Lagos Nigeria, 27 August 2019 — Global Credit Ratings (“GCR”) has assigned an indicative public national scale long-term rating of ‘BBB+(NG)’ to TAK Agro Infrastructure Plc’s proposed N15bn Series 1 Fixed Rate Senior Secured Bonds, under its N50bn Medium Term Note Programme (“Programme”), with the outlook accorded as Stable. The Programme is not rated; only the proposed Series 1 Bonds are. The indicative rating expires in January 2020.
GCR has accorded the above credit rating to TAK Agro Infrastructure Plc’s (“the Issuer”) proposed N15bn Series 1 Fixed Rate Bonds based on the following key criteria:
TAK Agro Infrastructure Plc is a special purpose vehicle incorporated primarily to serve as a funding structure to raise funds from the debt capital market. The Sponsor (TAK Logistics Limited) is a transport-logistics company operating across Nigerian agricultural value chain. GCR accorded the Sponsor a national scale long-term Sponsor rating of ‘BBB(NG)’ in July 2019, 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 Series 1 Bonds shall constitute direct, irrevocable and senior secured obligations of the Issuer, Sponsor and Security Provider, and shall at all times rank pari passu and without any preference among themselves. The payment obligations under the Series 1 Bonds in respect of principal and any interest on the Series 1 Bonds shall at all times rank at least equally with all secured obligations of the Issuer, except for obligations mandatorily preferred by law applying to companies generally.
The transaction mechanics entail the use of the proceeds of the Bonds issued by the Issuer to purchase intercompany bonds to be issued by the Sponsor on similar terms through a private placement programme constituted by Intercompany Bond Purchase Agreement.
Pursuant to the draft Series 1 Trust Deed, the Series 1 Bonds shall have the benefit of the security constituted under All Assets Debenture, and the Security Trustee shall hold the benefit of the payment obligations of the Chargor under the Debenture. Management has indicated that there is no encumbrance on the security package. The Series 1 Bonds incorporates a Cash Reserve Account and Sinking Fund which shall be funded from the cashflows of the Sponsor up to a balance of the semi-annual payment obligation on the next Payment Date. The Sponsor recently funded the Cash Reserve Account to the tune of N1.898bn.
The indicative rating is derived by applying a notching up approach, starting from the long term unsecured corporate rating of the Sponsor. Based on GCR’s estimated recovery calculations, the Series 1 Bondholders can expect ‘Good’ recovery prospects. Although the transaction documents made provisions for perfecting the security package in an event of default, the bondholders can only recover the value stamped and registered with the government authorities. The prolonged security perfection process in Nigeria is also a rating constraint.
The final rating is contingent on the proper execution of the security documents in favour of the Bondholders. A downgrade in the rating of the Sponsor could impact the final rating to be accorded.
NATIONAL SCALE RATINGS HISTORY
Initial/new rating (August 2019)
Series 1 Fixed Rate Bonds: BBB+(NG)
Rating outlook: Stable
Last rating: n/a
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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),
TAK Logistics Limited rating report (July 2019)
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 Bond rating expires in January 2020.
The Sponsor, 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 have 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 Sefton Fross
– Draft Intercompany Bond Purchase Agreement
– Draft Security Deed
– Draft All Assets Debenture
The rating above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the rating.