Lagos, 22 November 2021 – GCR Ratings (“GCR”) has upgraded the national scale long term Issue ratings of Mixta Real Estate Plc’s Series 1 and Series 2 Tranche A Bonds to AAA(NG)(EL), with the Outlook accorded as Stable.
Concurrently, the national scale long term Issue rating accorded to the Series 2 Tranche B Bonds was downgraded to B(NG)(EL), with the outlook accorded as Evolving.
|Rated Entity/Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|N4.5bn Series 1 Guaranteed Bonds||Long Term Issue||National||AAA(NG)(EL)*||Stable|
|N2.96bn Series 2 Tranche A Guaranteed Bonds||Long Term Issue||National||AAA(NG)(EL)*||Stable|
|N2.32bn Series 2 Tranche B Secured Bonds||Long Term Issue||National||B(NG)(EL)*||Evolving|
*The Guaranteed/Senior Secured Bonds ratings are based on an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, these ratings carry an “(EL)” suffix. The expected loss rating assigned to the Bonds issued therefore differs from the long-term senior unsecured credit rating of the Guarantor/Issuer.
The upgrade of Mixta Real Estate Plc’s (“Mixta”, or “Issuer”) Series 1 and Series 2 Tranche A Guaranteed Bonds reflects the credit quality of GuarantCo Limited (“GuarantCo” or “the Guarantor”).
GCR has applied credit substitution with GuarantCo, as GuarantCo has provided an irrevocable and unconditional guarantee in favour of the Guarantee Trustee for and on behalf of the Series 1 and Series 2 Tranche A Bondholders. The guarantee covers 100% on outstanding principal, and one missed semi-annual interest payment, should there be a breach by the Issuer at any point in time.
GuarantCo, is currently rated ‘AA-‘ and ‘A1’ by two international rating agencies with a Negative Outlook, while GCR considers that the credit quality of GuarantCo commensurate with a AAA(NG) long term national scale rating.
The downgrade of the Series 2 Tranche B Senior Secured Bonds follows the downgrade of the national scale long-term corporate rating accorded to Mixta to CCC-(NG). The downgrade reflects Mixta’s significant financial strain, owing to excessive use of debt and limited cash flows.
The rating of the Series 2 Tranche B Bonds (being Senior Secured Bonds) is derived by applying a notching approach, starting from the long-term national scale rating of the Issuer. The notching approach involves an assessment of the stressed estimated recovery rate expected from a forced sale of the assets that serve as security for the Issuer’s outstanding bond obligation, under the assumption that the Issuer is in default. The estimated recovery calculations show recovery rate of 234% (capped at 100%) and qualifies the Bonds rating for a four notches uplift.
The Series 1 and Series 2 Tranches A and B Bonds constitute direct, senior, unconditional and unsubordinated obligations of the Issuer. All payment obligations under the Issue (except otherwise provided for by applicable laws) rank equal with all other present or future unsubordinated indebtedness and monetary obligations of both the Issuer and the Guarantor (where applicable).
The Stable Outlook on the Series 1 and Series 2 Tranche A Bonds reflects GCR’s opinion that GuarantCo will maintain its credit quality over the rating horizon.
The Evolving Outlook on the Series 2 Tranche B Bonds is in line with the Issuer Outlook. It reflects the prospects for a return to financial sustainability if the Group is able to raise sufficient cash from property sales, debt refinancing and/ or a recapitalisation. Nevertheless, in the absence of these events, and ongoing funder support, there remains the possibility that Mixta would require a distressed debt restructuring or even default on some its debt obligations.
Given that the ratings are intrinsically linked to the Guarantor’s/Issuer’s long-term corporate rating, any change in the rating assigned to the Guarantor/Issuer will directly affect the Bonds ratings.
|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 Secured Bond Expected Loss Credit Ratings, July 2021|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|Mixta Rating Announcement, November 2021|
Mixta Real Estate Series 1 and Series 2 Tranches A & B Bonds
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|N4.5bn Series 1 Guaranteed Bonds||Initial||National||AA+(NG)||Stable||December 2017|
|N2.96bn Series 2 Tranche A Guaranteed Bonds||Initial||National||AA+(NG)||Stable||February 2019|
|N2.32bn Series 2 Tranche B Secured Bonds||Initial||National||A-(NG)||Stable||February 2019|
|N4.5bn Series 1 Guaranteed Bonds||Last||National||AA-(NG)(EL)||Stable||December 2020|
|N2.96bn Series 2 Tranche A Guaranteed Bonds||Last||National||AA-(NG)(EL)||Stable||December 2020|
|N2.32bn Series 2 Tranche B Secured Bonds||Last||National||BBB(NG)(EL)||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.
The credit rating has been disclosed to Mixta Real Estate Plc. 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.
Mixta Real Estate Plc 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 Mixta Real Estate Plc and other reliable third parties to accord the credit ratings included:
- Shelf Prospectus
- Programme Trust Deed
- Deed of Guarantee
- Deed of Third-Party Legal Mortgage
- Recourse Agreement
- Series 1 and Series 2 Tranches A & B Pricing Supplements
- Series 1 and Series 2 Tranches A & B Trust Deeds
- Legal Opinion
- Valuation Report from CBRE Excellerate
- Trustees Bond Performance Report as of November 2021