| Mon 29 Jul 2002, 0:00 | | Edgars Consolidated Stores Limited - Securitisatio |
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ebtors' Book ("The Securitisation")
EDGARS CONSOLIDATED STORES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1946/022751/6)
JSE code: ECO ISIN: ZAE000018388
("Edcon")
SECURITISATION OF A PORTION OF THE EDCON DEBTORS' BOOK ("THE SECURITISATION")
INTRODUCTION
On 16 May 2002, Edcon announced in its Annual Report for the year to March 2002
that the Board of Directors of Edcon had approved the securitisation of a
portion of its debtors' book. Shareholders are advised that the securitisation
has been successfully implemented, and that in terms of the securitisation,
Micawber 280 Limited, trading as OntheCards Investments ("OntheCards") has
acquired from Edcon a portion of its debtors' book as well as the Edcon debtors
book owned by Nedcor Limited ("Nedcor").
RATIONALE FOR THE SECURITISATION
Edcon has historically been classified primarily as a retailer. However, with a
debtors' book under management of over R3 billion, it is also a significant
provider of credit. Edcon's expertise in credit management and collection is
reflected in the high quality of its debtors' book. The quality and size of the
debtors' book makes it an attractive asset for securitisation, and both Edcon
and its debtors' book have received high ratings from the agency appointed by
Edcon to rate the company and the debtors' book in anticipation of the
securitisation.
Edcon believes that the securitisation will unlock value for Edcon shareholders
by separating the retailing and credit granting businesses within the Edcon
group. This will allow Edcon to manage the credit and interest rate risk
inherent in its debtors' book more effectively. The securitisation will also
lower the cost to Edcon of funding its debtors, benefiting from OntheCards'
direct access to the capital markets.
The proceeds from the securitisation will be used to repay debt and will leave
Edcon in an ungeared position. This will place Edcon in a strong position to
pursue and fund future expansion opportunities.
TERMS OF THE SECURITISATION
In terms of the securitisation, which is the first such transaction to be
implemented in South Africa, Edcon will sell (free of any encumbrance) and
assign certain existing and future debtors' obligations to OntheCards on a non-
recourse basis. The portion of the debtors' book to be acquired by OntheCards
will consist of just under 2 million accounts with a total value of
approximately R2.3 billion. This amount includes the Edcon debtors' balances of
approximately R1.2 billion that are currently owned by Nedcor.
OntheCards will fund the acquisition of the Edcon debtors' book as follows:
Rm
Class A Secured Floating Rate Notes 1 730
Class B Secured Floating Rate Notes 200
Subordinated loan from Rand Merchant Bank, a division of 370
FirstRand Bank Limited ("RMB")
Total 2 300
The Floating Rate Notes, which are due on 31 December 2006, will be listed on
the Bond Exchange of South Africa with effect from 29 July 2002. The notes were
auctioned on 24 July 2002 and the price obtained above the Johannesburg Inter
Bank Acceptance Rate was 0.9% in respect of the Class A Secured Floating Rate
Notes and 2.2% in respect of the Class B Secured Floating Rate Notes.
The disposal of the debtors' book to OntheCards will result in a net cash inflow
of approximately R1.1 billion for Edcon. Out of these proceeds, Edcon will
acquire an exposure to OntheCards through an indirect credit-linked investment
of R370 million. The credit risk assumed by Edcon will be linked to the
subordinated loan provided to OntheCards by RMB and there will be no recourse to
Edcon on any of the debtors' sold.
Accordingly, the net cash benefit to Edcon arising out of the securitisation
will amount to approximately R730 million.
Edcon has entered into a servicing agreement with OntheCards in terms of which
it will continue to manage the debtors acquired by OntheCards in the ordinary
course of its credit management business. Edcon will be liable for an amount of
up to R30 million in the event that it is unable to fulfil its obligations in
terms of this servicing agreement.
FINANCIAL EFFECTS OF THE SECURITISATION
The principal financial effect of the securitisation is to leave Edcon ungeared.
The securitisation will also result in a significant reduction in the cost to
Edcon of funding its debtors, as the interest payable on the Secured Floating
Rate Notes is lower than the equivalent term bank funding available to Edcon.
Based on current interest rates and the amount raised, the annual pre-tax
interest saving to Edcon would amount to approximately R12.9 million.
Due the incomparability of the funding profiles of the securitised debtors' book
and Edcon's funding during the financial year ended 30 March 2002, it is not
considered meaningful to present the effect of future interest savings on
Edcon's historic earnings per share. The securitisation will not have a
material effect on the Net Asset Value of Edcon.
FURTHER DOCUMENTATION
OntheCards will publish an offering circular on Monday 29 July 2002 setting out
full terms and conditions of the Secured Floating Rate Notes and the
securitisation. Copies of the offering circular are available on request at the
following locations:
RMB 1 Merchant Place, Corner Rivonia Road and Fredman
Drive, Sandton, 2196
Cazenove First Floor, Moorgate, Dunkeld park, 6 North Road,
Dunkeld West, 2196
Edcon Edgardale, Press Avenue, Crown Mines, 2092
Johannesburg
29 July 2002
Sponsor to Edcon Securitisation manager Merchant bank
Cazenove Rand Merchant Bank RMB Corporate
(A division of FirstRand bank Limited) Finance
(A division of
FirstRand bank
Limited)
Date: 29/07/2002 10:51:58 AM Produced by the JSE SENS Department
