Lagos, 17 December 2021 – GCR Ratings (“GCR”) has affirmed the national scale long term issue rating of BBB+(NG) assigned to Transcorp Hotels Plc’s N10bn Series 1 Senior Unsecured Bonds, with the Outlook accorded as Stable.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N10bn Series 1 Senior Unsecured Bond||Long Term Issue||National||BBB+(NG)||Stable|
The N10bn Series 1 Senior Unsecured Bond rating reflects the long-term rating of the Issuer, namely Transcorp Hotels Plc, a leading hotel group in the Nigerian hospitality sector. GCR affirmed the Issuer’s long-term rating of BBB+(NG), with a Stable Outlook in December 2021. The rating balances its concentration to a single hotel property against, strong parental support. Leverage remains relatively high leverage, with weak cash flow coverage of debt but the Hotel Group has evidenced a strong earnings performance as COIVD-19 disruptions have eased. (link to Issuer announcement)
The Series 1 Bonds are direct, unconditional, senior, unsubordinated, and unsecured obligations of the Issuer and rank pari passu without any preference among themselves. The Bonds also rank pari passu with all other senior unsecured and unsubordinated obligations assumed by the Issuer other than those mandatorily preferred by law.
Given that Transcorp Hotels Plc offers timely and full coverage of all payments due to the Bondholders, under the N10bn Series 1 Senior Unsecured Bonds, the Bond bears the same default risk as its Issuer and would reflect similar recovery prospects to senior unsecured creditors in the event of a default. As such, the long-term Issue rating for the Series 1 Bonds is equivalent to the Issuer’s long term senior unsecured rating.
GCR has reviewed the Trustee’s performance report from United Capital Trustees Limited, dated 26 November 2021, and notes that twelve coupon payments and ten principal repayments totaling N14.9bn have been made to date. The Trustee reports confirmed that there is no breach of negative pledge or covenants from the Issuer as of the report date.
The Bonds were issued in October 2015, with a coupon rate of 16% and maturity date in October 2022.
The Stable Outlook reflects GCR’s expectation that Transcorp will sustain robust earnings and cash generation over the outlook period, barring any further severe COVID restrictions on business activity.
A rating upgrade is contingent on Transcorp’s ability to meaningfully reduce debt while sustaining sound operating cash flows, such that OCF coverage of debt and interest coverage register at 30%-55% and 4.7x-14.5x respectively over the medium term. The ratings could be downgraded if debt escalates further leading to a material deterioration in the debt service metrics, or if a further earnings shock manifests due to renewed lockdowns. Significant weakness in the credit profile of the parent could also impact on the ratings as it would impact the support assessment.
|Primary analyst||Samuel Popoola||Analyst: Corporate and Public Sector|
|Lagos, NG||Samuel@GCRratings.com||+234 1 904 9462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||Matthewp@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, May 2019|
|Criteria for Rating Corporate Entities, May 2019|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|GCR Country Risk Score report, October 2021|
|GCR Nigeria Corporate Sector Risk Scores report, November 2021|
|Transcorp Hotels Plc’s rating reports, 2015-21|
Transcorp Hotels Plc’s N10bn Series 1 Senior Unsecured Bond
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long term Issue||Initial||National||A-(NG)||Stable||August 2015|
|Long term Issue||Last||National||BBB+(NG)||Stable||December 2020|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Issuer Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Horizon||The rating outlook period|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to Transcorp Hotels Plc. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
Transcorp Hotels Plc participated in the rating process via telephonic management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Transcorp Hotels Plc and other reliable third parties to accord the credit ratings included:
- Trustee’s Bond Performance Report dated 26 November 2021