Announcements

GCR affirms the final, public long term ‘A+(ZA)’ rating accorded to Delta Property Fund

Johannesburg, 25 March 2015: Global Credit Rating Co. (‘GCR’) has affirmed the final, public long term rating of ‘A+(ZA)’ accorded to the R100m in DLTB02-Tap Issuance Notes issued by Delta Property Fund Limited (the ‘Issuer’) under its R2bn DMTN programme on 09 March 2015 (the ‘Tap Issuance Notes’):

  1. ZAR 100m, Senior Secured Floating Rate Notes, maturing 09 December 2016, stock code DLTB02: A+(ZA); ‘Stable’ Outlook.
  2. Concurrently, GCR has affirmed the final, public long term rating of ‘A+(ZA)’ accorded to the Senior Secured Notes (the ‘Existing Notes’) issued by the Issuer on 09 December 2013:

  3. ZAR 362m, Senior Secured Floating Rate Notes, maturing 09 December 2016, stock code DLTB02: A+(ZA); ‘Stable’ Outlook.

* The Tap Notes and Existing Notes are collectively referred to as the Senior Secured Notes.

The affirmation follows the receipt of proof of registration of the Mortgage Bond over Regents Place Offices (R79m) in favour of the Security SPV. Resultantly, given the higher value (as well as the post stressed value) of the property in comparison to the Second Guarantee (R36m), the recovery prospects of the Senior Secured Notes have thus improved to “Excellent Recovery Prospects” from “Superior Recovery Prospects”. Furthermore, the Tap ‘Issuance Notes’ review date will now be moved to 10 March 2016, in line with the ‘Existing Notes’ review date.

RATING RATIONALE

The Senior Secured Notes issued under the Issuer’s R2bn DMTN Programme were arranged by Nedbank Capital, a division of Nedbank Limited. The rating of the Senior Secured Notes was derived by applying a notching up approach, starting from the long term corporate credit rating of the Issuer. Based on fundamentals and prospects of the Issuer, GCR has accorded a long term national scale corporate credit rating of BBB+(ZA) with a ‘Stable’ outlook to the Issuer. A rating uplift of 3 national scale notches was deemed appropriate in this particular transaction, given the “Excellent Recovery Prospects” equating to an ‘A+(ZA)’ rating on the Senior Secured Notes. The rating relies on the recoveries from the properties contained within the security portfolio. The property portfolio is largely constituted of offices predominately occupied by Government, with some diversification benefits drawn from the inclusion of a shopping mall and a number of industrial properties.

The rating accorded to the Senior Secured Notes relates to ultimate payment of the principal and interest (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity). If the ratings accorded to the Issuer change, the rating of the Senior Secured Notes may also change, but potentially not in the same scale. The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. GCR has received final signed Transaction Documentation applicable to the Tap-Issuance and proof of registration. For more information on the Transaction, please read GCR’s Delta Property Fund Limited R462m Senior Secured Floating Rate Notes Tap-Issuance Report published on 10 March 2015.

NATIONAL SCALE RATINGS HISTORY

Initial rating:

DLTB02 Notes, 11 December 2013: A+(ZA), Stable outlook

DLTB02 Tap Notes, 10 March 2015: A+(ZA), Stable outlook

Last rating (December/2014)

