GCR accords an indicative rating of A(NG) to Municipality Waste Mgt.Contractors Ltd’s N27bn Note

19 Jun 2017 In Rating Notifications

GCR accords an indicative rating of A(NG) to Municipality Waste Mgt.Contractors Ltd’s N27bn Note

Lagos, 16 June 2017—Global Credit Ratings has assigned an indicative, public rating of A(NG) to Municipality Waste Management Contractors Limited’s (“MWMCL”) proposed Series 1 N27bn Fixed Rate Notes (the ‘Notes”); with the outlook accorded as Stable. The indicative bond rating will expire in August 2017.

The assigned indicative, public rating of the Notes is premised on its senior secured status. Should the status of the Note differ from that initially contemplated, this could impact the final ratings accorded. The final rating will be accorded upon receipt of satisfactorily signed and executed transaction documents.


RATING RATIONALE

Municipality Waste Management Contractors Limited (“MWMCL”, the “Contractors” or the “Issuer”) is a special purpose vehicle (“SPV”) set up to serve as a funding structure to finance the acquisition and development of waste management infrastructure in Lagos State. The SPV is a consortium of five companies [led by Visionscape Sanitations Solutions Limited (“Visionscape”)], contracted by the Ministry of Environment (“MoE”) to provide residential and general waste collection services across Lagos State. To enable it to fund infrastructure requirements, MWMCL has commenced the process of raising funds from the Capital Market by way of the Notes (through private placement). The Notes are guaranteed by a 10-year Irrevocable Standing Payment Order (“ISPO”) issued by the Lagos State Government (“Lagos State”, the “State”, or the “Sponsor”) to cover both coupon payments and principal redemption. The ISPO transfers will be accumulated in a Sinking Fund Account (“SFA”), to be managed by independent Trustees. The Notes carry a five-year maturity, with semi-annual interest and principal repayment.

With the Series 1 Notes expected to be secured by an ISPO, with an obligation to pay all outstanding liabilities in the event of termination of contract, the rating accorded is tied to the unsecured Issuer rating of the State. As such, any change in the rating assigned to the Sponsor will directly affect the Notes rating. Lagos State’s Issuer rating was affirmed at A+(NG) in August 2016, with the outlook accorded as Stable.

The ratings accorded to the Notes relate to ultimate payment of interest and principal (as opposed to timely, akin to an expected loss rating, which is a function of both probability of default and loss severity).


RATING RATIONALE OF THE ISSUER

MWMCL comprises experienced companies, with a long operational track record of performance in the waste management business in Nigeria and abroad. Visionscape, the lead contractor is a leading environmental utility group, having offices in Johannesburg, Mumbai, Dubai, Essex and Lagos. As such, a crop of experienced professionals, who have managed similar waste collection projects across big cities in the world, would be deployed to oversee its activities. Under the agreement reached with the State, revenue will accrue to the contractors for services rendered, through fixed and variable service charges, upon the attainment of agreed milestones. While the variable revenue is payable to the contractors for use in operation, the fixed revenue will represent guaranteed payments to settle repayment obligations under the Notes, thus, it is not available to the contractors for spending.

In order to ease access (for MWMCL) to funds required to finance the acquisition and development of waste management infrastructure, the State has provided a guarantee, in form of an ISPO, which fully covers interest and principal repayment obligations on the Notes. To this end, a sum of N714m (value represents the fixed service charge due to the contractors) would be transferred monthly (N8.6bn yearly) into a SFA, for the purpose of settling obligations under the Notes.

The ISPO serves as an agreement between the State and the contractors, obligating the Accountant-General of the State to transfer funds on a monthly basis to the SFA for the purpose of servicing obligations under the N50bn Notes Issuance Programme. The document is an irrevocable obligation of the government, which ensures that the payment account is funded ahead of the semi-annual repayments. The ISPO has been issued directly against the revenue account of the State, and will be valid for ten years, from June 2017. In essence, repayment obligations on the Notes are backed by the strength of the Lagos State treasury, thus, making the State the transaction sponsor.

The new environmental law (Environmental Protection and Management Act, 2017) which consolidates all laws relating to the environment in Lagos State, will see waste collection activities managed by a consortium of companies (appointed by the State), with the utility levy from residents paid into a centralised government account to be managed by independent trustees. Monies in the account will be allocated towards the management of the environment, payment of fees to service providers, concessionaires and contractors, operation of landfill sites, recycling plants, among other uses in the act.

The Programme Trust Deed features a negative pledge and other covenants to protect the interest of Noteholders. Global Credit Rating Co. Ltd. (“GCR”) takes cognisance of clauses 32.4, 35.7, 46.3 and schedule 6 (compensation regime) of the service contact between Lagos State and the Contractors, where the State, would, in the event of poor performance or termination of contract, assume responsibilities of the Contractors, and also settle obligations to the noteholders through the ISPO.

NATIONAL SCALE RATINGS HISTORY

ANALYTICAL CONTACTS

Credit Analyst
Kunle Ogundijo
.(JavaScript must be enabled to view this email address)
Lagos
+23 41 462 2545

Committee Chairperson
Dave King
Chairman
.(JavaScript must be enabled to view this email address)


APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, February 2017
Criteria for Rating Structurally Enhance Corporate Bonds, September 2016
Glossary of Terms/Ratios (February 2017)


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 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; d) the indicative rating will expire in August 2017.

The credit rating has been disclosed to Municipality Waste Management Contractors Limited, with no contestation of the rating.

Municipality Waste Management Contractors Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The information received from Municipality Waste Management Contractors Limited and other reliable third parties to accord the credit rating included:
- Programme Information memorandum;
- Supplemental information memorandum;
- Five year forecast;
- Service contract agreement;
- Draft programme trust deed;
- Draft supplemental trust deed.

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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.

 

 

 

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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 Company Limited. THE INFORMATION CONTAINED HEREIN 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. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the 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 herein 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 herein 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.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here