Announcements Financial Institutions Rating Alerts

GCR Affirms Sterling Investment Management SPV Plc’s Series 1 and Series 2 Bonds Rating of BBB(NG); Outlook Negative

Lagos Nigeria, 7 September 2020 – Global Credit Ratings has affirmed the national scale credit ratings assigned to Sterling Investment Management SPV Plc’s Series 1 and Series 2 Bonds of BBB(NG); under the N65bn Debt Issuance Programme. The outlook is accorded as Negative. The ratings are valid until July 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Sterling Investment Management SPV Plc’s (“the Issuer”) Series 1 and Series 2 Bonds based on the following key criteria:

The Series 1 and Series 2 Bonds (“the Bonds”) were issued under Sterling Investment Management SPV Plc’s N65bn Debt Issuance Programme (“DIP”). The Series 1 and Series 2 Bonds under the DIP were issued in August 2016 and October 2018 respectively, with an aggregate sum of N40.9bn raised via the Issues (Series 1 (N7.97bn) and Series 2 (N32.89bn)).

Sterling Bank Plc. (“Sterling” or “the bank” or “the Sponsor”) is a mid-sized commercial bank in Nigeria based on balance sheet size. Sterling has been accorded a long-term national scale credit rating of BBB(NG) by GCR, with a Negative outlook.

The bank maintained an upward trajectory in profitability over the last four years, attaining a review period high of N10.7bn in FY19. Performance was supported by growth in net interest income, which registered a notable 17% year-on-year growth to N64.7bn, fuelled by increased earning assets. Overall, return on average equity improved to 9.8% from 9.2% in the prior year, while return on average assets remained stable at 0.9%.

The Transaction entails the use of the proceeds of the Sterling Investment Management SPV PLC Bonds Issues, which constitute senior obligations of the Issuer, to purchase (with up to 60% of the proceeds) senior subordinated notes (“the Subordinated Notes”) to be issued by the Sponsor. The remaining portion (40%) of the Issue proceeds will be held in the Debt Service Reserve Fund and invested in Federal Government of Nigeria (“FGN”) Securities (collectively the Subordinated Notes and FGN Securities are referred to as Permitted Investments. All Subordinated Notes’ debt servicing payments received will be held in the DSRF and used to pay the coupon on the Bonds and upon maturity the principal.

The ratings of the Bonds are derived by applying a notching approach starting from the senior subordinated debt credit rating of the Sponsor based on the proportion of the offer proceeds used for purchase of the Sponsor’s Subordinated Notes, as well as the unsubordinated debt rating of the Issuer, in addition to the rating enhancement provided by the 40% of the Offer proceeds retained in the DSRF (invested strictly in risk free FGN Securities).

According to the Trustees performance reports on the Bonds, the Issuer has been meeting its obligations under the Bond Issues on a timely basis, with total coupon of N4.59bn and N8.01bn paid on Series 1 and Series 2 Bonds respectively from their respective allotment date up to 31 July 2020.

The accorded rating would be sensitive to positive rating action on the Sponsor. A rating downgrade could follow a breach of the Master Notes Subscription Agreement by the Sponsor, non-compliance with covenants, and a negative rating action on the Sponsor.

NATIONAL SCALE RATINGS HISTORY

Initial rating
Series 1 Bond (August 2016)
Long term: BBB(NG)
Rating outlook: Stable
Series 2 Bond (August 2018)
Long term: BBB(NG)
Rating outlook: Stable
Last rating
Series 1 and Series 2 Bonds (August 2019)
Long term: BBB(NG)
Rating Outlook: Stable

ANALYTICAL CONTACT

Primary Analyst

Adeyinka Olowofela

Senior Analyst

yinka@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017

Global Structurally Enhanced Corporate Bonds Criteria, updated November 2018

Sponsor’s rating report (2020)

Glossary of Terms/Ratios (February 2016)

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