Announcements Corporate Rating Alerts

GCR Accords an Indicative Rating to Axxela Funding 1 Plc’s Series 1 Bonds.

Lagos Nigeria, 29 January 2019 — Global Credit Ratings (“GCR”) has assigned an indicative public long-term credit rating of ‘BBB+(NG)’ to Axxela Funding 1 Plc’s proposed N15.5bn Series 1 Senior Secured Fixed Rate Bonds, with the Outlook accorded as Stable. The indicative bond rating expires in June 2019.

RATING RATIONALE

GCR has accorded the above credit rating to Axxela Funding 1 Plc’s (“the Issuer”) proposed Series 1 Bonds based on the following key criteria:

The Issuer is a special purpose vehicle incorporated primarily to operate as a business development company and raise finances for the business of the Sponsor and its subsidiaries. The Sponsor is a leading private gas distribution group in Nigeria. Its core business is the development of gas and power infrastructure, and distribution of natural gas for power generation to industrial and commercial customers. GCR accorded the Sponsor a national scale long-term Issuer rating of ‘BBB+(NG)’ in September 2018, with a Stable outlook. The Bond rating is intrinsically linked to the financial performance of the Sponsor, and any change in the Sponsor rating will impact the Bond rating.

The Issuer has filed an application with Securities and Exchange Commission to issue bonds in the Nigerian capital market, under a N50bn Bond Issuance Programme (“BIP”). Under the BIP, bonds shall be issued in Series or Tranches from time to time, with varying maturities, terms and conditions, and rates of interests. The Issuer is undertaking an initial N15.5bn in Series 1 Issue under the BIP. The Series 1 Bonds shall be senior secured bonds, to be issued by way of a book build. The Bonds shall have a tenor of seven (7) years, with two (2) years moratorium on principal repayment, while interest shall be paid semi-annually in arrears. The Series 1 Bonds shall constitute direct, irrevocable and senior secured obligations of the Issuer, and shall at all times rank pari passu and without any preference among themselves.

The transaction mechanics entail the use of the proceeds of the Bonds issued by the Issuer to purchase bonds issued by the Co-Obligors on similar terms through a private placement programme constituted by the Master Notes Subscription Agreement.

Pursuant to the draft Series 1 Trust Deed, security is primarily created over trade receivables due from take or pay contracts, held in trust under an existing Security Deed, in addition to the assets to be pledged by the Sponsor. The existing security package is currently pledged to secure indebtedness to an existing lender, which has indicated willingness to admit the bondholders as beneficiaries to the security package. However, a written consent letter from the existing lender is yet to be provided.

The transaction arranger and the Sponsor have indicated that existing receivables will not be sold off to any entity, neither will the receipts on future receivables be ring-fenced for the payment of the bond obligations. Based on the foregoing, GCR considers the security structure contrary to trade receivable securitisation, and does not consider future trade receivables as a credit enhancement as recovery is assumed to be zero in a default scenario. Also, GCR considers trade receivables as part of the working capital available for day to day operations of the Co-Obligors, which have been factored into the Issuer ratings accorded to the Sponsor. Accordingly, an indicative rating of BBB+(NG) has been accorded in line with the long term unsecured corporate rating of the Sponsor.

The indicative rating accorded to the Series 1 Bonds relates to ultimate payment of principal and interest (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). The final rating is contingent on the proper execution of the security documents in favour of the Bondholders, which include a Deed of Accession. A downgrade in the rating of the Sponsor could impact the final rating to be accorded.

NATIONAL SCALE RATINGS HISTORY

Initial/last rating (December 2018)
Series 1 Senior Secured Bonds: BBB+(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Femi Atere
Credit Analyst
femi@globalratings.net

Committee Chairperson
Dave King
king@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2018
Global Master Structured Finance Rating Criteria (September 2018)
Global Structurally Enhanced Corporate Bonds Rating Criteria (November 2018)
Axxela Issuer rating report, 2018
Glossary of terms/ratios, February 2018.

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT WWW.GLOBALRATINGS.COM.NG

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 Bond indicative rating expires in June 2019.

The Issuer and the Lead Issuing House participated in the rating process via face-to-face management 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.

The information received from the Issuer, the lead Issuing House and other reliable third parties to accord the Bond rating included:
 Draft Shelf Prospectus
 Draft Programme Trust Deed
 Draft Series 1 Pricing Supplement
 Draft Series 1 Trust Deed
 Draft Legal Opinion from Olaniwun Ajayi LP
 Draft Master Notes Subscription Agreement
 Gaslink Security Deed
 Draft Axxela All Assets Debenture

The rating above was solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.

image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2021 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.