Announcements Corporate Rating Alerts

GCR upgrades Municipality Waste Management Contractors Limited’s Series 1 Notes Rating to A-(NG), Outlook Stable

Lagos, Nigeria, 11 October 2021 – GCR Ratings (“GCR”) has upgraded the national scale long term Issue rating of Municipality Waste Management Contractors Limited’ Series 1 (Tranches A-C) N28.47bn Secured Notes to A-(NG), with the Outlook revised to Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
N28.47bn Series 1 Secured Notes Long Term Issue National A-(NG) Stable

Rating Rationale

The upgrade follows the sustained remittances that Lagos State Government (“Lagos” or “the State”) has, in its capacity as the Sponsor/co-obligor on the Notes issue, made into the sinking fund accounts, such that all debt service obligations have been timeously met. Accordingly, there has not been a further default since the initial incidence in 2019, and the State has committed to making all future payments timeously, until maturity of the Notes in September 2022.

Nevertheless, GCR considers the Municipality Waste Management Contractors Limited’ Series 1 (Tranches A-C) N28.47bn Secured Notes (“the Notes”) to rank, in substance, as subordinated to the senior unsecured obligations of the State, given that (1) the Notes do not rank pari passu with other senior unsecured obligations of the State and (2) lacks cross default terms with respect to the obligations of the State.

Furthermore, given the history of default, the rating is constrained by the lack of (1) express written commitment from Lagos State House of Assembly explicitly giving commitment to funding the Notes obligations throughout the tenor, and (2) documentary evidence supporting the transfer of the assets of Municipality Waste Management Contractors Limited to the State.

Accordingly, the rating reflects the greater debt service risks associated with Notes, compared to senior unsecured debt of Lagos State. Given that Lagos remains the primary obligor and the Sponsor to the Notes Issue, GCR will consider any future default on the Notes obligation as a default of Lagos State Government and will take negative rating action accordingly.

Outlook Statement

The Stable Outlook reflects GCR’s expectation that the State will continue to honour the Notes payment obligations until maturity in 2022.

Rating Triggers

A rating upgrade is contingent upon the receipt of documentary evidence in respect of (1) the transfer of the assets of Visionscape, the lead operating entity under the defunct special purpose vehicle arrangement and (2) document backing Lagos State Government’s commitment to fund the sinking fund account for the remaining life of the Notes. Conversely, a rating downgrade could follow any non-payment of Notes obligations.

Analytical Contacts

Primary analyst Samuel Popoola Analyst: Corporate Ratings
Lagos, Nigeria Samuel@GCRratings.com +234 1 9049462
Committee chair Eyal Shevel Sector Head: Corporate and Public Sector Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Local and Regional Governments, June 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR’s Nigeria Country Risk Score report, February 2021
Lagos State Government’s Rating Announcement, August 2021

Ratings History

Municipality Waste Management Contractors Limited’s Series 1 (Tranches A-C) N28.47bn Secured Notes

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issue:

Tranche A N20.32bn Note

Tranche B N4.85bn Note

Tranche C N3.3bn Note

Initial

Initial

Initial

National

National

National

A(NG)

A(NG)

A(NG)

Stable

Stable

Stable

October 2017

February 2018

February 2018

Long Term Issue:

Tranche A N20.32bn Note

Tranche B N4.85bn Note

Tranche C N3.3bn Note

Last

Last

Last

National

National

National

BB+(NG)

BB+(NG)

BB+(NG)

Rating Watch

Rating Watch

Rating Watch

July 2020

July 2020

July 2020

SALIENT POINTS OF ACCORDED RATINGS

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

The credit rating has been disclosed to the Sponsor, Lagos State Government. 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.

Lagos State Government participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Lagos State Government and other reliable third parties to accord the credit rating included updated Joint Trustees Performance Report as of June 30, 2021.

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