Johannesburg, 18 April 2016 — Global Credit Ratings (‘GCR’) has accorded a final, public long term credit rating of ‘A(ZA)’ with a ‘Stable’ Outlook to the following Notes (the ‘New Notes’) issued by Hospitality Property Fund Limited (‘HPF’ or the ‘Issuer’), on 18 April 2016 (the ‘Transaction’):
- R150m, Senior Secured Floating Rate Notes, Stock Code: HPF09, maturing 15 April 2019.
The New Notes were issued to refinance the HPF01 Notes which matured on 17 April 2016.
Concurrently GCR affirmed the final, public long term credit rating of ‘A(ZA)’ with a ‘Stable’ Outlook, accorded to the following existing Notes issued by Hospitality Property Fund Limited (the ‘Existing Notes’):
- R400m, Senior Secured Floating Rate Notes, Stock Code: HPF04, maturing 17 February 2017;
- R200m, Senior Secured Fixed Rate Notes, Stock Code: HPF05, maturing 17 February 2017;
- R60m, Senior Secured Floating Rate Notes, Stock Code: HPF06 maturing 20 February 2020;
- R80m, Senior Secured Floating Rate Notes, Stock Code: HPF07 maturing 20 August 2017.
The New Notes and the Existing Notes are collectively referred to as the ‘Senior Notes’.
The Senior Notes are secured by a portfolio of the Issuer’s hotels (the underlying collateral). The New Notes were issued to refinance an equal nominal amount of HPF01 Notes which matured on 17 April 2016. The Transaction entails the public listing of the New Notes on the Interest Rate Market of the Johannesburg Stock Exchange and forms part of the Issuer’s established R2bn Domestic Medium Term Note Programme. The Transaction sponsor is Rand Merchant Bank (‘RMB’) (a division of First Rand Bank Ltd). RMB also serves as the Arranger amongst other roles for the Transaction.
HPF sold a total of 8 properties that formed a part of the secured portfolio during the 2015/2016 financial years, with the last sale concluded in March 2016. Of this total, 2 properties (R29m as at June 2014) were sold before FYE15. The group sold 6 properties post the 2015 financial year-end, with an additional 10 chalets from the Kopanong Hotel and Conference Centre scheduled to be sold during F16 (3 of these have already been sold to date). The total cash inflow from the disposals post FYE15 was valued at R176m as at June 2015.
The total OMV of the secured portfolio experienced an 8% decline to R2.9bn as at June 2015 (June 2014: R3.2bn), partly owing to the abovementioned disposals. Despite the reduction in the underlying security pool, the minimal change in the estimated recoveries did not warrant any rating action and none of the transaction covenants were breached during the period under review.
Based on GCR’s Global Structurally Enhanced Corporate Bonds Rating Criteria, the calculated overall recovery rate of 96.7% carries the qualification ‘Excellent Recovery Prospects’. A rating uplift of 3 national scale notches was deemed to be appropriate for this particular Transaction. Accordingly, GCR accorded a final, public long term credit rating of ‘A(ZA)’ with a ‘Stable’ Outlook to the New Notes and affirmed the final, public long term credit rating of ‘A(ZA)’ with a ‘Stable’ Outlook accorded to the Existing Notes.
The final, public ratings accorded to the Senior 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). The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties. If the rating accorded to the Issuer changes, the ratings of the Senior Notes may change, but potentially not in the same scale. For more information on the Transaction, please refer to GCR’s Hospitality Property Fund Limited – New Issuance Report on this Transaction to be published on 18 April 2016.
+27 11 784 1771
+27 11 784 1771
Sector Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
- Global Structurally Enhanced Corporate Bonds Rating Criteria (Oct’15);
- Criteria for Rating Property Funds (Apr’15);
- Criteria for Rating Corporate Entities (Feb’16);
- HPF Corporate Rating Report (Oct’15);
- Hospitality Property Fund Limited R890m Senior Secured Notes Surveillance Report (Feb’16);
- Hospitality Property Fund Limited R890m Senior Secured Notes Pre-funding Report (Apr’16).
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.
|Agent||An agreement where one party (agent) concludes a juristic act on behalf of the other (principal). The agent undertakes to perform a task or mandate on behalf of the principal.|
|Agreement||A negotiated and usually legally enforceable understanding between two or more legally competent parties.|
|Arranger||Usually an Investment bank that advises and constructs a transaction and acts as a conduit between the transaction parties: Client, Issuer, Credit Rating Agency, Investors, Legal Counsel and Servicers.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Claim||A formal request or demand.|
|Collateral||An asset pledged as security in event of default.|
|Conduit||A commercial lending entity that is established to purchase assets to securitise.|
|Corporate Credit Rating||A credit rating accorded to a corporate entity.|
|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).|
|Creditworthiness||An assessment of a debtor’s ability to meet debt obligations.|
|Debt||An obligation to repay a sum of money.|
|Debtor||The party indebted or the person making repayments for its borrowings.|
|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.|
|Domestic Medium Term Note Programme||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.|
|Fixed Rate Notes||Debt securities that have a fixed interest rate over its.|
|Floating Rate Notes||Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.|
|Insurance||Provides protection against a possible eventuality.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|JIBAR||Johannesburg Interbank Agreed Rate. A reference rate.|
|Junior||A security that has a lower repayment priority than senior securities.|
|Lease||Agreement or temporary use and enjoyment of a corporeal thing (movable or immovable property) the whole or part thereof for rent. The essential elements of a contract of lease are: 1.) Undertaking of lessor to give the lessee the use and enjoyment of something; 2.) Agreement between the lessor and lessee that the lessee’s right to use and enjoyment is temporary; and 3.) Lessee’s undertaking to pay a sum or rent.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|Lessee||The party that enjoys temporary use of a corporeal thing.|
|Lessor||The owner or agent that acts on behalf of the owner of property that grants the temporary use of a corporeal thing.|
|Liability||All financial claims, debts or potential losses incurred by an individual or an organisation.|
|Liquidity||The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Loss||A tangible or intangible, financial or non-financial loss of economic value.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|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.|
|Obligor||The party indebted or the person making repayments for its borrowings.|
|Pledge||Constituted by an agreement between the pledgor, who undertakes to deliver the article, and the pledgee, and subsequent delivery of the property in question as security for debt. A pledge is only applicable to movable property.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Property||Movable or immovable asset.|
|Provision||An amount set aside for expected losses to be incurred by a creditor.|
|Ranking||A priority applied to obligations in order of seniority.|
|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.|
|Rent||Payment from a lessee to the lessor for the temporary use of an asset.|
|Repayment||Payment made to honour obligations in regards to a credit agreement in the following credited order: 3.) Satisfy the due or unpaid interest charges; 4.) Satisfy the due or unpaid fees or charges; and 5.) To reduce the amount of the principal debt.|
|Securities||Various instruments used in the capital market to raise funds.|
|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.|
|Servicer||A transaction appointed agent that performs the servicing of mortgage loans, loan or obligations.|
|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.|
|Stock Code||A unique code allocated to a publicly listed security.|
|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.|
|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 FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating 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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating 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 June 2015; an overview of the Issuer’s Hotel portfolio for the period ending 29 February 2016; a performance forecast for the period beginning December 2012 and ending December 2018; a schedule of the insurance policies covering the hotels serving as security; the applicable Open Market Valuation Reports; audited compliance certificates as at 30 June 2015 and 31 December 2015; Applicable Pricing Supplement for the New Notes; an updated legal opinion; and the relevant signed and executed transaction documentation for the Existing Notes and the Programme.