Announcements

GCR accords final public rating of ‘AA-(ZA)’ to the Senior Secured APF04 Notes to be issued by A

Johannesburg, 21 October 2016 — Global Credit Ratings (‘GCR’) has accorded a final, public long term credit rating of ‘AA-(ZA)’ with a ‘Stable’ outlook to the R225m of Senior Secured Notes, stock code APF04, to be issued by Accelerate Property Fund (‘APF or Accelerate’) on 21 October 2016:

  • R225m Senior Secured Notes, stock code APF04, coupon 3M JIBAR + 2.30%, due 21 October 2021.

Concurrently, GCR has affirmed the final, public long term credit ratings of ‘AA-(ZA)’ and ‘Stable’ outlooks accorded to the following Senior Secured Notes issued by Accelerate under its R5bn DMTN Programme:

  • R264m Senior Secured Notes, stock code APF01, coupon 3M JIBAR + 1.70%, due 26 September 2017;
  • R285m Senior Secured Notes, stock code APF02, coupon 3M JIBAR + 2.30%, due 26 September 2019;
  • R452m Senior Secured Notes, stock code APF03, coupon 3M JIBAR + 1.75%, due 7 August 2018.

The APF04 Senior Secured Notes will be issued under Accelerate’s R5bn DMTN Program (the ‘Programme’) and will carry a 5-year bullet tenor, with interest payments made quarterly. The proceeds of the APF04 Note issuance will be utilised to redeem maturing secured bank debt that was provided by the Permitted Term Facility Providers.

The final, public ratings accorded to the APF01, APF02, APF03 and APF04 Senior Secured Notes relate to the 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).

SUMMARY RATING RATIONALE

Accelerate is a mid-sized Real Estate Investment Trust (‘REIT’), having listed on the JSE on 12 December 2013. As at 31 March 2016, APF comprised of 61 properties with an aggregate value of R8.4bn. The fund’s focus is to maintain a strong retail bias and currently 60% of the fund’s aggregate GLA is made up of retail properties. The remainder of the fund’s GLA was split between office (23%) and industrial (17%) as at 31 March 2016, with around 57% of the fund’s revenue coming from large national tenants.

The Senior Secured Notes together with the Permitted Term Facilities and Permitted Hedging Facilities are currently secured against 47 properties of the Issuer. The Senior Secured Noteholders, the Permitted Term Facility Providers and the Permitted Hedging Facility Counterparty (collectively the ‘Secured Lenders’) will share pro rata in the underlying security (being the first ranking mortgages in favour of the Security SPV over the Secured Properties and a cession of all the Issuer’s lease agreements and insurance policies relating to the Secured Properties).

The ratings of the Senior Secured Notes was derived by applying a notching up approach, starting from the long term senior unsecured corporate credit rating of the Issuer. Based on the fundamentals and prospects of APF, GCR accorded APF credit ratings of ‘BBB+(ZA)/A2(ZA)’, affirmed in February 2016, on the long and short term respectively, with a ‘Stable’ outlook. With regards to the Senior Secured Notes, a rating uplift of 4 national scale notches was deemed to still be appropriate for this particular Transaction, given the ‘Superior Recovery Prospects’ of the Senior Secured Notes. Should overall estimated recovery rate calculations decline to the lower end of the recovery range, then the ratings accorded to the Senior Secured Notes may potentially be notched downwards.

For more information on the Transaction and ratings accorded to the Senior Secured Notes, please refer to the “Accelerate Property Fund – Senior Secured Notes Tap Issuance Report”, to be published on 21 October 2016. The Tap Issuance Report will be available to subscribers of GCR’s Structured Finance subscription service. GCR analysed the Transaction by applying its Criteria for Rating Property Funds (May’16); Criteria for Rating Corporate Entities (Feb’16); Global Structurally Enhanced Corporate Bonds Rating Criteria (Sep’16); with reference to its Accelerate Property Fund Ltd Corporate Rating Report (Feb’16); Accelerate Property Fund Ltd Senior Secured Notes New-Issuance Report (Sep’14); subsequent Tap Issuance Reports (Oct’14 and Aug’15); and Surveillance Report (Aug’16).

