Announcements

GCR affirms the ratings accorded to Investec Property Fund’s Senior Secured Notes

Johannesburg, 25 June 2015 — (‘GCR’) has affirmed the final, public ‘AA-(ZA)’ long term ratings and ‘Stable’ outlooks accorded to the IPF02, IPF03, IPF06 and IPF12 notes issued by Investec Property Fund (“IPF” or the “Issuer”). The IPF12, IPF02, IPF03 and IPF06 notes (collectively referred to as the ‘Senior Secured Notes’) collectively amounting to R416m were issued under IPF’s DMTN programme (the “Transaction”):

  • ZAR 100,000,000 senior secured notes, stock code IPF12, coupon 3M JIBAR + 1.50%, due 15 April 2018.
  • ZAR 40,000,000 senior secured notes, stock code IPF02, coupon 3M JIBAR + 1.55%, due 13 April 2016.
  • ZAR 50,000,000 senior secured notes, stock code IPF03, coupon 3M JIBAR + 1.65%, due 13 April 2017.
  • ZAR 226,000,000 senior secured notes, stock code IPF06, coupon 8.8%, due 13 April 2017.

The final, public ratings accorded to the Senior Secured Notes relate to 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).

RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Investec Property Fund’s Senior Secured Notes based on the following key criteria:

IPF is a limited liability Real Estate Investment Trust (‘REIT’) whose mandate is to procure and manage income generative real estate with potential for capital gain. Listed on the JSE in April 2011, the fund owns a range of retail, commercial and industrial properties.

The rating of the Notes was derived by applying a notching up approach, starting from the long term senior unsecured corporate credit rating of the Issuer. Based on the fundamentals and prospects of IPF, GCR accorded IPF Credit Ratings of ‘A-(ZA)/A1(ZA)’ on the long and short term scale respectively in July 2014.

More recently IPF acquired Noteholder consent to release the Montague Gardens property from the Security Portfolio. From a rating perspective this had no impact on the recovery prospects as the property was haircut by 100%, as per GCR’s recovery assumption stresses documented in the Investec Property Fund Limited R416m Senior Secured Notes – New Issuance Report. Noting the afore, a rating uplift of 3 national scale notches was deemed appropriate for these particular Notes, given the ‘Excellent Recovery Prospects’ of the Notes.

The IssuerI has also issued an Irrevocable Letter of Undertaking to the Noteholders stating that they will replace the Montague Gardens property with alternative security interests of the same value within 3 months after the release of Montague Gardens. The impact of the inclusion of the alternative security interests is to be analysed upon completion of the mortgage bond registration process.

For more information on the Transaction and specific details of the Senior Secured Notes, please refer to the surveillance report entitled “Investec Property Fund Limited R416m Senior Secured Notes – New Issuance Report”, published in April 2015. The New-Issuance report is available to subscribers of GCR’s structured finance subscription service.

NATIONAL SCALE RATINGS HISTORY

Initial rating:
Senior Secured Notes – IPF12, 15 April 2015: AA-(ZA), Stable outlook;
Senior Secured Notes – IPF02, 13 April 2012: A(ZA), Stable outlook;
Senior Secured Notes – IPF03, 13 April 2012: A(ZA), Stable outlook;
Senior Secured Notes – IPF06, 13 April 2012: A(ZA), Stable outlook;

Last rating (April/2015)
Senior Secured Notes – IPF12, 15 April 2015: AA-(ZA), Stable outlook;
Senior Secured Notes – IPF02, 15 April 2015: AA-(ZA), Stable outlook;
Senior Secured Notes – IPF03, 15 April 2015: AA-(ZA), Stable outlook;
Senior Secured Notes – IPF06, 15 April 2015: AA-(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

  • Global Structurally Enhanced Corporate Bonds Rating Criteria (Feb’15);
  • Criteria for Rating Property Funds (Apr’15);
  • Criteria for Rating Corporate Entities (Feb’15);
  • Investec Property Fund Limited R450m Senior Secured Floating Rate Notes – New Issuance Report (Apr’12);
  • Investec Property Fund Limited’s Corporate Rating Report (Jul’14);
  • Investec Property Fund Limited R450m Senior Secured Floating Rate Notes – Surveillance Report (Jul’14)

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.

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

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 Issuer’s audited annual financial statements for the year ending March 2014;
  • reviewed interim consolidated financial results for the period ended 30 September 2014;
  • an overview of the Issuer’s property portfolio as at 30 September 2014;
  • a performance forecast for the period beginning March 2014 and ending March 2016;
  • the insurance policies covering the ceded properties;
  • the applicable Open Market Valuation Reports;
  • a legal opinion prepared in April 2015; and the
  • relevant signed transaction documents including signed Noteholder Consent forms and a signed Irrevocable Letter of Undertaking together with the relevant tax opinion.

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

Account Bank A bank where the transaction account is held.
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.
Business Rescue A term under the Companies Act 71 of 2008 (South Africa) Chapter 6 to remedy an entity that is likely to become insolvent. Entities that are likely to become insolvent (where liabilities exceed assets) or unlikely to be able to pay their debts as they fall due and payable in the coming six months.
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.
Debenture A long term debt instrument issued by either: a company, institution or the government to raise funds.
Debt An obligation to repay a sum of money.
Debtor The party indebted or the person making repayments for its borrowings.
Deed A legal document that is signed and delivered, especially one regarding the ownership of property or legal rights.
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.
Downgrade The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.
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.
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.
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.
Insolvency 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.
Insolvent 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.
Irrevocable Not able to be changed, reversed, recovered and final.
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.
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.
Liquidation The process by which a company is wound-up and its assets distributed to creditors. Liquidation proceedings are initiated either compulsorily or voluntarily by the company.
Liquidator A person appointed to wind up the affairs of a company or firm.
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.
Novation An agreement between a creditor and debtor, where the old agreement is extinguished and a new obligation is created in its place.
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.
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.
Recourse A source of help in a difficult situation.
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.
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.
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 Creditor A creditor that has specific assets pledged as collateral that will receive the proceeds in the event of default.
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 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.
Settlement Full repayment of an obligation.
Settlement Agent The person that acts on behalf of the debtor for repayment or settlement of obligations.
Shareholder An individual, entity or financial institution that holds shares or stock in an organisation or company.
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.
Subordination The prioritising of the payment of interest and principal payments to tranches (senior, junior etc. Senior tranches are paid before junior tranches.
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.

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