Johannesburg, 31 May 2016 — Global Credit Ratings (‘GCR’) has upgraded the final, public long term credit ratings of the following Senior Secured Notes issued by Investec Property Fund (‘IPF’), to ‘AA(ZA)’ with a ‘Stable’ Outlook:
- R100,000,000 Senior Secured Notes, stock code IPF12, coupon 3M JIBAR + 1.50%, due 13 April 2018;
- R50,000,000 Senior Secured Notes, stock code IPF03, coupon 3M JIBAR + 1.65%, due 13 April 2017; and
- R226,000,000 Senior Secured Notes, stock code IPF06, fixed coupon 8.8%, due 13 April 2017.
Collectively the IPF12, IPF03 and IPF06 notes, amounting to R376m, issued under IPF’s DMTN programme (the ‘Transaction’) are referred to as the ‘Senior Secured Notes’. The IPF02 (R40m) notes issued on 13 April 2012 were redeemed upon maturity in April 2016.
The final, public ratings accorded to the Senior Secured Notes relate to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of probability of default and loss severity).
IPF is a limited liability Real Estate Investment Trust (‘REIT’) whose mandate is to procure and manage income generative real estate with potential for capital gain. Listed on the JSE in April 2011, the fund owns a range of retail, commercial and industrial properties. The recent acquisition of the R7.1bn Zenprop portfolio and the R826m Griffin transaction increased the value of investments to c.R17.0bn (FYE15: R8.7bn), placing the REIT on the upper end of middle tier domestic REITs in terms of scale.
As per the Irrevocable Letter of Undertaking issued to the Noteholders of the Senior Secured Notes, IPF have replaced the Montague Gardens property that was released from the Security Portfolio with two other properties (Unitrans Polokwane and Intercare Fourways). The properties are rated B and A respectively and bring further geographical and sectoral diversification to the portfolio. Resultantly, the Security Portfolio equated to R1.0bn after the inclusion and the April 2016 Valuations.
The rating of the Senior Secured Notes was derived by applying a notching up approach, starting from the long term senior unsecured corporate credit rating of the Issuer. Based on the fundamentals and prospects of IPF, GCR accorded the Issuer with Credit Ratings of ‘A(ZA)/A1(ZA)’ on the long and short term scale respectively, with a ‘Stable’ Outlook in August 2015. With regards to the Senior Secured Notes, a rating uplift of 3 national scale notches was deemed appropriate for this particular Transaction, given the ‘Excellent Recovery Prospects’ equating to a ‘AA(ZA)’ rating on the Notes.
For more information on the Transaction and specific details of the Senior Secured Notes, please refer to the “Investec Property Fund Limited R376m Senior Secured Notes – Surveillance Report”, to be published on 31 May 2016. The Surveillance Report will be available to subscribers of GCR’s structured finance subscription service.
NATIONAL SCALE RATINGS HISTORY
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Structurally Enhanced Corporate Bonds Rating Criteria (Oct’15);
- Criteria for Rating Property Funds (May’16);
- Criteria for Rating Corporate Entities (Feb’16);
- Investec Property Fund Limited R450m Senior Secured Floating Rate Notes – New Issuance Report (Apr’12);
- Investec Property Fund Limited’s Corporate Rating Report (Aug’15);
- Investec Property Fund Limited R416m Senior Secured Notes – New Issuance Report (Apr’15);
- IPF Press Release relating to the Montague Gardens Property Release (Jun’15).
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.NET/UNDERSTANDING-RATINGS . IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/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.NET.
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Capital||The sum of money that is used to generate proceeds.|
|Corporate Credit Rating||A credit rating accorded to a corporate entity.|
|Coupon||Interest payment on a security.|
|Credit||A contractual agreement in which a borrower receives something of value now, and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Risk||The probability or likelihood that a borrower or issuer will not meet its debt obligations. Credit Risk can further be separated between current credit risk (immediate) and potential credit risk (deferred).|
|Debt||An obligation to repay a sum of money.|
|Default||A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than X days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.|
|Floating Rate Notes||Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.|
|Irrevocable||Not able to be changed, reversed, recovered and final.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|JIBAR||Johannesburg Interbank Agreed Rate. A reference rate.|
|JSE||Johannesburg Stock Exchange Limited, a licenced exchange under the Securities Services Act of 2004 (South Africa).|
|Long Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|National Scale Rating||The national scale provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Notching||A movement in ratings.|
|Noteholder||Investor of capital market securities.|
|Obligation||The title given to the legal relationship that exists between parties to an agreement when they acquire personal rights against each other for entitlement to perform.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Property||Movable or immovable asset.|
|Real Estate||Property that consists of land and / or buildings.|
|Recovery||The action or process of regaining possession or control of something lost. To recoup losses.|
|Reference Rate||A rate that is the basis of the calculation such as JIBAR.|
|Release||An agreement between the creditor and debtor, in terms of which the creditor release the debtor from its obligations.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Senior||A security that has a higher repayment priority than junior securities.|
|Servicing||The calculation of interest and repayments, collection of repayments, advancing of loans, foreclose procedures, maintaining records and seeing that the proceeds of each loan are passed on to the respective party.|
|Short Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Stock Code||A unique code allocated to a publicly listed security.|
|Structured Finance||A method of raising funds in the capital markets. A Structured Finance transaction is established to accomplish certain funding objectives whist reducing risk.|
|Surveillance||Process of monitoring a transaction according to triggers, covenants and key performance indicators.|
|Transaction||A transaction that enables an Issuer to issue debt securities in the capital markets. A debt issuance programme that allows an Issuer the continued and flexible issuance of several types of securities in accordance with the programme terms and conditions.|
|Trust||A third party that acts in the best interest of another party, according to the trust deed, usually the investors. Owner of a securitisation vehicle that acts in the best interest of the Noteholders.|
|Trust Deed||A deed of conveyance creating and setting out the conditions of a trust.|
|Ultimate Payment||A measure of the principal debt, interest, fees and expenses being repaid over a period of time determined by recoveries.|
|Valuation||An assessment of the property value, with the value being compared to similar properties in the area.|
SALIENT POINTS OF ACCORDED RATINGS
GCR affirms that a.) no part of the ratings 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, security or financial instrument; and d.) the validity of the ratings is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Issuer and the Arranger participated in the rating process via face-to-face meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The credit ratings have been disclosed to the Issuer and the Arranger with no contestation of the ratings.
The information received from the Arranger and other reliable third parties to accord the credit ratings included the latest Issuer’s audited annual financial statements for the year ending 31 March 2015; reviewed preliminary condensed consolidated financial statements relating to the Issuer per 31 March 2016; independent property valuations on all six properties as at 31 March 2016; a signed final legal opinion prepared in April 2015; tenant lease schedules for the secured properties; tenant and building gradings relating to the secured properties; the insurance policies covering the secured properties and a letter confirming that no properties (securing the Noteholder obligations) have been dual ceded.