Johannesburg, 16 March 2016 — Global Credit Ratings (‘GCR’) has downgraded the final, public long-term credit rating to ‘AA(ZA)(sf)’ and maintained the Negative Outlook accorded to the following debentures (the ‘ING211 Notes’) issued on 19 April 2013 by iNguza Investments (the ‘Transaction’):
R300,000,000 Senior Secured Floating Rate Notes due, 12 April 2016, stock code ING211.
The rating accorded to the ING211 Notes relates to timely payment of interest and principal. The rating excludes an assessment of the Issuer to pay any (early repayment) penalties.
The ING211 Notes were issued under the iNguza Investments Note Programme administered by Rand Merchant Bank (‘RMB’) a division of FirstRand Bank Limited. The ING211 Notes reference a term loan to a South African corporate (the ‘Borrower’). The rating accorded to the ING211 Notes looks through to the long-term credit rating accorded to the Borrower. The underlying security of the Notes is a term loan that is scheduled to mature on 12 April 2016.
The rating accorded to the Borrower was downgraded and as a consequence, the rating of the ING211 Notes was downgraded, with a Negative Outlook.
The term loan and Applicable Pricing Supplement make specific provisions for, amongst others, downgrade language for another Registered Credit Rating Agency of the Borrower, which together with that of the Applicable Pricing Supplement would result in the Issuer increasing the margin payable (‘Margin Adjustments’) on the ING211 Notes. Such a Margin Adjustment shall be applicable on the immediate following Floating Interest Payment date, scheduled for 12 April 2016, with the expected full and final settlement of the ING211 Notes.
As RMB performs several support functions to the iNguza Investments Note Programme (being Account Bank, Administrator, Calculation Agent and Paying Agent), the rating of the Notes may also change if the rating of RMB is considered to be of insufficient credit quality and no appropriate remedial action is taken when necessary. The rating excludes an assessment of the Issuer to pay any (early repayment) penalties. For more information on the transaction please refer to the iNguza Investments ING211 Surveillance Report published on 17 April 2015.
Structured Finance Analyst
+27 11 784 1771
Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Credit-Linked Note and Repackaging Vehicle Rating Criteria – May ’15; and
Global Master Criteria for Rating Corporate Entities – Feb ’16;
RATING LIMITATIONS AND DISCLAIMERS
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S STRUCTURED FINANCE GLOSSARY
|Account Bank||A bank where the transaction account is held.|
|Administrator||A transaction appointed agent responsible for the managing of a Conduit or a Special Purpose Vehicle. The responsibilities may include maintaining the bank accounts, making payments and monitoring the transaction performance.|
|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.|
|Applicable Pricing Supplement||A transaction document that describes the particulars of notes issued.|
|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.|
|Borrower||The party indebted or the person making repayments for its borrowings.|
|Calculation Agent||An agent appointed by the Issuer to calculate the: 1.) Coupon in accordance with the Applicable Pricing Supplement; 2.) Other related fees and expenses and Priority of Payments; and 3.) Transaction covenants.|
|Claim||A formal request or demand.|
|Coupon||Interest payment on a security.|
|Covenant||A provision that is indicative of performance. Covenants are either positive or negative. Positive covenants are activities that the borrower commits to, typically in its normal course of business. Negative covenants are certain limits and restrictions on the borrowers’ activities.|
|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.|
|Debenture||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|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.|
|Floating Interest||An interest rate that changes as the repo or reference rate changes.|
|Floating Rate Notes||Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|JIBAR||Johannesburg Interbank Agreed Rate. A reference rate.|
|Lender||A credit provider that is owed debt obligations by a debtor.|
|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.|
|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.|
|Paying Agent||An appointed transaction party that is responsible for the payment of Noteholders scheduled interest and principal, as well as other transactional obligations.|
|Payment Date||The date on which the payment of a coupon is made.|
|Pricing||A process of determining the price of a debt security.|
|Principal||The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.|
|Priority of Payments||In securitisation, the order in which the cash flows are allocated to the transaction parties.|
|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.|
|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.|
|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.|
|Scheduled Interest||The interest payment due on a scheduled date.|
|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.|
|Settlement||Full repayment of an obligation.|
|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.|
|Special Purpose Vehicle||An entity that is created to fulfil specific objectives. Normally insolvency remote and created to isolate financial risk.|
|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.|
|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 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 ratings above were solicited by, or on behalf of the rated client, and therefore, GCR has been compensated for the provision of the ratings.
The Arranger and Issuer 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 Arranger and Issuer with no contestation of the rating.
GCR has received satisfactory copies of all executed transaction documents signed on 18 April 2013 and the audited financial statements of the Issuer for the year ended 30 June 2015.