Johannesburg, 21 February 2017 — Global Credit Ratings (‘GCR’) has affirmed the final, public long term credit rating of ‘AA-(ZA)’ with a ‘Stable’ Outlook, accorded to the following Senior Secured Notes issued by Accelerate Property Fund Ltd (‘APF’ or the ‘Issuer’) under its R5bn DMTN Programme (the ‘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;
R225m Senior Secured Notes, stock code APF04, coupon 3M JIBAR + 2.30%, due 21 October 2021.
The affirmation of the ratings of the abovementioned Senior Secured Notes follows the sale of the Centurion Highveld Park, a retail property which formed a part of the secured property portfolio. GCR also takes cognisance of the recent affirmation of the ‘BBB+(ZA)’ long term senior unsecured corporate credit rating of APF in February 2017.
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
APF is a mid-sized Real Estate Investment Trust (‘REIT’), listed on the JSE on 12 December 2013. As at 30 September 2016, APF comprised of 60 properties with an aggregate value of R9.1bn. The fund’s focus is to maintain a strong retail bias. Approximately 67% of the fund’s revenue was generated from retail properties, with the remainder generated from office (28%) and industrial (5%) properties for the six months to 30 September 2016.
The Senior Secured Notes together with the Permitted Term Facilities and Permitted Hedging Facilities are currently secured against 44 properties of the Issuer valued at R6.4bn, following the sale of the Centurion Highveld Park property. The property was sold for R57m and the proceeds of the sale were used to partially pay down (pro rata) the secured debt owed to the Permitted Term Facilities Providers.
The ratings of the Senior Secured Notes were derived by applying a notching approach, starting from the long term senior unsecured corporate credit rating of the Issuer. Based on the fundamentals and prospects of APF, GCR affirmed the APF credit ratings of ‘BBB+(ZA)/A2(ZA)’ in February 2017, on the long and short term respectively, with a ‘Stable’ Outlook. Despite the change to the secured portfolio, 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.
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’17); Accelerate Property Fund Ltd Senior Secured Notes New-Issuance Report (Sep’14); subsequent Tap Issuance Reports (Oct’14, Aug’15 and Oct’16); Surveillance Report (Aug’16); and press release (Jan’17). The criteria are available on the GCR website.
NATIONAL SCALE RATINGS HISTORY
Senior Structured Finance Analyst
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Sector Head: Corporate and Public Sector Debt Ratings
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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’17)
- Accelerate Property Fund Ltd Senior Secured Notes – New Issuance Report (Sep’14);
- Accelerate Property Fund Senior Secured Notes – Tap Issuance Reports (Oct’14, Aug’15 and Oct’16);
- Accelerate Property Fund Senior Secured Notes – Surveillance Report (Aug’16); and
- Accelerate Property Fund Senior Secured Notes Press Release (Jan’17).
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.|
|Debt||An obligation to repay a sum of money.|
|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.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|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.|
|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.|
|Notching||A movement in ratings.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Proceeds||Funds from issuance of debt securities or sale of assets.|
|Property||Movable or immovable asset.|
|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.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Refinance||The issue of new debt to replace maturing debt. New debt may be provided by existing or new lenders, with a new set of terms in place.|
|Secured Debt||Debt backed with or secured by collateral to reduce lending risk and thus the interest rate charged.|
|Senior||A security that has a higher repayment priority than junior securities.|
|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.|
|Stock Code||A unique code allocated to a publicly listed security.|
|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.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
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 the Issuer with no contestation of the ratings.
The information received from the Issuer and other reliable third parties to accord the credit ratings included:
- Interim report for the half-year ended 30 September 2016;
- Updated permitted facilities overview; and
- Email correspondence confirming the sale of the Centurion Highveld Park.
The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.