Johannesburg, 17 October 2019 – GCR Ratings (“GCR”) has suspended Educor Holdings Proprietary Limited’s (“Educor”) long and short term, national scale issuer ratings of B+(ZA) and B(ZA), Rating Watch Negative, and the international scale rating of B-, Rating Watch Negative, due to a lack of sufficient information to support the ratings.
The suspension follows the rating action taken in March 2019, on the back of a marked elevation in gearing, which led to certain covenant breaches. This significantly exacerbated liquidity and refinancing risk, especially as Educor did not have committed facility headroom to cover a potential acceleration of payment of the impacted facilities.
While management initiated refinancing plans early in the year, and had been engaging stakeholders to reduce debt to sustainable levels, it has not provided GCR with documentation to affirm finalisation or progress on these critical steps required to stabilise Educor’s credit risk profile. GCR’s concerns are also heightened by the recent churn in senior management, as well as the protracted external audit of its 2018 financial statements, which is still to be finalised.
In this regard, and in the absence of meaningful management participation in the ratings process since March 2019, GCR has suspended the ratings. While the change in GCR’s Framework and Criteria saw all issuer ratings placed ‘Under Criteria Observation’, we are unable to continue to support the ratings, as there is potential that the credit risk profile may have continued to fundamentally deteriorate, at a time where GCR is unable to carry out timely surveillance due to a lack of the requisite management participation.
GCR continues to engage Educor and its shareholders with a view to securing the requisite information and updating the ratings over a period of up to 90 days. Failure on management’s part to provide such information, however, may necessitate a withdrawal of the ratings.
|Primary analyst||Patricia Zvarayi||Deputy Sector Head: Corporates|
|Johannesburg, ZA||Patricia@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Sector Head: Financial Institutions|
|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 Companies, May 2019|
|GCR Country Risk Scores, June 2019|
|GCR Corporate Sector Risk Scores, June 2019|
|GCR Rating Scales, Symbols and Definitions|
Educor Holdings Proprietary Limited
|Rating class||Review||Rating scale||Rating class||Outlook/Watch||Date|
|Issuer Long Term||Initial||National||BBB-(ZA)||Stable||December 2016|
|Issuer Short Term||Initial||National||A3(ZA)|
|Issuer Long Term||Initial||International||BB-||Stable||December 2016|
|Issuer Long Term||Last||National||B+(ZA)||Rating Watch Negative||March 2019|
|Issuer Short Term||Last||National||B(ZA)|
|Issuer Long Term||Last||International||B-||Rating Watch Negative||March 2019|
|Committed Facility||A line of credit extended to a borrower that is guaranteed to be available for a specified period. The lender is obliged to lend the predetermined amount for the defined period under the terms of the agreement.|
|Country Risk||The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.|
|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.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Gearing||Gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.|
|International Scale Rating||An opinion of creditworthiness relative to a global pool of issuers and issues.|
|Issuer Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|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.|
|Rating Watch||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.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short Term||Current; ordinarily less than one year.|
|Surveillance||Process of monitoring a transaction according to triggers, covenants and key performance indicators.|
|Suspension||See GCR Rating Scales, Symbols and Definitions and GCR’s Withdrawal and Suspension of Credit Ratings Policy.|
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 credit ratings have been disclosed to Educor Holdings Proprietary 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.
Educor Holdings Proprietary Limited participated in a meeting with GCR, but has not provided new information or documentation to enable ongoing surveillance or for a full rating review to be conducted since rating action was last taken in March 2019.