Listed South African retailer Edgars Consolidated Stores (Edcon) is optimistic that it will attract good investor interest, as well as a lower price, for its second securitised debt issue from its OntheCards securitisation programme, based on its customers’ store card debt, according to CEO for group services, Mark Bower.
Securitisation is the process by which assets on a company’s balance sheet (in the form of money owed to Edcon by its credit card customers) are converted into marketable securities and sold to institutional investors in the form of bonds or notes. The notes come in various tranches depending on their risk (or credit) rating.
On Monday, Bower said that — based on investors’ reactions to its recently concluded roadshow, led by Rand Merchant Bank — the group is “confident” that the debt issue will be well received, and will attract a price below those demanded for its first three-year issue — Jibar + 90 basis points for the “A” tranche (the most highly rated) and Jibar + 220 basis points for the “B” tranche (subordinated).
The issue will comprise R1-billion in two-year notes, he added. The two-year maturity has been determined by investors’ requirements expressed during the roadshow.
“South African investors are now far more knowledgeable about securitised assets than they were when our first notes were issued two years ago,” he noted. “We have a good track record, and the programme was recently upgraded by Moody’s.
“Also there is good demand for non-government debt. These factors should make for a successful issue.”
Bower also explained that the group has decided to transform the OntheCards structure into a domestic medium-term note (DMTN) programme, so that new securitised notes can be issued automatically as the previous issues mature. The DMTN structure also saves the retailer issuance expenses, as the group doesn’t have to pay the full costs for a new issue every time one is launched. Rather, DMTN programmes offer the advantage of lower issuance costs across many new issues.
“We don’t want to have the notes all maturing at the same time, and then have to launch a large new issue to replace them,” he elaborated. “As a revolving structure under the DMTN programme, we will be able to auction them on a rolling basis as the previous issues mature.”
OntheCards, arranged by Rand Merchant Bank, began with the securitisation of R2,3-billion of retail store card debt in July 2002 based on a portfolio of advances to two million Edcon customers. The notes were well received by investors, and the credit ratings of certain tranches were upgraded earlier in 2004 by ratings agency Moody’s — to A3.za from Baa2.za — to reflect their improved market performance. — I-Net Bridge