November 23, 2021/GCR Ratings

GCR Ratings (“GCR”) has upgraded the national scale long term Issue ratings of Mixta Real Estate Plc’s Series 1 and Series 2 Tranche A Bonds to AAA_(NG)(EL), with the Outlook accorded as Stable.

Concurrently, the national scale long term Issue rating accorded to the Series 2 Tranche B Bonds was downgraded to B_(NG)(EL), with the outlook accorded as Evolving.

*The Guaranteed/Senior Secured Bonds ratings are based on an estimate of the expected loss in the event of an issuer default and are a function of the estimated probability of default of the issuer and the potential losses that may be incurred. As such, these ratings carry an “(EL)” suffix. The expected loss rating assigned to the Bonds issued therefore differs from the long-term senior unsecured credit rating of the Guarantor/Issuer.

Rating Rationale

The upgrade of Mixta Real Estate Plc’s (“Mixta”, or “Issuer”) Series 1 and Series 2 Tranche A Guaranteed Bonds reflects the credit quality of GuarantCo Limited (“GuarantCo” or “the Guarantor”).

GCR has applied credit substitution with GuarantCo, as GuarantCo has provided an irrevocable and unconditional guarantee in favour of the Guarantee Trustee for and on behalf of the Series 1 and Series 2 Tranche A Bondholders. The guarantee covers 100% on outstanding principal, and one missed semi-annual interest payment, should there be a breach by the Issuer at any point in time.

GuarantCo, is currently rated ‘AA-‘ and ‘A1’ by two international rating agencies with a Negative Outlook, while GCR considers that the credit quality of GuarantCo commensurate with a AAA_(NG) long term national scale rating.

The downgrade of the Series 2 Tranche B Senior Secured Bonds follows the downgrade of the national scale long-term corporate rating accorded to Mixta to CCC-_(NG). The downgrade reflects Mixta’s significant financial strain, owing to excessive use of debt and limited cash flows.

The rating of the Series 2 Tranche B Bonds (being Senior Secured Bonds) is derived by applying a notching approach, starting from the long-term national scale rating of the Issuer. The notching approach involves an assessment of the stressed estimated recovery rate expected from a forced sale of the assets that serve as security for the Issuer’s outstanding bond obligation, under the assumption that the Issuer is in default. The estimated recovery calculations show recovery rate of 234% (capped at 100%) and qualifies the Bonds rating for a four notches uplift.

The Series 1 and Series 2 Tranches A and B Bonds constitute direct, senior, unconditional and unsubordinated obligations of the Issuer. All payment obligations under the Issue (except otherwise provided for by applicable laws) rank equal with all other present or future unsubordinated indebtedness and monetary obligations of both the Issuer and the Guarantor (where applicable).

Outlook Statement

The Stable Outlook on the Series 1 and Series 2 Tranche A Bonds reflects GCR’s opinion that GuarantCo will maintain its credit quality over the rating horizon.

The Evolving Outlook on the Series 2 Tranche B Bonds is in line with the Issuer Outlook. It reflects the prospects for a return to financial sustainability if the Group is able to raise sufficient cash from property sales, debt refinancing and/ or a recapitalisation. Nevertheless, in the absence of these events, and ongoing funder support, there remains the possibility that Mixta would require a distressed debt restructuring or even default on some its debt obligations.

Rating Triggers

Given that the ratings are intrinsically linked to the Guarantor’s/Issuer’s long-term corporate rating, any change in the rating assigned to the Guarantor/Issuer will directly affect the Bonds ratings.