Johannesburg, 20 March 2014: Global Credit Rating Co. (Pty) Ltd (‘GCR’) has affirmed the final, public long term ‘BBB(ZA)’ ratings and ’Stable’ rating outlooks accorded to the following senior secured notes (the ‘Senior Secured Notes’) issued by Idwala Industrial Holdings Limited (the ‘Issuer’):
• R 1,050,000,000 Senior Secured Corporate Notes, stock code IDW001, coupon 3M Jibar + 3.83%, due 30 June 2016.
• R 355,000,000 Senior Secured Amortising Notes, stock code IDW002, coupon 3M Jibar + 3.60%, due 30 June 2016.
• R 85,000,000 Senior Secured Capex Notes, stock code IDW003, coupon 3M Jibar + 3.60%, due 30 June 2016.
The ratings of the Senior Secured Notes is derived by applying a notching up approach, starting from the long term senior unsecured corporate credit rating of the Issuer. The Issuer is currently rated BB+(ZA) and A3(ZA) on the long and short term scales respectively by GCR, with the rating being on ‘Positive’ outlook. The aggregate R1.49bn Senior Secured Notes are secured by a variety of the Issuer’s assets, which includes, amongst others, buildings, plant & machinery, equipment, locomotives, vehicles, stock and trade receivables (the ‘Underlying Collateral’). A rating uplift of 2 national scale notches was deemed appropriate in this particular transaction, given the “Good Recovery Prospects” calculated by GCR based on the estimated stressed recoveries from the assets that serve as Underlying Collateral for the Senior Secured Notes. The 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). The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties.
The ratings of the Senior Secured Notes incorporate recoveries potentially arising from the sale of the Underlying Collateral and can therefore not be compared with, for example, a traditional corporate credit rating (the latter, which is also an expression of expected loss, but refers to probability of default and an average historical loss given default for generalised senior unsecured debt). If the rating of the Issuer changes, the ratings of the Senior Secured Notes may also change, but not necessarily in the same quantum. The ratings of the Senior Secured Notes may also change if the estimated stressed calculated recoveries in respect of the Underlying Collateral changes materially. For more information please refer to the Idwala Industrial Holdings Limited – Senior Secured Notes Surveillance Report published on 20 March 2014.
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Head of Structured Finance
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
GCR analysed the Transaction by applying its Global Master Criteria for Rating Corporate Entities and its Global Structurally Enhanced Corporate Bonds Rating Criteria.
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SALIENT POINTS 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 info received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to the Issuer and the Arranger with no contestation of the rating.
The information received from the Issuer and other reliable third parties to accord the credit ratings included the signed executed transaction documents together with the relevant signed legal and tax opinions; the Issuer’s audited annual financial statements for the year ending 31 December 2012; the description of the assets comprising the Collateral; Management Accounts as per 31 December 2013, CGIC Credit Insurance Policy, summary of 2014 Assets All Risks Insurance Policy.
The rating/s above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.