Lagos Nigeria, 12 October 2020 — Global Credit Ratings (“GCR”) has assigned an indicative public long-term credit rating of ‘BBB+(NG)’ to 2LP Management Company Limited’s proposed N10.9bn Series 1 Tranche B Notes, with the Outlook accorded as Negative. The indicative rating expires in April 2021.
GCR has accorded the above credit rating to 2LP Management Company Limited’s (“the Issuer” or “2LP”) proposed Series 1 Tranche B Notes based on the following key criteria:
The Issuer is a special purpose vehicle incorporated in March 2019 as a funding entity, solely for the purpose of raising finance for the development of schools and hospitals in Plateau State (“the State”). 2LP currently comprises three companies, with the major shareholder (90% stake) being Bleneson Services Nigeria Limited, one of the leading indigenous companies engaging in building and road construction and project management.
2LP has entered into a contract with Plateau State Government under a Public Private Partnership Agreement to undertake the construction of key socio-infrastructure projects within the State. To finance the construction projects, the Issuer raised an initial N15.62bn in Series 1 Tranche A Notes and is in the process of raising additional N10.9bn from the capital market by way of Series 1 Tranche B Notes, under a N59bn Medium Term Note Issuance Programme (the “Programme). The Notes are to be guaranteed by an ISPO authorised and issued by the Office of the Honourable Minister of Finance of Nigeria on Plateau State’s statutory allocation to cover both coupon payments and principal redemption, thus making Plateau State the transaction sponsor. The ISPO monthly transfers will be accumulated in a Sinking Fund Account, to be managed by an independent Trustee. The Notes shall carry a six-year and two-month maturity from the Issue Date, with semi-annual interest and principal repayment.
Plateau reports a high debt burden of N114.5bn at FY19 (FY18: N93.2bn), with gross debt to income ratio registering at a review period high of 134.8% at FY19 (FY18: 97.8%). This ratio was somewhat exacerbated by the Series 1 Tranche A Notes Issue. Moreover, Plateau’s debt obligations could significantly increase over the medium term as Plateau has guaranteed the Series 1 Tranche B Notes. While the high debt remains a key concern, the larger portion of debt which has tenures extending up to 20 years obtained at concessionary rates, gives a level of comfort.
Given that the Series 1 Tranche B Notes are secured by ISPO issued by Federal Government of Nigeria, with an obligation to pay all outstanding liabilities, even in the event of termination of contract, a three-notch uplift starting from the State’s long term rating is considered appropriate for the Series 1 Tranche B Notes. The State was accorded a long term rating of BB+(NG) in October 2020.
The indicative rating accorded to Series 1 Tranche B Notes, not the Programme, relates to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). As the indicative rating accorded to the Series 1 Tranche B Notes is intrinsically linked to the financial performance of the State, any change in the rating assigned to the State will directly affect the Notes rating. The final rating will be accorded upon receipt of final and executed transaction document.
NATIONAL SCALE RATINGS HISTORY
Initial/last rating (December 2019)
Series 1 Tranche A Notes: BBB+(NG)
Rating outlook: Stable
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2018,
Criteria for rating Structurally Enhanced Corporate Bonds, September 2018,
Plateau State rating report 2020
Glossary of terms/ratios, February 2018.
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the indicative rating is valid until April 2021.
2LP Management Company Limited participated in the rating process via 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.
The information received from 2LP Management Company Limited and other reliable third parties to accord the credit rating included:
– Draft Programme Information Memorandum
– Draft Supplemental Information Memorandum
– Draft Programme Trust Deed
– Series 1 Tranche B Trust Deed
– Draft Transaction Implementation Agreement
– Draft Vending Agreement
– Contract Agreement between Ministry of Finance, Plateau State and Bleneson Services Nigeria Limited
– Extract of the Minutes of the of the Meeting of the Executive Council of Plateau State which held on 6 March 2019, authorising the first Series of the Transaction and the issue of the Guarantee
– The Resolution of the House of Assembly of Plateau State Government in respect of the Transaction, and
– ISPO Guarantee from the Federal Ministry of Finance
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.