GCR Affirms Tower Funding Plc’s Series 1 Tranche A and Tranche B Bonds Ratings.

30 Sep 2016 In Rating Notifications

GCR Affirms Tower Funding Plc’s Series 1 Tranche A and Tranche B Bonds Ratings.

Lagos Nigeria, 30 September 2016 — Global Credit Ratings has affirmed the national scale ratings assigned to Tower Funding Plc’s Medium Term Note Programme as follows:

Series 1 Tranche A: CCC(NG)(sf)
Series 1 Tranche B: B(NG)(sf)

The ratings have been maintained on ‘Rating Watch’ and expires in March 2017.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Tower Funding Plc’s Medium Term Note Programme based on the following key criteria:

Tower Funding Plc (“the Issuer”) is a funding vehicle owned by the Tower Companies, who are jointly and severally liable for the bonds. The Tower group of Companies (“Tower” or “the Group”) comprise Tower Aluminium (Nigeria) Plc (“Tower Aluminium”), Kolorkote Nigeria Company Ltd (“Kolorkote”), Asaba Aluminium Company Ltd (“Asaba”), Borno Aluminium Company Ltd (“Borno”), Queensway Aluminium Company Ltd (“Queensway”), and Tower Roofing Systems Limited (“TRSL”).

Tower’s weak performance over the review period, as well as the financial challenges in recent years, have resulted in the successive downgrading of its ratings. However, its extensive market presence and strong brand awareness, supported by the robust manufacturing infrastructure which cannot easily be replicated, does support tentative prospects for a recovery.

Sustained pressure arising from high production costs, uncompetitive import duties, security challenges in the north and more recently currency scarcity, have seen revenue decline steadily from N47.8bn in F11 to N17.9bn in F15. Operating profit has been completely eroded by high interest cost over the review period, with Tower posting a pre-tax loss of N2.5bn in F15 and N4.3bn and 1H F16. After accounting for substantial interest costs, the Group has thus reported large net losses over the review period.

Core share capital had been eroded, and Tower’s solvency impaired, due to recurring operating losses, with the positive equity entirely represented by property revaluation reserve, amounting to N18.7bn at FYE15. The huge debt burden of N24bn at 1H F16 is considered unsustainable and has given rise to gearing metrics well above those characteristic of investment grade companies, with net debt to EBITDA fluctuating between 1,200% and 1,500% over the review period and registered at 1,197% at FYE15. Similarly, interest coverage has been negligible. While management’s efforts to reduce the interest burden may provide some leeway to restructure operations, it is unlikely that earnings can improve to the extent required to adequately address the debt burden in the short term. Accordingly, a substantial capital injection is required to restore the business to a financially solvent position and ensure its going concern status.

GCR noted in the Trustees’ report that there was a shortfall in in the Minimum Reserve Account and Payment Accounts, in breach of the Trust deed (attributable to the lack of cash). Nevertheless, while this was previously reported in F15, Tower has, to date, made all interest and principal payments in full and on time. The Series 1 Tranche A and B bonds are secured by partial guarantee from GuarantCo, which has an international rating of AA- by Fitch Ratings. Based on GCR’s methodology, calculations indicate that Series 1 Tranche A Bond holders can expect ‘Average’ recovery prospects, with no uplift applicable. Thus, the Series 1 Tranche A Bonds have been assigned a CCC(NG)(sf), in line with the theoretical corporate rating. For the Series 1 Tranche B Bonds, recovery prospects are ‘Superior’. A B(NG)(sf) rating is deemed appropriate.


NATIONAL SCALE RATINGS HISTORY

Initial rating (October 2011)
Series 1 Tranche A: BBB(NG)(sf)
Series 1 Tranche B: AA-(NG)(sf)
Outlook: Stable

Last rating (February 2016)
Series 1 Tranche A: CCC(NG)(sf)
Series 1 Tranche B: B(NG)(sf)
Outlook: Rating Watch


ANALYTICAL CONTACTS


Primary Analysts

Femi Atere/Adekemi Adebambo
Credit Analyst/Senior Credit Analyst
.(JavaScript must be enabled to view this email address)
.(JavaScript must be enabled to view this email address)


Committee Chairperson

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

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2016
Global Structurally Enhanced Corporate Bonds Rating Criteria, October 2015
Glossary of terms/ratios, February 2016
Tower Rating Reports 2010-2016


RATING LIMITATIONS AND DISCLAIMERS

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/RATINGS-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 AT WWW.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, security or financial instrument; and d.) the ratings are valid until March 2017.

Tower Funding Plc 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 credit rating/s has been disclosed to Tower Funding Plc with no contestation of the rating.

The information received from Tower Funding Plc and other reliable third parties to accord the credit rating included:
• the consolidated 2015 audited annual financial statements and separate 2015 audited accounts for Kolorkote, Queensway, Asaba, Borno and TRSL;
• 2016 earnings and balance sheet budget;
• year to date management accounts for the 6 months to 30 June 2016;
• a schedule of credit facilities available and related counterparties, and quarterly Trustees Bond Performance report as at June 2016;
• in addition, information specific to the rated entity and/or industry was also received.

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/RATINGS-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