds from its Sponsor. The Sponsor engages in the development and management of Lagos Free Zone and leasing of the developed land to enterprises registered within the Zone. Its ultimate parent company is Tolaram Group Inc, a global conglomerate founded in 1948 and headquartered in Singapore, with operation spanning across Europe, Asia and Africa.
In September 2021, LFZC Funding SPV Plc registered a N50bn Bond Issuance Programme with the Securities and Exchange Commission (“SEC”). While the Issuer had initially indicated the intention to raise N10bn in Series 1 Senior Guaranteed Bonds Issue, N10.5bn was subsequently raised, at a clearing coupon of 13.25%. The Bonds have a tenor of twenty (20) years, with maturity to 2041. There shall be a principal repayment moratorium of 60 months (equivalent to five years), after which the principal repayment will commence semi-annually each year. However, interest shall accrue from the issue date, and be payable semi-annually in arrears. The Series 1 Bonds are direct, unconditional, guaranteed, and unsubordinated obligations of the Issuer and the Co-Obligor and shall at all times rank pari passu without preference among themselves.
The Series 1 Bonds are backed by the unconditional and irrevocable guarantee of the Guarantor, Infrastructure Credit Guarantee Company Limited (“InfraCredit” or “the Guarantor”), by way of continuing guarantee, of the payment obligations in respect of all principal amount and interest due under the Series 1 pursuant to the terms and conditions of a Deed of Guarantee. As such, the payment obligations of the Issuer and the Co-Obligor in respect of the Series 1 Bonds, and of the Guarantor under the Deed of Guarantee shall, save for such exceptions as may be provided by applicable law, at all times rank at least pari passu with all other unsecured unsubordinated indebtedness and monetary obligations of the Issuer, the Co-Obligor and the Guarantor respectively, both present and future.
Under the Guarantee, if at ten (10) business days prior to a payment date, the payment account has not been funded by the Issuer and the Co-Obligor, the Guarantee Trustee is required to issue a Demand Notice to the Guarantor, and InfraCredit is required to fund the payment account with the due amount by the payment date to ensure bondholders are paid. The Guarantee will be in force until all payment obligations under the Series 1 Bonds have been fully discharged. InfraCredit is rated ‘AAA(NG)’ by GCR Ratings with a Stable Outlook. The rating is underpinned by the uniqueness of InfraCredit’s operations as a credit guarantee provider, its strong capitalisation, liquidity, and asset quality position, albeit counterbalanced by its self-regulated status.
Given that InfraCredit offers timely and full coverage of all payments due to the bondholders under the Series 1 Bonds through the Deed of Guarantee, the Bonds bear the same default risk as InfraCredit and would reflect similar recovery prospects to senior unsecured creditors in the event of default. As such, the national scale long-term issue rating of the Series 1 Bond is thus equalised with the Guarantor’s national scale long-term Issuer rating.
The Account Bank, Stanbic IBTC Bank Plc, has a national scale short term rating of A1+(NG) by GCR. As such, there is no constraint to the rating.
|Primary analyst||Femi Atere||Senior Analyst|
|Lagos, Nigeria||Femi@GCRratings.com||+234 1 904 9462|
|Committee chair||Yohan Assous||Group Head of Ratings|
|Johannesburg, ZA||Yohan@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Corporate Entities, May 2019|
|GCR Rating Scales, Symbols & Definitions, May 2019|
|GCR’s Nigeria Country Risk Score report, October 2021|
|Infrastructure Credit Guarantee Company Limited rating reports (2017-2021)|
|Rated Issue||Review||Rating scale||Rating||Outlook||Date|
|N10.5bn Series 1 Senior Guaranteed Bonds||Initial/Last||National||AAA(NG)(IR)*||Stable||August 2021|
*IR stands for Indicative Rating.
|Account Bank||A bank where the transaction account is held.|
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|Arrears||An overdue debt, liability or obligation. An account is said to be ‘in arrears’ if one or more payments have been missed in transactions where regular payments are contractually required.|
|Bond||A long-term debt instrument issued by either a company, institution, or the government to raise funds.|
|Bondholder||Investor of capital market securities|
|Borrower||The party indebted or the person making repayments for its borrowings.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Coupon||The interest paid on a bond expressed as a percentage of the face value. If a bond carries a fixed coupon, the interest is usually paid on an annual or semi-annual basis. The term also refers to the detachable certificate entitling the bearer to the interest payment.|
|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.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Enforcement||To make sure people do what is required by a law or rule et cetera.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Forecast||A calculation or estimate of future events.|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest Cover||Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Legal Opinion||An opinion regarding the validity and enforceability of a transaction’s legal documents.|
|Lender||A credit provider that is owed debt obligations be a debtor.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Operating Cash Flow||A company’s net cash position over a given period, i.e. money received from customers minus payments to suppliers and staff, administration expenses, interest payments and taxes.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Rated Securities||Debt securities that have been accorded a credit rating.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Security||One of various instruments used in the capital market to raise funds.|
|Senior||A security that has a higher repayment priority than junior securities.|
|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.|
|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.|
|Trustee||An individual or firm that holds or administers property or assets for the benefit of a third party.|
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process 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; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to the Issuer and the Transaction Arrangers. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
The Issuer and the Transaction Arrangers participated in the rating process via tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from the Issuer and other reliable third parties to accord the credit rating included:
- Executed Shelf Prospectus,
- Executed Programme Trust Deed,
- Executed Series 1 Pricing Supplement,
- Executed Series 1 Trust Deed,
- Executed Legal Opinion from the Solicitor to the Trustees,
- Executed InfraCredit’s Deed of Guarantee,
- Executed Series 1 Account Bank Agreement,
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties,
- Information specific to the rated entity and/or industry was also received.