GCR Assigns AA-(NG) Rating to Lagos State N230bn Bonds
GCR Ratings has assigned a national scale long-term issue rating of AA-(NG) to Lagos State Government’s N230bn Series 4 Senior Unsecured Fixed Rate Bonds, with the outlook accorded as stable.
Rating analysts said Lagos State Government of Nigeria raised NGN230 billion in Series 4 Senior Unsecured Fixed Rate Bonds from the Nigerian capital market at 16.25%, under its NGN1 trillion debt and hybrid instrument issuance Programme, registered in May 2023.
The rating assigned to the bonds reflects the national scale long-term rating of the issuer. This is because the bonds bear the same probability of default and reflect similar recovery prospects to the Senior Unsecured creditors of the issuer in the event of a default.
The bonds constitute direct unconditional, unsubordinated, senior and unsecured obligations of the issuer and rank pari-passu in all respects with all other bonds issued by the issuer under the programme.
The bonds’ net proceeds are being utilised to fund various socio-economic infrastructural projects. The bonds shall have a ten-year tenor, maturing on 20 November 2035.
Coupon payment and principal repayment obligations on the bonds will be serviced through monthly transfers from the State’s consolidated debt service account (CDSA) and irrevocable standing payment order (ISPO) (approved by the Federal Ministry of Finance) into a sinking fund account to be managed by the bond trustees.
The monthly funding will commence immediately following the bonds issuance.
GCR said during the first 24 months, about NGN1.39 billion shall be deducted from CDSA, and this shall increase to NGN2.64 billion for the remaining 96 months to maturity.
Meanwhile, a total of NGN1.8 billion will be remitted from ISPO deductions on Lagos State Government’s monthly federation account allocation disbursement.
The CDSA and ISPO remittances into the Sinking Fund Account shall be utilised for servicing the bond coupon, principal repayments on a semi-annual basis, and other obligations in respect of the bonds.
“Based on our analysis of the expected inflows – as reflected in the executed Series 4 pricing supplement – both inflows will only provide 1x coverage of semi-annual interest payments during the moratorium period and 1x cumulative debt service when the 24-month moratorium lapses”.
As such, ratings analysts said there is no additional credit enhancement offered by the contemplated inflows. Accordingly, the long-term rating for the Series 4 Bonds is equivalent to the issuer’s long-term senior unsecured rating. A change in the rating assigned to the Issuer will directly impact the rating of the Series 4 Bonds.
“The stable outlook reflects our opinion that Lagos State will continue to achieve sound operating performance that supports capital project implementation and allows for debt service costs to be adequately covered”, GCR stated. Fortis Global Insurance Returns to the Spotlight
