Announcements Corporate Rating Alerts

GCR assigns A(ZA)(EL) ratings to Accelerate’s new secured note issuance; Outlook Negative

Rating Action

Johannesburg, 7 June 2021 – GCR Ratings (“GCR”) has assigned national scale long term issue ratings of A(ZA)(EL) to the APF16 Note issued by Accelerate Property Fund Limited (“Accelerate”, or “the REIT”). Concurrently, GCR has affirmed the long-term issue ratings of A(ZA)(EL) assigned to the existing Senior Secured Notes. The Outlook on the ratings is Negative.

Rated Entity / Issue Rating class Rating scale Rating* Outlook / Watch
Senior Secured APF04 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF06 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF07 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF08 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF09 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF10 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF12 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF13 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF14 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF15 Note Long Term Issue National A(ZA)(EL) Negative Outlook
Senior Secured APF16 Note Long Term Issue National A(ZA)(EL) Negative Outlook

*The Senior Secured Note ratings are based on an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, these ratings carry an “(EL)” suffix.

Rating Rationale

The proceeds from the issuance of the new APF16 Note will be applied to refinance maturing permitted facilities that share the same security pool as the Senior Secured Notes. Ultimately, the aggregate amount of secured debt outstanding remains largely the same as the new issuance is a substitution of debt and does not represent an additional draw down of debt. Cognisance is taken of the relief granted through the temporary relaxation of covenant limits to increase headroom and avoid breaches. Nonetheless, in its analysis GCR assumes that the outstanding debt at the point of default is the maximum possible amount that can be issued up to the LTV covenant of 45%.

The REIT intents to continue to manage down its leverage through the disposal of some of its properties and applying the proceeds to reducing debt. This has resulted in some properties in the secured portfolio being transferred out, with several others at varying stages of the sales process.

The issue rating is derived by notching up from the national scale long term issuer rating assigned to Accelerate. GCR’s estimated recovery rate on the secured debt exposure increased to 86.5% from 78% previously, on the back of better arrear statistics for the underlying portfolio. As this metric still relates to a superior recovery prospect, a rating uplift of three national scale notches was still deemed to be appropriate for the Senior Secured Notes. Therefore, GCR assigned a rating of A(ZA)(EL) to the APF16 Note and affirmed the ratings of the existing Notes.

Outlook Statement

The outlook on the ratings of the Notes is Negative, reflecting the outlook on the underlying issuer’s credit rating.

Rating Triggers

A downgrade of the issuer ratings would necessarily translate to a downgrade of the ‘EL’ ratings. Additionally, if a continuous deterioration in recovery prospects on the EL ratings is observed, this could also result in downward rating pressure.

Analytical Contacts

Primary analyst Sheri Morgan Senior Analyst: Corporate Ratings
Johannesburg, ZA Morgan@GCRratings.com +27 11 784 1771
Committee chair Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
Criteria for Rating Real Estate Investment Trusts and Other Commercial Property Companies, May 2019
Criteria for Rating Secured Bonds, November 2018

Ratings History

Accelerate Property Fund Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National BBB+(ZA) Stable Outlook Feb 2014
Short Term Issuer Initial National A2(ZA)
Long Term Issuer Last National BBB(ZA) Negative Outlook Aug 2020
Short Term Issuer Last National A3(ZA)

Accelerate Property Fund Limited Senior Secured Notes

Stock Code Review Rating scale Rating* Outlook/Watch Date
APF04 Initial National AA-(ZA) Stable Outlook Oct 2016
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF06 Initial National AA-(ZA) Stable Outlook Aug 2017
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF07 Initial National AA-(ZA) Stable Outlook Jun 2018
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF08 Initial National AA-(ZA) Stable Outlook Jul 2018
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF09 Initial National AA-(ZA) Stable Outlook Jul 2018
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF10 Initial National AA-(ZA)(EL) Stable Outlook Oct 2019
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF12 Initial National A(ZA)(EL) Negative Outlook Aug 2020
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF13 Initial National A(ZA)(EL) Negative Outlook Sep 2020
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF14 Initial National A(ZA)(EL) Negative Outlook Sep 2020
Last National A(ZA)(EL) Negative Outlook Feb 2021
APF15 Initial National A(ZA)(EL) Negative Outlook Feb 2021
Last National A(ZA)(EL) Negative Outlook Feb 2021
Initial National A(ZA)(EL) Negative Outlook Jun 2021
Last National A(ZA)(EL) Negative Outlook Jun 2021

* Structured bond ratings are based on an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, the ratings carry an ‘EL’ suffix. The ratings are derived by applying a notching approach, starting from the long-term issuer rating. Should the issuer rating or the estimated recovery rate calculated by GCR change, the ratings assigned to the Senior Secured Notes may also change. Prior to the publication of GCR’s Rating Scales, Symbols and Definitions in May 2019, structured bond ratings did not carry the ‘EL’ suffix.

Glossary

Collateral Asset provided to a creditor as security for a loan or performance.
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 Risk The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.
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.
DMTN Domestic Medium-Term Note.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
Issuer The party indebted or the person making repayments for its borrowings.
Lease Conveyance of land, buildings, equipment or other assets from one person (lessor) to another (lessee) for a specific period of time for monetary or other consideration, usually in the form of rent.
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.
Loan To Value Principal balance of a loan divided by the value of the property that it funds. LTVs can be computed as the loan balance to most recent property market value, or relative to the original property market value.
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.
Portfolio A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.
Proceeds Funds from issuance of debt securities or sale of assets.
Property Movable or immovable asset.
Rating Horizon The rating outlook period
Rating Outlook See GCR Rating Scales, Symbols and Definitions.
Refinancing 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.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings process 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; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit ratings have been disclosed to Accelerate Property Fund Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Accelerate Property Fund Limited participated in the rating process via face-to-face management meetings, tele-conferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Accelerate Property Fund Limited and other reliable third parties to accord the credit ratings included:

  • the 2020 audited annual financial statements (plus four years of audited comparative numbers);
  • presentations, SENS announcements and roadshows;
  • breakdown of debt facilities available and related counterparties;
  • breakdown of the secured property portfolio;
  • latest property valuation reports;
  • the final signed Applicable Pricing Supplement for the APF16 Note;
  • final signed legal opinion in respect of the issuance of the APF16 Note.


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