Lagos, 13 November, 2019 — Global Credit Ratings has accorded indicative public ratings of BBB(NG) respectively to the Series 1 Senior Unsecured Bonds (“Series 1 Bonds”) and Series 2 Senior Unsecured Bonds (“Series 2 Bonds”) to be issued by Eat & Go Finance SPV Plc (“EGF” or “the Issuer”), under the Issuer’s N15bn Bond Issuance Programme; with the Outlooks accorded as Stable. The Programme is not rated, only the Series 1 and Series 2 Bonds are. The accorded indicative ratings relate 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).
SUMMARY RATING RATIONALE OF THE ISSUE
Eat & Go Finance SPV Plc was incorporated as a Special Purpose Vehicle in March 2019, for the purpose of sourcing funds from the Nigerian capital market and advancing same to the Sponsor, Eat N’ Go Nigeria Limited (“ENG” or “the Company”). EGF has filed an application with Securities and Exchange Commission (“SEC”) to issue Bonds, under a N15bn Bond Issuance Programme (“the Programme” or “BIP”). Under the Programme, the Bonds will be issued in series, with a combined initial N10bn expected to be raised in two tranches in 2019. Actual amounts under each Series will be confirmed following book building. The Series 1 Bonds and Series 2 Bonds (“the Bonds”) have tenors of five years and seven years respectively with expected maturity in 2024 and 2026. The Bonds will constitute direct, unconditional, senior and unsecured obligations of the Issuer. Pursuant to the Deed of Guarantee, ENG, will provide an irrevocable and unconditional guarantee to the Trustee on behalf of the bondholders.
Eat N’ Go Nigeria Limited, the Issuer and the Trustee (acting on behalf of the bondholders) have entered into a guarantee agreement pursuant to which ENG, in its capacity as Guarantor, irrevocably and unconditionally guarantees the punctual and full payment of all debts and obligations owed by the Issuer under the Programme. Pursuant to the Deed of Guarantee, ENG undertakes that if the Issuer does not pay any of the obligations, it will immediately perform the payment obligations of the Issuer as if it were the primary obligor. In addition, GCR has received a draft legal opinion which confirms inter alia that ENG’s Guarantee is irrevocable, unconditional and enforceable in line with its terms.
ENG has developed a strong position in the Nigerian Quick Service Restaurant sector, underpinned by well-established international brands, major alliances with suppliers, experienced management team as well as strong shareholder and franchisor support. GCR downgraded the Sponsor’s national scale long term rating to BBB(NG) in November 2019. The ‘BBB(NG)’ indicative, public, national scale long term credit ratings accorded to the Series 1 Bonds and Series 2 Bonds are equalised to the rating of ENG, as the Guarantee offers timely and full coverage of all payments due to the bondholders, under the Bonds.
The Programme Trust Deed (“PTD”) does not offer Bondholders any security over fixed assets but does feature a negative pledge, a debt service reserve account, and other covenants to protect the interest of Bondholders.
ENG has to comply with certain financial covenants on an existing commercial debt which include an EBITDA to interest cover of 3.5x and a net debt to EBITDA covenant of 3x. Management has confirmed that part of the bond proceeds will be utilised to fully settle the applicable loan. However, the bond issuance will also include a net debt to EBITDA covenant of 4x, which could be tested if the very strong earnings projections do not materialise. This could lead to a downgrade of the Sponsor and the bond ratings.
NATIONAL SCALE RATINGS HISTORY
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
– Global Master Criteria for Rating Corporate Entities (February 2018)
– Glossary of terms/ratios, February 2018
RATING LIMITATIONS AND DISCLAIMERS
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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 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 indicative Bond ratings expire in March 2020
Eat & Go Finance SPV Plc 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 indicative Bond ratings have been disclosed to Eat & Go Finance SPV Plc.
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 Series 1 and Series 2 Pricing Supplements, Draft Deed of Guarantee, Draft Legal Opinion, Draft Programme Trust Deed as well as the Draft Series 1 and Series 2 Trust Deeds.
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.