The criteria reports are available for download on the GCR website.

NATIONAL SCALE RATINGS HISTORY

Stock Code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
APF01
26 Sept’14
AA-(ZA)
N.a.
Stable
APF02
28 Oct’14
AA-(ZA)
N.a.
Stable
APF03
7 Aug’15
AA-(ZA)
N.a.
Stable
APF04
N.a.
N.a.
N.a.
N.a.
Stock Code
Last Rating
Long Term Rating
Short Term Rating
Outlook
APF01
4 Aug’16
AA-(ZA)
N.a.
Stable
APF02
4 Aug’16
AA-(ZA)
N.a.
Stable
APF03
4 Aug’16
AA-(ZA)
N.a.
Stable
APF04
N.a.
N.a.
N.a.
N.a.

ANALYTICAL CONTACTS

Rishentra Naidoo

Senior Structured Finance Analyst

+27 11 784 1771

rishentran@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

  • Global Structurally Enhanced Corporate Bonds Rating Criteria (Sep’16);
  • Criteria for Rating Property Funds (May’16);
  • Criteria for Rating Corporate Entities (Feb’16);
  • Accelerate Property Fund Ltd Corporate Rating Report (Feb’16)
  • Accelerate Property Fund Ltd Senior Secured Notes – New Issuance Report (Sep’14);
  • Accelerate Property Fund Senior Secured Notes – Tap Issuance Reports (Oct’14 and Aug’15); and
  • Accelerate Property Fund Senior Secured Notes – Surveillance Report (Aug’16).

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS . IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Corporate Credit Rating A credit rating accorded to a corporate entity.
Coupon Interest payment on a security.
Credit A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Default A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Hedging A financial risk management process or function to take a market position to protect against an eventuality. Taking an offsetting position in addition to an existing position. The correlation between the existing and offsetting position is negative.
Issuer The party indebted or the person making repayments for its borrowings.
JIBAR Johannesburg Interbank Agreed Rate. A reference rate.
JSE Johannesburg Stock Exchange Limited, a licenced exchange under the Securities Services Act of 2004 (South Africa).
Long Term Rating A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Notching A movement in ratings.
Noteholder Investor of capital market securities.
Property Movable or immovable asset.
Real Estate Property that consists of land and / or buildings.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Redemption The repurchase of a bond at maturity by the issuer.
Repayment Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.
Risk Management Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.
Securities Various instruments used in the capital market to raise funds.
Security An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.
Security SPV A Special Purpose Vehicle that has been created to realise and hold the security of the performance of the obligations of the Issuer that sold its assets to the Security SPV.
Senior A security that has a higher repayment priority than junior securities.
Servicing The calculation of interest and repayments, collection of repayments, advancing of loans, foreclose procedures, maintaining records and seeing that the proceeds of each loan are passed on to the respective party.
Short Term Rating A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
SPV An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.
Stock Code A unique code allocated to a publicly listed security.
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.
Trust Deed A deed of conveyance creating and setting out the conditions of a trust.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The Issuer participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to, and contested by, the Issuer, with the outlook amended following the provision of further information by Accelerate.

The information received from the Issuer and other reliable third parties to accord the credit ratings included:

  • Latest property valuation certificates for the Secured Properties.
  • Accelerate’s Audited Financial Statements for the year ended 31 March 2016.
  • Permitted Facilities breakdown including MTM information relating to the Permitted Hedging Facilities.
  • Secured Properties portfolio breakdown per property including estimated annual income and expenses.
  • Vacancy and debtors ageing information on the Secured Properties per August 2016.
  • Signed APF04 Applicable Pricing Supplement.

The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

GCR accords final public rating of ‘AA-(ZA)’ to the Senior Secured APF04 Notes to be issued by Accelerate Property Fund

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