GCR assigns Walter Ollor Foundation a first time short term Issuer rating of B(NG);Outlook: Evolving

26 Aug 2016 In Rating Notifications

GCR assigns Walter Ollor Foundation a first time short term Issuer rating of B(NG);Outlook: Evolving

Lagos, 26 August 2016—Global Credit Ratings has assigned a short term national scale Issuer rating of B(NG) to Walter Ollor Foundation and an indicative Issue rating of BB-(NG) to the proposed N2bn Secured Bond. The ratings have been placed on an ‘Evolving’ outlook and are valid until August 2017.

RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) to Walter Ollor Foundation (“WOF”, “the Foundation” or “the Issuer”) based on the following key criteria:

WOF is a non-profit educational institution incorporated in 2015 to provide education related services for sustainable development through learning, discovery and engagement. The Foundation engages in research in the fields of finance, trade, education (among others), while also offering advisory services for the establishment of businesses and institutions of higher learning.

WOF is located in Akpajo, in Eleme local government area of Rivers State, and serves as the promoter of the proposed Walter Ollor University (“WOU”) also to be situated in Akpajo. In this regard, the Foundation has approached the Nigerian Universities Commission to obtain a license to operate a university.

The proposed WOU plans to run undergraduate programmes across a broad range of disciplines, with emphasis on the liberal arts and sciences.

The Foundation is run by professionals with wide management experience within the university setting and agencies of government. Added to this, Global Credit Rating Co. Limited positively considers the composition of members of the Board of Trustees of the proposed university with professionals spanning diverse fields of geology, law, pharmacy and education.

Common in establishing new educational institution are high start-up costs and low initial income. In this regard, WOF’s forecast evidence a similar picture, with a gradual rise in income off a low base in the first two years (supported mainly by the sale of research materials and subscription among others), where after student numbers will reach critical mass and strong growth in revenue is projected, with operating margins rising due to economies of scale. If achieved, NPBT should exceed N1bn by year five. Stress tests scenarios carried out on budgeted income, premised on lower enrolment levels (at 90%, 75% and 50%) reveal that the forecast model remains robust even at a 25% stress level. Under such a scenario, losses would extend to year three but this would be covered by the profits in years four and five. Higher stress levels would likely constrain WOF’s ability to complete its capex and therefore have a longer term negative impact on enrolment numbers and earnings.

To enable it to fund infrastructure requirements at the proposed university, the WOF has commenced the process of raising Bonds from the Capital Market (through private placement).

The Bonds are expected to carry a six-year maturity, with semi-annual interest and principal repayment (after an initial 12-month moratorium). Some assets have been pledged as security (for repayment), with clauses in the Trust Deed creating fixed and floating interests in favour of the Trustees, representing the Bondholders.

Notwithstanding the above, GCR considers the forecast to be achievable, and thus based on budgets provided, that the university would generate sufficient funds (from the first year) to cover coupon payments, with increased collection from higher student intake providing for principal repayments from year two. This assumption is supported by the success recorded by similar private universities, given the current capacity deficit in admissions to universities (with only c.60% of candidates being admitted on a yearly basis). Furthermore, with just two prominent universities in Rivers State, the proposed university stands to benefit from the disparity between the limited existing tertiary education capacity and the burgeoning youthful population.

As the proposed university has yet to obtain an operating license, in respect of which the attainment of set targets is completely dependent, the GCR rating panel has decided that a long term rating is not applicable to the Issuer at the moment. Rather an Issue rating, reflecting the risk related to the transaction to establish the WOU has been accorded. A short term rating was also accorded to reflect WOF foundations ability to meet its immediate liquidity requirements. This uncertainty regarding the transaction has also led to the ratings being placed on an “Evolving” outlook. The ultimate rating trajectory will depend on the success (or lack thereof) of the WOF in establishing its university timeously. Based on the existing security, recovery calculations indicate a ‘low’ recovery, as the value of pledged assets (comprising primarily undeveloped land) is well below the N2bn obligation that WOF intends to raise. A final Issue rating will only be accorded upon receipt of satisfactorily signed and executed transaction documents.

Positive rating action is only likely over the medium to long term once there is clear evidence of the growing success of the University. In this regard, rating action would be dependent on the successful completion of the construction of the university structures on schedule and within budget, as well as subsequently increasing the enrolment of students to ensure that revenue targets are attained. Conversely, a deterioration in the ratings could arise from the failure to secure an operating licence for the university, or construction delays that result in higher than budgeted expenditure and a shortfall in enrolment, thus leading to underperformance relative to budget and an impaired ability to service debt.

NATIONAL SCALE RATINGS HISTORY
Initial/last rating (July 2016)
Issuer Short term- B(NG)
N2bn Secured Bond (Indicative) - BB-(NG)
Outlook: Evolving

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, updated February 2016.
Glossary of Terms/Ratios (February 2015)


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 ratings expire in August 2017.

The credit rating/s has been disclosed to Walter Ollor Foundation with no contestation of the rating

Walter Ollor Foundation 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 WOF and other reliable third parties to accord the credit rating included the following;
-Statement of Affairs as at December 31, 2015
-projections (operating and capital) for the years 2016 to 2020,
-draft transaction documents (including the information memorandum, trust deed and legal opinion) for the proposed Bond Issue.

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.

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