Commissioner Street No. 4 (RF) Ltd – Ratings Affirmed

26 Feb 2019 In Rating Notifications

Commissioner Street No. 4 (RF) Ltd – Ratings Affirmed

Johannesburg, 26 February 2019—Global Credit Ratings (“GCR”) has affirmed the long-term national scale credit ratings accorded to the following Notes issued by Commissioner Street No. 4 (RF) Ltd (the “Issuer”) under the Metro Funding Series 2011-1 pursuant to the Commissioner Street Collateralised Note Programme:

R215,000,000 Class A5 Notes, stock code MEFSB5, due 5 January 2022………………….: ‘AA+(ZA)(sf)’ with a Stable outlook;

R465,716,739 Class A6 Notes, stock code MEFSA6, due 5 July 2026………………………..: ‘AA+(ZA)(sf)’ with a Stable outlook.

The final, public ratings accorded to the Notes issued by the Issuer relates to timely payment of interest and ultimate payment principal. The ratings exclude an assessment of the ability of the Issuer to pay any (early repayment) penalties. The ratings have been reviewed by applying GCR’s updated Global Master Structured Finance Rating Criteria, published in September 2018, together with the updated Global Credit-Linked Note and Repackaging Vehicle Rating Criteria. Both Criteria reports are available on GCR’s website.

RATING RATIONALE

The Class A5 and Class A6 Notes are backed by the rights, title and interest to a loan provided by Absa Bank Limited (“Absa”) to the Borrower, eThekwini municipality in 2011 (the “Loan”), which was purchased by the Issuer using the proceeds from the issuance of the Notes. The Issuer utilises interest and principal payments made by the Borrower semi-annually to repay interest and principal on the Notes. As such, the ratings of the Notes are credit linked to the long-term national scale credit rating accorded to the Borrower. The Borrower’s rating was affirmed by GCR in November 2018.

The Issuer repaid R315m in outstanding Class A4 Notes in January 2019, resulting in the Class A4 Notes being paid in full. The outstanding balance under the eThekwini loan, together with the cash held in the Issuer’s Principal Account as at January 2019 is sufficient to make the principal repayment of the remaining Class A Notes as they mature. The loan matures in June 2026. GCR noted that there was a breach in one of the Loan covenants relating to the ‘Gross Consumer Debtor Movement’ in 2018, however, the breach was condoned as it does not impact the financial performance by the Borrower of its obligations. GCR does not consider this condoned breach to have an impact on the rating accorded to the Issuer’s Notes.

GCR reviewed the transaction documents in light of its updated Global Master Structured Finance Rating Criteria. It was noted that the provision in respect of the term to maturity of permitted investments in the documentation is not in line with GCR’s counterparty criteria. However, GCR received confirmation from Absa that all the cash held on behalf of the issuer is invested in call accounts at Absa, which is currently rated ‘A1+(ZA)’ on the short-term national scale by GCR and that the term of these deposits in each case will not exceed the next Payment Date. As such, GCR’s rating committee deemed this to have no impact on the ratings as the cash is managed in line with the rating criteria applied.

Absa performs several functions pursuant to this transaction, including that of Administrator, Hedge Counterparty and Account bank. GCR is comfortable that Absa’s current long-term national scale rating of ‘AA(ZA)’ with a Stable outlook is of sufficient credit quality to support the rating of the Notes.

 

NATIONAL SCALE RATINGS HISTORY

Class of Notes
Stock code
Initial Rating
Long Term Rating
Short Term Rating
Outlook
Class A5
MEFSB5
7 November 2011
AA-(ZA)(sf)
n.a
Stable
Class A6
MEFSA6
7 November 2011
AA-(ZA)(sf)
n.a
Stable
           
Asset Class
Last Rating
Long Term Rating
Short Term Rating
Outlook
Class A5
MEFSB5
26 April 2018
AA+(ZA)(sf)
n.a
Stable
Class A6
MEFSA6
26 April 2018
AA+(ZA)(sf)
n.a
Stable

 

ANALYTICAL CONTACTS

Primary Analyst Secondary Analyst
Tinashe Mujuru Charlene Chipoyera
Structured Finance Analyst Structured Finance Analyst
.(JavaScript must be enabled to view this email address) .(JavaScript must be enabled to view this email address)
+27 11 784 1771 +27 11 784 1771

Committee Chairperson

Yohan Assous

Sector Head: Structured Finance Ratings

.(JavaScript must be enabled to view this email address)

+27 11 784 1771

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Structured Finance Rating Criteria - Sep ’18;

Global Credit-Linked Note and Repackaging Vehicle Rating Criteria - Nov ’18;

Global Master Criteria for Rating Banks and Other Financial Institutions - Mar ’17;

Absa Bank Limited’s Credit Rating Report - May ’18.

 

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

 

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.
Advance A lending term, to transfer funds from the creditor to the debtor.
Asset An item with economic value that an entity owns or controls.
Commercial Paper A debt security of short-term nature, less than a year.
Default A default occurs when: 1.) The Borrower is unable to repay its debt obligations in full; 2.) A credit-loss event such as charge-off, specific provision or distressed restructuring involving the forgiveness or postponement of obligations; 3.) The borrower is past due more than 90 days on any debt obligations as defined in the transaction documents; 4.) The obligor has filed for bankruptcy or similar protection from creditors.
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.
Guarantee An undertaking for performance of another’s obligations in event of default.
Guarantor A party that gives the guarantee.
Hybrid A form of security that has characteristics of various types of transaction or product.
International Scale Rating LC International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.
Irrevocable Not able to be changed, reversed, recovered and final.
Issuer The party indebted or the person making repayments for its borrowings.
Liquidity The ability to repay short-term obligations or short-term availability of liquid assets to a market or entity.
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.
Medium Term Notes Debt securities with a tenor ranging from 3 months to 15 years.
Noteholder Investor of capital market securities.
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.
Principal The total amount borrowed or lent, e.g. the face value of a bond, excluding interest.
Provision An amount set aside for expected losses to be incurred by a creditor.
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.
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.
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.
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.
Unconditional Not subject to any conditions.

For a detailed glossary of terms utilised please click here.

 

SALIENT FEATURES OF ACCORDED RATING

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 information received was considered adequate and has been independently verified where possible.

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

The rating above was solicited by the Issuer of the Transaction; GCR has been compensated for the provision of the rating.

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

  • Quarterly investor reports from January 2012 to January 2019.

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2013 Global Credit Rating Co (Pty) Ltd. INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.