Lagos, 24 October 2019 — Global Credit Ratings has accorded indicative public short term ratings of A1(NG)(sf) and A1-(NG)(sf) respectively to the Senior and Subordinated Commercial Paper Notes (“CP” or “Notes”) to be issued by Mortgage Warehouse Funding Limited (“MWFL” or “Issuer”) under MWFL’s N20bn multi-seller Asset Backed Commercial Paper (“ABCP”) Programme. The indicative ratings relate to the Notes to be issued shortly as well as CP Issues that mature within the guaranteed liquidity window of the Liquidity Asset Purchase Agreement (“LAPA”), but not the Programme. The indicative ratings accorded to the CP Notes relate to timely payment of interest and principal, and will expire in February 2020. The final ratings will be accorded after issuance of the CP notes and upon receipt of satisfactorily final, signed and executed transaction documents.
SUMMARY RATING RATIONALE
Mortgage Warehouse Funding Limited (“MWFL”) is a special purpose company set up to provide short term funding to its owner-mortgage banks in Nigeria, through the establishment of a multi-seller asset-backed commercial paper programme (the Programme” or “CP Programme”). The CP Programme provides short term liquidity by prefinancing Eligible Mortgage Loans (“EMLs”) originated by MWFL’s Member Mortgage Banks (“MMBs” or “the Banks”) and qualifying mortgage lending institutions, pursuant to the terms of a Master Purchase, Pre-finance and Servicing Agreement (“MPPSA”). MFWL’s purchase of related mortgage loan rights shall be with recourse to the respective Banks. EMLs must comply with the uniform underwriting standards (“UUS”) issued by Nigerian Mortgage Refinancing Company (“NMRC”). The Issuer’s ABCP Programme will be managed by Citihomes Finance Company Limited.
FMDQ OTC Securities Exchange gave approval for the CP Programme in November 2017, however, the CP issuance has been delayed due to several factors including market conditions and introduction of stronger governance around the Issuer.
MWFL has entered into a Liquidity Asset Purchase Agreement (“LAPA”) with NMRC to provide liquidity to the CP issuance Programme. By the LAPA, NMRC has undertaken to purchase/refinance mortgage loans that meet its eligibility criteria, albeit subject to certain conditions, inter alia, its success in raising adequate funds from the capital markets. Pursuant to the LAPA, NMRC has a right to defer purchases on account of the occurrence of certain Force Majeure events but will endeavour to continue to perform its obligations so far as is reasonably practicable. The agreement can be reviewed after its third-year anniversary in September 2020. Similarly, upon issuance of a six-month prior written notice to the other party, either NMRC or MWFL can terminate the LAPA, three months following its third-year anniversary. The LAPA will continue to be in force if not terminated by either party.
NMRC’s ability to refinance the mortgages is enhanced by its N440bn Medium Term Note (“MTN”) Programme, which is backed by the unconditional and irrevocable Guarantee of the Federal Government of Nigeria through a Deed of Guarantee, dated 30 April 2015. Overall, NMRC has issued AAA rated (N8bn) Series 1 Notes and (N11bn) Series 2 Notes in July 2015 and May 2018 respectively.
Prior to MWFL’s refinancing, each MMB is required to deposit 10% of the face value of CPs to be issued in the applicable Series into the Reserve Account, with the Collecting and Paying Agent, to provide the required 10% Program-Wide Credit Enhancement (“PWCE”). The internally created credit enhancement of the senior/subordinate capital structure and the PWCE provide cash flow cover of 48% (6.28x cover) to the Senior Notes and 28% (3.67x cover) to the Subordinated Notes. If the underlying property value is included, total collateralisation increases to 58% (7.64x cover) for Senior Notes and 42% (5.54x cover) for Subordinated Notes.
The Issuer’s obligations to the Noteholders are secured by the Security Deed. Pursuant to the Security Deed between MWFL, the MMB, the Security Trustee and NMRC, each MMB creates security interests over its interests in the Secured Assets in favour of the Security Trustee for the benefit of MWFL and the Noteholders. The obligations of the Issuer will be secured by a first ranking fixed charge over the Charged Assets, Charged Transaction Accounts and by a Security Assignment as detailed in the PSD. This notwithstanding, the prolonged Title perfection and cumbersome judicial processes in Nigeria remain risk factors.
NATIONAL SCALE RATINGS HISTORY
Senior Credit Analyst
+23 41 904 9462-3
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
• Global Master Structured Finance Rating Criteria (September 2018);
• Global Asset Backed Commercial Paper Rating Criteria (November 2018);
• Citihomes Finance Company Limited Rating Report (August 2019);
• Nigeria Mortgage Refinance Company Plc Rating (October 2018);
• Nigeria Mortgage Refinance Company Plc Bond Rating (October 2018).
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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/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.COM.NG.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process 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 indicative ratings are valid until February 2020.
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 credit ratings have been disclosed to the Issuer.
The ratings above were solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the ratings.
The information received from Mortgage Warehouse Funding Limited and other reliable third parties to accord the indicative bond rating included: MWFL CP Programme Memorandum, MWFL Memorandum and Articles of Association, Management Services Agreement, Deed of Covenant, Issuing and Placing Agent Agreement, Master Purchase, Collecting and Paying Agent Agreement, Calculating Agent Agreement, Security Deed, Trust Deed, Liquidity and Asset Purchase Agreement, Legal Opinion by G. Elias & Co, Independent legal opinion from Perchstone & Graeys.