Announcements

iMpumelelo CP Note Programme 1 (RF) Ltd; Indicative Rating Accorded

Johannesburg, 22 December 2015 — Global Credit Ratings (‘GCR’) has accorded an indicative, public long term credit rating of ‘A(ZA)(sf)’ with a Stable Outlook to the following Senior Secured Credit Linked Notes (‘Notes’) to be issued on the transaction closing date by iMpumelelo CP Note Programme 1 (RF) Ltd (‘iMpumelelo’ or the ‘Issuer’):

  1. R1,311m Series 2 Senior Secured Fixed Rate Notes, expected maturity 30 June 2023 – Indicative ratings expiry date: 31 January 2016.
  2. RATING RATIONALE

    The Notes will be issued under the ‘iMpumelelo R2bn Serialised Note Programme’, a programme administered by Absa Capital. The proceeds from the issuance of the Notes will be used to fund the participation of iMpumelelo in the Loan Facility that Absa made available to the City of Johannesburg Metropolitan Municipality (‘CoJ’). iMpumelelo and Absa will enter into a Master Participation Agreement, whereby the Issuer will participate in 100% of the Facility. The Issuer’s participation in the Loan Facility Agreement will constitute the Acquired Assets under the Series.

    The rating of the Notes is credit linked to the rating of CoJ, which is not currently rated by GCR. CoJ is currently rated by Moody’s and GCR has used this rating in its analysis. The issuer rating of CoJ is ‘A2.za’ and ‘P-1.za’ on the long term and short term national scale respectively, with a ‘Stable Outlook’. Moody’s affirmed these ratings in September 2015. The long term rating of CoJ accorded by Moody’s maps to a long term rating of ‘A(ZA)’ on GCR’s national scale. The credit linked Notes will therefore have an indicative long term rating of ‘A(ZA)(sf)’ with a ‘Stable Outlook’.

    The rating accorded to the Notes relates to timely payment of interest and principal. The rating excludes an assessment of the ability of the Issuer to pay any (early repayment) penalties. In the event that the national long term rating or the national senior unsecured rating of the Issuer may be downgraded or withdrawn, or if the sovereign rating be downgraded or withdrawn, the Credit Linked Notes’ rating may follow suit. In the event that the ratings used by GCR are withdrawn, GCR will use another licensed Credit Rating Agency in accordance with Section 18(1) of the Credit Rating Services Act 24, of 2012. The rating of the Notes may also change if relevant risk presenting entities are not considered to be of sufficient credit quality anymore and no appropriate remedial action is undertaken when necessary. For more information please refer to the iMpumelelo CP Note Programme 1 (RF) Limited Pre-funding Report published in December 2015.

    ANALYTICAL CONTACTS

    Tinashe Mujuru

    Junior Analyst

    +27 11 784 1771

    tinashem@globalratings.net

    Mark Vrdoljak

    Credit Analyst

    +27 11 784 1771

    markvrd@globalratings.net

    Committee Chairperson

    Emma-Jane Fulcher

    Head of Structured Finance

    +27 11 784 1771

    fulcher@globalratings.net

    APPLICABLE METHODOLOGIES AND RELATED RESEARCH

    Global Credit-Linked Note and Repackaging Vehicle Rating Criteria – May ’15; and

    Moody’s City of Johannesburg Credit Opinion – Sep ’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.

    GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY

    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.
    Asset An item with economic value that an entity owns or controls.
    Capital The sum of money that is used to generate proceeds.
    Claim A formal request or demand.
    Conduit A commercial lending entity that is established to purchase assets to securitise.
    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 Rating Agency An entity that provides credit rating services.
    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).
    Credit-linked Note Structured Credit Security that combines a bond or loan with a credit derivative or links it to a rated counterparty. The normal coupon repayments remains unchanged unless a credit event associated with a pre-specific reference obligation occur. CLN is similar to a Securitisation, except there are no assets transferred to the securitisation Vehicle. Either a securitisation vehicle or Issuer can issue a CLN.
    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.
    Derivative A financial instrument that offers a return based on the return of another underlying asset.
    Downgrade The assignment of a lower credit rating to a corporate, sovereign of debt instrument by a credit rating agency. Opposite of upgrade.
    Enforceable To make sure people do what is required by a law or rule et cetera.
    Expected Maturity The expected maturity date of the Notes. In an ABS transaction, the maturity date is based on the underlying collateral’s expected maturity, including prepayments.
    Fixed Rate Notes Debt securities that have a fixed interest rate over its.
    Issuer The party indebted or the person making repayments for its borrowings.
    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.
    Lien A right of retention of someone else’s property due to expensed money or labour on property acquires a lien until payment is made. A lien outranks all other forms of security claims. A lien arises by operation of law and not as agreement between parties. There are three types of liens: 1.) Storage or salvation of property; 2.) Improvement of property; and 3.) Contractual debt.
    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.
    Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
    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.
    Market An assessment of the property value, with the value being compared to similar properties in the area.
    Mortgage Loan A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
    Mortgagee A creditor under a mortgage agreement.
    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.
    Prepayment Early or excess repayment of an obligation. Partial or full prepayment of the outstanding loan amount.
    Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
    Proceeds Funds from issuance of debt securities or sale of assets.
    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.
    Redemption The repurchase of a bond at maturity by the issuer.
    Rent Payment from a lessee to the lessor for the temporary use of an asset.
    Repack Rearrangement of securities with the intent to be more attractive for investment. Junior tranches (that have a higher degree of default risk) of a securitisation transactions that have been repackaged into separate debt securities (according to their degree of risk) that utilise credit-enhancement techniques to mitigate the risk. A CDO is created to distribute the prepayment risk amongst different classes of Notes.
    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.
    Securitisation Is a process of repackaging portfolios of cash-flow producing financial instruments into securities for sale to third parties.
    Securitisation Vehicle An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.
    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.
    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.
    Timely Payment The principal debt, interest, fees and expenses being repaid promptly in accordance with the contractual obligation.
    Tranche In a structured finance, a slice or portion of debt securities offered that is structured or grouped to resemble the same degree of risk associated with the underlying asset or with a similar degree of risk. A junior tranche has a higher degree of default risk than a senior tranche.
    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.
    Valuation An assessment of the property value, with the value being compared to similar properties in the area.

    SALIENT FEATURES OF INDICATIVE RATINGS ACCORDED

    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 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 rating/s above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.

    The credit rating/s has been disclosed to the Arranger with no contestation of the rating.

    The information received from the Arranger and other reliable third parties to accord the credit ratings included:

  3. Draft APS for the Series 2 Notes;
  4. Security documents relating to Series 2;
  5. Loan Facility Agreement and addendums to the Agreement;
  6. Series 2 Transaction Supplement; and
  7. iMpumelelo CP Note Programme 1 Programme Memorandum

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