DLTB02 Notes, 18 December 2014: A+(ZA), Stable outlook

DLTB02 Tap Notes, 10 March 2015: A+(ZA), Stable outlook

ANALYTICAL CONTACTS

Mark Vrdoljak

Credit Analyst

+27 11 784 1771

markvrd@globalratings.net

Committee Chairperson

Emma-Jane Fulcher

Sector Head: Structured Finance Ratings

+27 11 784 1771

fulcher@globalratings.net

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

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

Advance A lending term, to transfer funds from the creditor to the debtor.
Agent An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.
Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties.
Applicable Pricing Supplement A transaction document that describes the particulars of notes issued.
arranger Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.
Arrears General term for non-performing obligations, i.e. obligations that are overdue.
Asset An item with economic value that an entity owns or controls.
Average Life The average lifetime of an asset or obligation. Typically measured from origination to cancellation or termination date.
Bankruptcy Court proceedings at which an individual or a company is declared unable to pay its creditors. The liability of a bankrupt company typically exceeds its assets.
Bankruptcy Remote A feature, through real security and guarantees that reduces the enforceability of a creditor against a Special Purpose Vehicle. Typically a Security Special Purpose Vehicle should be bankruptcy remote.
Bond A long term debt instrument issued by either: a company, institution or the government to raise funds.
Borrower The party indebted or the person making repayments for its borrowings.
Capital The sum of money that is used to generate proceeds.
Cash Flow A financial term for monetary changes in operations, investing and financing activities.
Claim A formal request or demand.
Collateral An asset pledged as security in event of default.
Conduit A commercial lending entity that is established to purchase assets to securitise.
Corporate Credit Rating A credit rating accorded to a corporate entity.
Coupon Interest payment on a security.
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.
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.
Credit Rating Agency An entity that provides credit rating services.
Credit Risk The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).
Creditor A credit provider that is owed debt obligations by a debtor.
Creditworthiness An assessment of a debtor’s ability to meet debt obligations.
debt An obligation to repay a sum of money.
Debtor The party indebted or the person making repayments for its borrowings.
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.
Discharge Performance of obligations in a natural way according to a contractual relationship.
Drawdown When a company utilises facilities availed by a lender.
Early Redemption The repurchase of a bond by the issuer before it matures.
EBITDA EBITDA is useful for comparing the income of companies with different asset structures. EBITDA is usually closely aligned to cash generated by operations.
Enforceable To make sure people do what is required by a law or rule et cetera.
enforcement To make sure people do what is required by a law or rule et cetera.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
Floating Rate Notes Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.
Forecast A calculation or estimate of future financial events.
Gearing With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Gross Lettable Area Used in commercial property to indicate the amount of floor space rented or available for rental.
Guarantee An undertaking for performance of another’s obligations in event of default.
Guarantor A party that gives the guarantee.
Haircut The percentage by which the market value of a security used as collateral for a loan is reduced. The size of the haircut reflects the expected ease of selling the security and the likely reduction necessary to the realised value relative to the fair value.
Income Money received, especially on a regular basis, for work or through investments.
Indemnity A security or protection against a loss or other financial burden.
Insolvency When an entity’s liabilities exceed its assets.
Insurance Provides protection against a possible eventuality.
International Scale Rating International scale ratings relate to either foreign currency or local currency commitments, assessing the capacity of an issuer to meet these commitments using a globally applicable (and therefore internationally comparable) scale.
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).
Lease Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.
Legal Opinion An opinion regarding the validity and enforceable of a transaction’s legal documents.
Lender A credit provider that is owed debt obligations by a debtor.
Lessee The party that enjoys temporary use of a corporeal thing.
Lessor The owner or agent that acts on behalf of the owner of property that grants the temporary use of a corporeal thing.
Leverage With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
Lien A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
Liquidity Risk The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
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.
Loss A tangible or intangible, financial or non-financial loss of economic value.
Market An assessment of the property value, with the value being compared to similar properties in the area.
Mortgage Loan A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Mortgagee A creditor under a mortgage agreement.
National Scale Rating The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.
Negative Pledge A pledge made by a creditor that it will not incur any debt or event that may negatively impact the transaction or entity or material subsidiary.
Notching A movement in ratings.
Noteholder Investor of capital market securities.
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.
Obligor The party indebted or the person making repayments for its borrowings.
Option Either a call or a put option. A call option gives the holder the right to buy assets at an agreed price on or before a particular date. A put option gives the holder the right to sell assets at an agreed price on or before a particular date.
Origination A process of creating assets.
Owner Trust Owner of a securitisation vehicle that acts in the best interest of the Noteholders.
Pari Passu Side by side; at the same rate or on an equal footing. Securities issued with a pari passu clause have rights and privileges that are equivalent to those of existing securities of the same class.
