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GCR Affirms Transcorp Hotels Plc's N10bn Series 1 Senior Unsecured Bond Rating; Outlook Stable

Dec 20, 2021   •   by   •   Source: Proshare   •   eye-icon 713 views

Monday, December 20, 2021 / 09:45 AM / by GCR Ratings /Header Image Credit: Transcorp Hotel Plc

 

GCR Ratings ("GCR") has affirmed the national scale long term issuerating of BBB+(NG) assigned to Transcorp Hotels Plc's N10bnSeries 1 Senior Unsecured Bonds, with the Outlook accorded as Stable.

Rated Entity / Issue

Rating class

Rating scale

Rating

Outlook / Watch

 

N10bn Series 1 Senior Unsecured Bond

Long Term Issue

National

BBB+(NG)

Stable

RatingRationale

The N10bn Series 1 Senior Unsecured Bondrating reflects the long-term rating of the Issuer, namely Transcorp HotelsPlc, a leading hotel group in the Nigerian hospitality sector. GCR affirmed theIssuer's long-term rating of BBB+(NG), with a Stable Outlook in December 2021.The rating balances its concentration to a single hotel property against,strong parental support. Leverage remains relatively high leverage, with weakcash flow coverage of debt but the Hotel Group has evidenced a strong earningsperformance as COIVD-19 disruptions have eased. (link to Issuer announcement)


The Series 1 Bonds are direct,unconditional, senior, unsubordinated, and unsecured obligations of the Issuerand rank pari passu without any preference among themselves.The Bonds also rank pari passu with all other seniorunsecured and unsubordinated obligations assumed by the Issuer other than thosemandatorily preferred by law.


Given that Transcorp Hotels Plc offerstimely and full coverage of all payments due to the Bondholders, under theN10bn Series 1 Senior Unsecured Bonds, the Bond bears the same default risk asits Issuer and would reflect similar recovery prospects to senior unsecuredcreditors in the event of a default. As such, the long-term Issue rating forthe Series 1 Bonds is equivalent to the Issuer's long term senior unsecuredrating.


GCR has reviewed the Trustee'sperformance report from United Capital Trustees Limited, dated 26 November2021, and notes that twelve coupon payments and ten principal repaymentstotaling N14.9bn have been made to date. The Trustee reports confirmed thatthere is no breach of negative pledge or covenants from the Issuer as of thereport date.

The Bonds were issued in October 2015,with a coupon rate of 16% and maturity date in October 2022.


Proshare Nigeria Pvt. Ltd.

OutlookStatement

The Stable Outlook reflects GCR'sexpectation that Transcorp will sustain robust earnings and cash generationover the outlook period, barring any further severe COVID restrictions onbusiness activity.

RatingTriggers

A rating upgrade is contingent onTranscorp's ability to meaningfully reduce debt while sustaining soundoperating cash flows, such that OCF coverage of debt and interest coverageregister at 30%-55% and 4.7x-14.5x respectively over the medium term. Theratings could be downgraded if debt escalates further leading to a materialdeterioration in the debt service metrics, or if a further earnings shockmanifests due to renewed lockdowns. Significant weakness in the credit profileof the parent could also impact on the ratings as it would impact the supportassessment.


Proshare Nigeria Pvt. Ltd.

 

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