Fitch Assigns Alexander Forbes Preference Share Investments' Debenture Issue Expected 'B+(zaf)' Rtg
Fitch Ratings-London/Johannesburg-17 September 2009: Fitch Ratings has today assigned South Africa-based Alexander Forbes Preference Share Investments Limited's (AF Pref.) linked debenture issue an expected 'B+(zaf)' rating.
The final rating is contingent upon the receipt of final documents conforming to information already received. The debentures are unsecured, with a fixed interest rate of 17% p/a. Interest payments are capitalised semi-annually until redemption of the debentures. Events of default include the failure of the Alexander Forbes (AF) group to meet obligations under ZAR2.7bn preference shares and a ZAR1.5bn term loan, housed in AF subsidiary companies, making AF group cash flow an integral part of Fitch's analysis. Fitch deems the debentures to be highly subordinated from AF's underlying cash flow due to the minority shareholding in AF, and the debentures ranking behind senior debt obligations, tempering the rating.
The rating is further constrained by high leverage in the AF group following a Public to Private (P2P) transaction in 2007, when a consortium of equity investors acquired the majority share in AF. Fitch expects adjusted leverage, currently at 4.8x, to remain at high levels in the medium term, but to improve annually once adverse economic conditions abate. However, Fitch does not expect a sustained economic recovery prior to late 2010. Operating margins and revenue streams, albeit diversified, are expected to come under pressure as inflation-driven cost increases persist over the next 12 to 24 months in a competitive market.
AF Pref is a special purpose vehicle of the AF group that allows linked unit holders to gain indirect exposure to AF through issued preference shares and linked debentures listed on the Johannesburg Stock Exchange (JSE). AF Pref owns 26.5% of the AF group, and holds proportional rights to specific assets in AF, which include amongst others, a ZAR1.5bn seven year term loan.
Alexander Forbes is a South Africa-based provider of financial and risk services with a presence in UK and some African countries. Clients are well diversified and include small, medium and large organisations, corporations, specialist groups and individuals. The three main areas of operations are financial services, risk and insurance services and investment solutions catered for by five divisions within the company.
Contacts: Roelof Steenekamp, Johannesburg, Tel: +27 11 380 0900; Karabo Matentji: +27 11 380 0910.
Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(zaf)' for National ratings in South Africa. Specific letter grades are not therefore internationally comparable.
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