Paying Agent An appointed transaction party that is responsible for the payment of Noteholders scheduled interest and principal, as well as other transactional obligations.
Performing An obligation that performs according to its contractual obligations.
Pledge Constituted by an agreement between the pledgor, who undertakes to deliver the article, and the pledgee, and subsequent delivery of the property in question as security for debt. A pledge is only applicable to movable property.
Prepayment Early or excess repayment of an obligation. Partial or full prepayment of the outstanding loan amount.
Pricing A process of determining the price of a debt security.
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.
Proceeds Funds from issuance of debt securities or sale of assets.
Property Movable or immovable asset.
Provision An amount set aside for expected losses to be incurred by a creditor.
Ranking A priority applied to obligations in order of seniority.
Rated Securities Debt securities that have been accorded a credit rating.
Rating Outlook A Rating outlook indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).
Real Estate Property that consists of land and / or buildings.
Real Security Obtained by a creditor when either as a consequence of agreement with a debtor or operation of law, the creditor acquires the right to be reimbursed from the proceeds of movable or immovable property of the debtor in the event of the debtor default. Real security includes: 1.) Pledge; 2.) Notarial bonds; 3.) Mortgage bonds; 4.) Liens or Hypothecs; and 5.) Cession to secure debt.
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.
Reference Rate A rate that is the basis of the calculation such as JIBAR.
Release An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.
Rent Payment from a lessee to the lessor for the temporary use of an asset.
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.
Scheduled Interest The interest payment due on a scheduled date.
Secured Debt Debt backed with or secured by collateral to reduce lending risk and thus the interest rate charged.
Securitatem debiti Cession to secure debt where the cession of a personal right is affected as security for a debt.
Securities Various instruments used in the capital market to raise funds.
Securitisation Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
Securitisation Vehicle An entity that is created to fulfill specific objectives. Normally insolvency remote and created to isolate financial risk.
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 Agreement A negotiated and usually legally enforceable understanding between two or more legally competent parties that specifies the collateral held as security.
Security Special Purpose Vehicle 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.
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.
Senior Unsecured Debt Securities that have priority ahead of all other unsecured or subordinated debt for the payment in the event of default.
Servicer A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.
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.
Set-off Extinguishing of debts owed reciprocally by parties. Therefore automatically terminates the obligations of operation of law. (Four requirements have to be met for set-off: 1.) Debts must be similar in nature; 2.) Debts must be liquidated; 3.) Debts must be claimable; and 4.) Debts must be between the same parties.
Settlement Full repayment of an obligation.
Special Purpose Vehicle An entity that is created to fulfill specific objectives. Normally insolvency remote and created to isolate financial risk.
SPV An entity that is created to fulfill 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.
Subordinated Debt Debt that in the event of default is repaid only after senior obligations have been repaid. It is higher risk than senior debt.
Surveillance Process of monitoring a transaction according to triggers, covenants and key performance indicators.
Swap An agreement between two parties for the exchange of a series of future cash flows. The exchange of one security for another. Normally an investment bank, which provides a swap.
Tranche In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.
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.
Trustee 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.
Ultimate Payment A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.
Unconditional Not subject to any conditions.
Unsecured Claim Debt securities that have no collateral.
Unsecured debt Debt securities that have no collateral.
Vacancy In commercial property, usually expressed as a percentage of unoccupied floor space in relation to the GLA.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.
Weighted The weight that a single obligation has in relation to the aggregated pool of obligations. For example, a single mortgage principal balance divided by the aggregated mortgage pool principal balance.
Weighted Average An average resulting from the multiplication of each component by a factor reflecting its importance or, relative size to a pool of assets or liabilities.
Yield Percentage return on an investment or security, usually calculated at an annual rate.

SALIENT FEATURES OF ACCORDED RATINGS

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

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

The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.

The information received from the Arranger and other reliable third parties to accord the credit ratings included the latest Issuer’s audited annual financial statements for the year ending February 2014; the interim financials for the period ended 31 August 2014; an overview of the property portfolio serving as security for the Senior Secured Notes as per 31 December 2014; a performance forecast of the property portfolio serving as security for the Senior Secured Notes for the period beginning 1 January 2015 and ending 31 December 2015; the applicable Valuation Reports effective at 1 March 2015; proof of registration of the Mortgage Bond over Regents Place; and the relevant executed Transaction documents together with the relevant final signed legal and tax opinions and a letter confirming non-dual cession.

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

GCR affirms the final, public long term ‘A+(ZA)’ rating accorded to Delta Property Fund Limited’s DLTB02-Tap Issuance

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