Announcements

GCR places Delta Property Fund Limited’s Senior Secured Notes ‘Under Review’

Johannesburg, 9 March 2016: Global Credit Ratings (‘GCR’) has placed the ‘A+(ZA)’ ratings accorded to the Senior Secured Notes issued by Delta Property Fund Limited (the ‘Issuer’) under its R2bn DMTN programme ‘Under Review’. The Issuer currently has the following Senior Secured Notes in issue (the ‘Notes’):

– ZAR 462 million, Senior Secured Floating Rate Notes, maturing 09 December 2016, stock code DLTB02.

The Notes were issued on 09 December 2013, with a subsequent tap issuance completed on 9 March 2015. GCR affirmed the ‘A+(ZA)’ rating accorded to the Notes, with a ‘Stable’ Outlook on 25 March 2015.

The Review Date for the rating of the Notes was scheduled for 10 March 2016. The Issuer has advised GCR that it is in the process of finalising the reporting of its financial year end which was on 29 February 2016. This involves finalising audited financial results and completing valuation reports for the properties. The issuer believes that providing more updated information to GCR for the purposes of reviewing the rating of the Notes should be more accurate for this process and for investors. Accordingly, GCR has placed the rating of the Notes Under Review as it is currently awaiting the required information from the Issuer, in order to complete an accurate analysis of the transaction. GCR has been advised by the Issuer that the information should be received during the next few weeks and as such, GCR expects to receive the finalised documentation and to conclude the rating review by 30 April 2016.

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 accorded a long term ‘BBB+(ZA)’ national scale corporate credit rating with a ‘Stable’ outlook to the Issuer. A rating uplift of 3 national scale notches was deemed appropriate in this particular transaction, given the “Superior Recovery Prospects” equating to a ‘A+(ZA)’ rating on the Senior Secured Notes. The rating relies on the recoveries from the properties contained within the security portfolio and the Second Nedbank Guarantee. 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. For more information on the Transaction, please refer to GCR’s Delta Property Fund Limited R462m Senior Secured Floating Rate Notes New-Issuance Report published on 10 March 2015.

NATIONAL SCALE RATINGS HISTORY

 

Stock Code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
DLTB02
11 December 2013
A+(ZA)
n.a
Stable
 
Stock Code
Last Rating
Long Term Rating
Short Term Rating
Outlook
DLTB02
25 March 2015
A+(ZA)
n.a
Stable

ANALYTICAL CONTACTS
Mark Vrdoljak
Credit Analyst
+27 11 784 1771
markvrd@globalratings.net

Tinashe Mujuru
Junior Analyst
+27 11 784 1771
tinashem@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 (Oct’15);
• Criteria for Rating Property Funds (Apr’15);
• Criteria for Rating Corporate Entities (Feb’15);
• Delta Property Fund Limited’s Corporate Rating Report (Jul’15);
• Delta Property Fund Limited R462m Senior Secured Floating Rate Notes – Tap Issuance Report (Mar’15);
• Delta Property Fund Limited R462m Senior Secured Floating Rate Notes – Press Release (Mar’15).

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.
Capital The sum of money that is used to generate proceeds.
Corporate Credit Rating A credit rating accorded to a corporate entity.
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.
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.
Floating Rate Notes Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.
Guarantee An undertaking for performance of another’s obligations in event of default.
Issuer The party indebted or the person making repayments for its borrowings.
JIBAR Johannesburg Interbank Agreed Rate. A reference rate.
Liability All financial claims, debts or potential losses incurred by an individual or an organisation.
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.
Property Movable or immovable asset.
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
Reference Rate A rate that is the basis of the calculation such as JIBAR.
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.
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.
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.
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.
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.
Under Review Failure to carry out a full review of a rated entity within the designated timeframe, either through lack of information or delays in finalisation, i.e. review is ongoing.
Valuation An assessment of the property value, with the value being compared to similar properties in the area.


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

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; a signed Second Nedbank Guarantee Agreement; and the relevant executed Transaction documents together with the relevant final signed legal and tax opinions and a letter confirming non-dual cession.

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