Announcements Rating Alerts Structured Finance

GCR affirms enX Corporation Partially Guaranteed Notes’ rating of A-(ZA)(EL), Rating placed on Rating Watch Evolving.

Rating Action

Johannesburg, 22 August 2019 – GCR Ratings (“GCR”) affirmed the long-term rating, while placing on ‘Rating Watch Evolving’, the following Partially Guaranteed Notes issued by enX Corporation Limited (“enX”, or the “Issuer”) under the Issuer’s R4bn Domestic Medium-Term Note Programme (the “Programme”).

Security Class Stock Code Amount Rating class Rating scale Rating Watch
Partially Guaranteed Notes ENX01S R102,000,000 Issue Long Term National A-(ZA)(EL) Rating Watch Evolving

Structured bond ratings provide an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, the ratings carry an ‘EL’ suffix.

Rating Rationale

The Issuer and FirstRand Bank (“FRB”), through its RMB division, entered into a Put undertaking pursuant to which FRB, in its capacity as Put provider, irrevocably and unconditionally commits to purchase 50% of the Partially Guaranteed Notes at par value should a Put Event occur. Aggregate payments under the Put Agreement are limited to a maximum of R51m (50% of the principal outstanding Notes). The Put undertaking will remain in effect until all the relevant Notes are redeemed or the Put provider’s obligations under the Put Undertaking are discharged. Payment is expected within 7 business days of a Put Event. FRB is rated ‘AA+(ZA)’ by GCR on the long-term national scale with a ‘Stable’ Outlook.

The Rating Watch Evolving is a consequence of the recently announced transaction to sell the FML business to Bidvest Bank Limited. If successfully concluded the transaction will have a material impact on the composition and funding structure of enX and therefore necessitate a rating review. The Partially Guaranteed Notes’ ratings are primarily a function of estimated recoveries from the Put Guarantee and unsecured recoveries. In quantifying the unsecured recoveries, GCR applied multiple analyses across numerous stress scenarios utilising its Global Consumer Asset Backed Securitisation (ABS) Rating Criteria in valuing the Trade Receivable and Leasing Asset Recoveries.

The credit quality of the Put Provider and the mechanics of the Put Undertaking determined the appropriate number of notches to be applied. The FRB Guarantee, which provides for a 50% cover of the principal outstanding of the Partially Guaranteed Notes, along with the unsecured recoveries garnered from the Issuer, resulted in a ‘Good Recovery Prospects’ band as per GCR’s Enhanced Corporate Bond Criteria. GCR garnered comfort with respect to the unsecured recoveries, noting the absence of covenants, by performing varying sensitivity analyses.

The rating of the Partially Guaranteed Notes may also change if the estimated stressed value of the underlying collateral materially changes.

Analytical contacts

Primary analyst Charlene Chipoyera Structured Finance Analyst
Johannesburg, ZA CharleneC@GCRratings.com +27 11 784 1771
Secondary analyst Corne Els Senior Structured Finance Analyst
Johannesburg, ZA CorneE@GCRratings.com +27 11 784 1771
Committee chair Yohan Assous Sector head: Structured Finance Ratings
Johannesburg, ZA Yohan@GCRratings.com +27 11 784 1771

Related criteria and research

Global Master Structured Finance Rating Criteria, updated September 2018
Global Structurally Enhanced Corporate Bonds Rating Criteria, updated November 2018
GCR’s Rating Symbols, Scales and Definitions, May 2019
enX Corporation Limited Partially Guaranteed Notes New Issuance Report, published April 2018

Ratings history

enX Corporation Limited Partially Guaranteed Notes

Security class Stock code Rating scale Rating Outlook/Watch Initial Rating Date
Partially Guaranteed Notes ENX01S National A-(ZA) Stable Outlook April 2018
Security class Stock code Rating scale Rating Outlook/Watch Last Rating Date
Partially Guaranteed Notes ENX01S National A-(ZA) Stable Outlook April 2018

Glossary

Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
Asset A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.
Bond A long term debt instrument issued by either a company, institution or the government to raise funds.
Capacity The largest amount of insurance available from a company. In a broader sense, it can refer to the largest amount of insurance available in the marketplace.
Collateral Asset provided to a creditor as security for a loan or performance.
Covenant A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.
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 7 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
Discharge Performance of obligations in a natural way according to a contractual relationship.
Domestic Medium Term Note Programme 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.
Expected Loss Losses that a bank expects to bear over a certain period (generally a year). These losses are a consequence of doing business, namely the bank’s role as financial intermediary.
Guarantee An undertaking in writing by one person (the guarantor) given to another, usually a bank (the creditor) to be answerable for the debt of a third person (the debtor) to the creditor, upon default of the debtor.
Issuer The party indebted or the person making repayments for its borrowings.
Loss 1. A tangible or intangible, financial or non-financial loss of economic value. 2. The happening of the event for which insurance pays (insurance).
Notching A movement in ratings.
Obligation The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.
Performing An obligation that performs according to its contractual obligations.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Private An issuance of securities without market participation, however, with a select few investors. Placed on a private basis and not in the open market.
Probability The likelihood or relative frequency of an event expressed in a number between zero and one. The throw of a die is an example. The probability of throwing five is found by dividing the number of faces that have a five (1) by the total number of faces (6). That is a probability of one-sixth or one divided by six, which is .17. See also Degree of Risk, Law of Large Numbers, and Odds.
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Rating Watch See GCR Rating Scales, Symbols and Definitions.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Securitisation A process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
Security One of various instruments used in the capital market to raise funds.
Stock Code A unique code allocated to a publicly listed security.
Structured Bond Ratings See GCR Rating Scales, Symbols and Definitions.
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.
Unconditional Not subject to any conditions.

Salient Points of Accorded Ratings

GCR affirms that a.) no part of the ratings were 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 are for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.

The credit ratings have been disclosed to the Issuer. The ratings above were solicited by, or on behalf of, the Issuer, and therefore, GCR has been compensated for the provision of the ratings.

The Issuer participated in the rating process via face-to-face management meetings, teleconferences and/or other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Issuer and other reliable third parties to accord the credit ratings included:

  • Unaudited Balance Sheet extract, dated 28 February 2019.
  • Audited Financial Statements of the Issuer as at 31 August 2018.
  • Industrial Equipment Rental Guideline as at 1 March 2019.
  • Pool cut for the Industrial Equipment as at 19 April 2019.
  • Pool cut for the Fleet Management and Logistics as at 31 May 2019.
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