GCR Ratings (“GCR”) has upgraded the national scale issue ratings of FCMB Financing SPV Plc’s Series 3 Bonds to BBB+_(NG)with a Stable Outlook.

Rating Rationale

The Series 3 Bonds (“the Bonds”) were issued in December 2016 under FCMB Financing SPV Plc’s (“the Issuer”) N100bn Debt Issuance Programme (“the Programme” or “DIP”). The enabling resolution of the Issuer’s Board of Directors permits the Issuer to issue the Bonds in tranches, different forms, and under different terms and conditions as it may deem fit, subject to the approval of the relevant regulatory authorities. The Bonds constitute direct, unsecured, and subordinated obligations of the Issuer and rank pari passu without any preference among themselves, and with every other unsecured subordinated obligation of the Issuer.

The transaction mechanics entails the use of the proceeds from the issuance of the Bonds to purchase subordinated notes issued by First City Monument Bank Limited (“FCMB” or “the Sponsor”). The Bonds are backed by an irrevocable and unconditional undertaking issued by the Sponsor supporting all obligations of the Issuer under the Programme, based on the Deed of Undertaking between the Sponsor and the Issuer.

While the Issuer is FCMB Financing SPV Plc, repayment of the obligations under the Issues ultimately depends on the performance of the Sponsor, as the direct obligor of the Issues. Thus, the accorded rating is linked to FCMB’s credit standing and financial position and as such a notch below the Sponsor’s long-term national scale credit rating, as GCR considers the bonds to rank alongside the Subordinated Notes issued by the Sponsor. FCMB has been accorded a long-term national scale credit rating of A-_(NG)with a stable outlook in August 2022.

According to the periodic performance reports provided to GCR by the Trustees to the Bondholders, dated 20 July 2022, the Issuer has been meeting all its obligations on a timely basis on both the Bonds.

Outlook Statement

The Stable Outlook reflects GCR’s expectations that FCMB will maintain its relatively low credit losses and avert further weakening of its non-performing loan ratio and capitalisation over the next 12-18 months.

Rating Triggers

Given that the ability of the Issuer to meet its obligations under these Issues is dependent on the financial condition of the Sponsor, the accorded rating would be sensitive to a positive rating action on the Sponsor. Non-compliance with the set covenants, as well as a downgrade of the Sponsor’s rating could trigger negative rating actions.

Ratings History

FCMB Financing SPV Plc – Series 3 Unsecured Subordinated Bonds

Salient Points 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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The credit rating has been disclosed to First City Monument Bank Limited. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.

First City Monument Bank Limited participated in the rating process via telephonic management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible. The information received from First City Monument Bank Limited and other reliable third parties to accord the indicative rating included: