Lagos, 27 October 2021 – GCR Ratings (“GCR”) has upgraded the national scale long term Issue rating of Axxela Funding 1 Plc’s N11.5bn Series 1 Senior Secured Fixed Rate Bonds to A-(NG)(EL), with the Outlook accorded as Stable.
|Rated Entity/Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N11.5bn Series 1 Senior Secured Bonds||Long Term Issue||National||A-(NG)(EL)*||Stable|
*The Senior Secured Bonds rating is based on an estimate of the expected loss in the event of an issuer default and is a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, this rating carries an “(EL)” suffix. The expected loss rating assigned to the Bonds issued therefore differs from the long-term senior unsecured credit rating of the Issuer.
The upgrade of the Axxela Funding 1 Plc’s N11.5bn Series 1 Senior Secured Bonds follows the recent upgrade of the national scale long-term corporate rating accorded to Axxela Limited (“the Sponsor”) to A-(NG). The upgrade reflects Axxela Limited’s established market position, which has enabled the group to report strong earnings and cash flows, thereby supporting comfortable credit protection metrics, despite ongoing expansion.
The Series 1 Bonds are direct, irrevocable and senior secured obligations of the Issuer, Axxela Funding 1 Plc, and shall at all times rank pari passu and without any preference among themselves. The Issuer is a special purpose vehicle owned and sponsored by Axxela Limited as a funding entity, solely for the purpose of raising funds for its Sponsor.
Pursuant to the Series 1 Trust Deed, security is primarily created over trade receivables due from take or pay contracts, held in trust under an existing Security Deed, in addition to the assets pledged by the Sponsor. However, the existing receivables are not to be sold off to any entity, neither will the receipts on future receivables be ring-fenced for the payment of the bond obligations. As such, GCR considers the trade receivables as part of the working capital available for day-to-day operations of the Obligors, which have been factored into the long-term corporate ratings accorded to the Sponsor. Thus, recoveries would be in line with the corporate recovery prospects in a default scenario. Accordingly, the long-term Issue rating of the Series 1 Bonds is equalised to the Sponsor’s long term senior unsecured corporate rating.
The Stable Outlook reflects GCR’s opinion that Axxela will continue to generate robust earnings and cash flow, which will continue to support comfortable gearing metrics, a strong capital structure and adequate liquidity, even if the substantial capex continues.
|Primary analyst||Busola Akinrolabu||Analyst|
|Lagos, Nigeria||Busola@GCRratings.com||+234 1 904 9462|
|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|
|Criteria for Rating Corporate Entities, May 2019|
|Criteria for Secured Bond Expected Loss Credit Ratings, July 2021|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Nigeria Country Risk Scores, October 2021|
|GCR Nigeria Corporate Sector Risk Scores, August 2021|
Axxela Funding 1 Plc’s N11.5bn Series 1 Bonds
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long term Issue||Initial/Last||National||BBB+(NG)||Stable||December 2020|
|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.|
|Issuer Ratings||See GCR Rating Scales, Symbols and Definitions.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|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.|
|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.|
|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.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
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.
Axxela Limited participated in the rating process via telephonic management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from Axxela Limited and other reliable third parties to accord the credit ratings included:
- Shelf Prospectus
- Programme Trust Deed
- Series 1 Pricing Supplement
- Series 1 Trust Deed
- Legal Opinion from Olaniwun Ajayi LP
- Master Notes Subscription Agreement
- Gaslink Security Deed
- Axxela All Assets Debenture
- Trustees Bond Performance Report as at October 2021