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

22 Feb 2016 In Rating Notifications

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

Lagos, 22 February 2016—Global Credit Ratings has downgraded Tower Funding Plc’s Medium Term Note Programme’s national scale ratings to:

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

The ratings have been maintained on ‘Rating Watch’ and expire in June 2016.

BACKGROUND

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”) comprise Tower Aluminium (Nigeria) Plc (“Tower Aluminium”), Kolorkote Nigeria Limited (“Kolorkote”), Asaba Aluminium Company Limited (“Asaba”), Borno Aluminium Limited (“Borno”), Queensway Aluminium Limited (“Queensway”), and Tower Roofing Systems Limited (“TRSL”).

Tower Funding Plc (“the Issuer”) issued N4.6bn of partially guaranteed Bonds (the “Transaction”) under a N9bn Medium Term Note (“MTN”) Programme in October 2011. Tower Funding Plc is a funding vehicle owned by the Tower Group of companies (collectively referred to as “Tower”). In view of the significant deterioration in the financial and business risk profile of Tower, Global Credit Rating Company Limited (“GCR”), in December 2015, downgraded the credit rating on the Series 1 Tranche A from B+(NG)(sf) to B-(NG)(sf). The rating of the Series 1 Tranche B Bonds, which are secured by a guarantee (from Guarantco) covering the outstanding principal, was downgraded from A(NG)(sf)  to BB+(NG)(sf). A rating outlook of ‘Rating Watch’ was assigned to both bonds, given the precarious financial position of Tower.

The ratings accorded to the Senior 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).

GuarantCo is a Mauritius incorporated institution whose majority funders and ultimate shareholders comprise one ‘AA+’ and three ‘AAA’ internationally rated European government entities.  In July 2015, Fitch ratings affirmed Guarantco’s Insurer Financial Strength rating of AA- while Moody also affirmed Guarantco’s Issuer rating of A1.

 

RATING RATIONALE

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

The rating action taken in February 2016 follows the announcement of a winding up petition, filed by Access Bank Plc (“Access”) in the court against Tower. In June 2015, Tower Aluminium sought to restructure outstanding loans to Access into a single term loan repayable quarterly over a 5 year term, in view of cash flow constraints. By an offer letter dated, 16th July, 2015, Access approved Tower’s request for a N2.7bn term loan in line with the proposed terms. Based on revised terms, repayment was to commence on 1st December 2015. In October 2015, Access filed a winding up petition in the court against Tower Aluminium and obtained an ex parte court order restraining the Company’s directors and employees from making withdrawals from bank accounts amongst others. Per management, Tower Aluminium subsequently obtained a court order in November to resume withdrawals from its accounts. Tower Aluminium’s management maintained that it had not defaulted under the new terms, as at the time of issuance of the ex-parte court order in October 2015. Per management, the suit is premature and an abuse of court process. Tower Aluminium’s lawyers also filed a counter affidavit with the court in October 2015. The matter is slated for hearing on March 3, 2016.

GCR remains highly concerned about the financial viability of Tower, given that the Group has reported substantial earnings losses over the review period, and conditions in the Nigerian economy make a recovery unlikely. Accordingly, GCR is doubtful that the excessive debt burden (of N26.1bn at 3Q F15) can be reduced through ordinary operations.

Tower breached the requirement to replenish the Minimum Reserve Account (“MRA”) to cover the semi-annual principal and coupon payment on the Series 1 Tranche A Bonds. The issue was flagged in GCR’s December 2015 credit rating review, but to date the shortfall has not been rectified, with a current shortfall of N510m in the MRA. In addition, Tower was not up to date on the payment of Guarantee fees as at 15th February, 2016. However, Guarantco has recently confirmed (to the Bond Trustees) that the Issuer is presently compliant in the payment of all fees and associated costs in relation to the Guarantee. Outstanding principal on both Bonds combined was N2.8bn as at September 2015.

N3.63bn Series 1 Tranche A Bond: Given the precarious financial situation of the Group, the Series 1 Tranche A Bonds (which only benefit from a 33% guarantee of the outstanding principal and therefore receive no rating uplift) have been downgraded from B-(NG)(sf) to CCC(NG)(sf).

 

N1bn Series 1 Tranche B Bond: While the Series 1 Tranche B Bonds do benefit from a guarantee of 100% of the outstanding principal, the rating uplift has been constrained by the extent to which Tower Group’s unsecured stand-alone credit quality has deteriorated of late. Accordingly, the Series 1 Tranche B Bonds have been accorded a B(NG)(sf) rating

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

Last rating (December 2015)
Series 1 Tranche A: B-(NG)(sf)
Outlook: Rating Watch
Series 1 Tranche B: BB+(NG)(sf)
Outlook: Rating Watch

Credit Analysts
Adekemi Adebambo/Femi Atere
.(JavaScript must be enabled to view this email address)
.(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
Global Master Criteria for Rating Corporate Entities, February 2015
Global Structurally Enhanced Corporate Bonds Criteria, October 2015
Tower Funding Plc Rating Reports, 2011 to 2015
Glossary of terms (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

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 expire in June 2016.

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 contestation of the rating.

The information received from Tower Funding Plc and other reliable third parties to accord the credit rating included:
• copies of executed credit facility offer letters between Access Bank Plc and Tower Aluminium (Nigeria) Plc,
• copies of legal proceedings
• Third supplemental trust deed between Tower Aluminium (Nigeria) Plc and Union Trustees Limited
• Trustees’ Bond Performance report for the quarter ended 31 December, 2015

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

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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