Johannesburg, 2 March 2015 — Global Credit Rating Co. (‘GCR’) has affirmed the final, public Long Term credit ratings of ‘AA+(ZA)’ with a Stable Outlook accorded to the following Senior Secured Notes issued on 8 May 2012:
- R580m Secured Term Notes, stock code VKE01, maturity 8 May 2015;
- R200m Secured Term Notes, stock code VKE02, maturity 8 May 2016; and
- R240m Secured Term Notes, stock code VKE03, maturity 8 May 2017.
RATING RATIONALE
Vukile Property Fund Limited (‘Issuer’), through their Arranger, advised GCR that the Issuer will be selling the Johannesburg Parktown Oakhurst property – portions 1 and 2 of Erf 915 Parktown – (‘Property’) held in the secured property portfolio.
As at September 2014, the Property reported a high vacancy level of 20.5% with arrears reported at 7.5%. The Property lease expiry profile, as a percentage of the GLA, was reported as 1.1% (2014), 12.3% (2015), 30.8% (2016), 24.5% (2017), 7.3% (2018) and 3.5% (beyond 2018).
All of the properties in the secured property portfolio were valued during March and September 2014. The Issuer reported the aggregate value of the secured property portfolio as R3.670bn (before the sale). The Property was valued in September 2014 at R70m (after adjustments) by Quadrant Properties (Pty) Ltd. The sale of the Property will increase the secured property portfolio Loan To Value ratio from 27.8% (September 2014) to an estimated 28.3%.
GCR reviewed the recovery calculation of the Secured Notes, excluding the Property from the secured property portfolio and there is no rating impact. This is primarily due to the Property value being 1.9% of the secured property portfolio. A rating uplift of four national scale notches is still deemed appropriate in this particular transaction, given the “Excellent Recovery Prospects”.
RATINGS HISTORY
ANALYTICAL CONTACTS
Corné Els
Structured Finance Analyst
+27 11 784 1771
Committee Chairperson
Emma-Jane Fulcher
Head: Structured Finance Ratings
+27 11 784 1771
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Summary Structurally Enhanced Corporate Bonds Rating Criteria – revised Oct ’14;
Vukile Property Fund Ltd Senior Secured Report – Dec ’14;
Global Master Criteria for Rating Corporate Entities – Aug ’14;
Global Summary Criteria for Rating Property Funds – updated Jul ’14; and
Vukile Property Fund Ltd Rating Report – Feb ’14.
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. |
| Arrears | General term for non-performing obligations, i.e. obligations that are overdue. |
| Bond | A long term debt instrument issued by either: a company, institution or the government to raise funds. |
| 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). |
| 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. |
| Enforceable | To make sure people do what is required by a law or rule et cetera. |
| Floating Rate Notes | Debt securities that have a periodic interest rate reset in relation to the reference rate, i.e. JIBAR. |
| Forecast | A calculation or estimate of future financial events. |
| Guarantee | An undertaking for performance of another’s obligations in event of default. |
| Guarantee SPV | A Special Purpose Vehicle that has been created to guarantee the performance of the obligations of the Issuer that sold its assets to the Guarantee SPV. |
| Income | Money received, especially on a regular basis, for work or through investments. |
| Issuer | The party indebted or the person making repayments for its borrowings. |
| JIBAR | Johannesburg Interbank Agreed Rate. A reference rate. |
| 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. |
| 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. |
| Performing | An obligation that performs according to its contractual obligations. |
| 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. |
| 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. |
| 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. |
| 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. |
| SPV | 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. |
| 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. |
| Vacancy | In commercial property, usually expressed as a percentage of unoccupied floor space in relation to the GLA. |
| 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 info received was considered adequate and has been independently verified where possible.
The rating/s above were solicited by the Issuer and the Arranger of the Transaction; GCR has been compensated for the provision of the ratings.
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 / Arranger:
- Property sale notification letter to the Guarantee SPV;
- Property valuation documents of the properties the DMTN portfolio;
- Income and expenses per property per 30 September 2014;
- Tenancy lease schedules per 30 September 2014;
- Property risk grades;
- Forecast income and expenses per property;
- Vacancy and arrear levels per property;
- Audited financial results of the Issuer per 31 March 2014; and
- Unaudited interim results of the Issuer per 30 September 2014.
Vukile Property Fund Limited – R1.02bn Senior Secured Floating Rate Notes, Sale of Property