Lagos, 11 August 2020– Global Credit Ratings has upgraded the national scale long term Notes ratings assigned to Municipality Waste Management Contractors Limited’s (“MWMCL”) Series 1 N28.47bn Secured Fixed Rate Notes (“the Notes”) to BB+(NG); with the outlook placed on “Rating Watch”. The ratings will expire in November 2020.
Global Credit Rating Co. Limited (“GCR”) has accorded the above credit rating to Municipality Waste Management Contractors Limited’s Series 1 N28.47bn Secured Fixed Rate Notes based on the following key criteria:
Lagos has taken over MWMCL’s assets (procured with the bond proceeds) and the outstanding liabilities, following the political reaction to the engagement of Visionscape and matters arising from the implementation of the Cleaner Lagos Initiative. (MWMCL is a Special Purpose Vehicle (“SPV”) incorporated for the purpose of raising funds for the acquisition and development of waste management infrastructure in Lagos State. The MWMCL consortium was led by Visionscape, a leading environmental utility group).
The Series 1 Notes are secured by an irrevocable standing payment order (“ISPO”) from Lagos State, which has an obligation to make monthly payments into a Notes Sinking Fund Account (“SFAs”), to ensure that there are sufficient funds available to service debt and ultimately redeem the Notes. In addition, the ISPO obligates Lagos State to pay all outstanding liabilities in the event of termination of contract. Lagos State’s Issuer rating was affirmed at A+(NG) in December 2019, with a Stable outlook.
GCR had downgraded the rating of the Notes to DD(NG) from A(NG) on 14 March 2019, following MWMCL’s default on the coupon payment date of 5 March 2019. Although the earlier missed payments in March 2019 were subsequently honoured and the obligations due in September 2019 paid, GCR’s notes that funding of the SFAs remained erratic (with no ISPO transfers made for four months). While Lagos State had indicated that it had secured the requisite approval as regards its debt service obligations on the MWMCL bonds and had given commitment for the continued payment of its monthly funding, ISPO transfers for January to March 2020 were made in a single payment, only days prior to the interest settlement Date.
Besides this, while GCR notes that the semi-annual payments have been honoured subsequent to the initial default and that provisions for the Bond obligation has been made in the State’s 2020 Appropriation Law, GCR is unable to access Lagos State Executive Council Resolution and Lagos State House of Assembly Approval explicitly stating the commitment to funding the Bond obligations throughout the Bond tenor. Consequently, the lack of the relevant documentation is a key constraint to the ratings as GCR cannot assign any ratings uplift to the Bond Issuance on the strength of the ISPO from the State.
TRANSACTION SUMMARY AND BACKGROUND
Municipality Waste Management Contractors Limited raised an initial N20.3bn Series 1 Tranche A Issue from the capital market in September 2017 under its N50bn Notes Issuance Programme (“the Programme”). This was followed by the issuances of Tranches B (N4.85bn) and C (N3.3bn) Notes in March 2018. Overall, an aggregate sum of N28.47bn has been raised in three tranches under the Series 1 Issue. The Notes have a legal maturity date of 5 September 2022. Interest and principal repayment on all the Notes are payable semi-annually in arrears in March and September of each year. The Notes are guaranteed by a 10-year ISPO issued by the Lagos State Government to cover both coupon payments and principal redemption.
GCR has accorded a public national scale long term credit rating of BB+(NG) to the Series 1 Senior Secured Fixed Rate Notes (and not the entire Programme). The rating accorded to the Series 1 Notes relate to ultimate payment of interest and principal (as opposed to timely, akin to a loss severity rating thereof). The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties.
NATIONAL SCALE RATINGS HISTORY
|Tranche A N20.3bn Note||A(NG)||Stable||October 2017|
|Tranche B N4.85bn Note||A(NG)||Stable||February 2018|
|Tranche C N3.3bn Note||A(NG)||Stable||February 2018|
|Series 1 (Tranches A-C) N28.47bn Notes||DD(NG)||Rating Watch||March 2019|
+23 41 904 9462-3
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
Global Master Criteria for Rating Structurally Enhance Corporate Bonds, updated September 2018
Glossary of Terms/Ratios (February 2018)
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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/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.COM.NG.
SALIENT FEATURES 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity; d) the ratings will expire in November 2020.
Eczellon Capital Limited (Lead Issuing House) and Lagos State Government participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to the Eczellon Capital Limited and Lagos State Government, with no contestation of the rating.
The information received from Eczellon Capital Limited (lead Issuing House), Lagos State Government and other reliable third parties to accord the credit rating included;
– Executed Programme Information memorandum;
– Executed Series 1 (Tranches A-C) supplemental information memoranda;
– Executed Programme Trust Deed;
– Executed Series Trust Deeds;
– Trustees report dated 31 March 2020;
– Sinking fund account bank statements as at 31 March 2020.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.