Primero BRT Securitisation SPV Plc (PBSP), under its Future Flow Securitisation of Bus Rapid Transit System (BRTS) ticket receivables has paid its first scheduled Semi-Annual payment for the N16.50billion Series 1 Bonds. All payments constitute interest and principal due as of the 15th of November 2019. Following these payments, the aggregate principal outstanding for the Bond currently stand at N10.99billion. At the time of closing the transaction, the Series 1 bonds was priced at 18.25%.
The issue is a seven (7) year bond designed to be a ‘passthrough security’; which means it would hold no accounts for retiring future obligations and would pay down all realised and accumulated cash revenues in semi-annual intervals to meet principal and interest to investors in the bond in equal instalments; in-part representing a coupon payment and in-part, a return of principal.
The Future Flow Securitisation of Bus Rapid Transit System (BRTS) ticket receivables is the second future flow securitisation arranged by DLM Advisory Partners (DLMAP), and is one of the successful Securitisation transactions in the Nigerian capital market following FMBN Mortgage Backed Securities (MBS) Series 2 & 3 bond issuances and Nigeria Mortgage Refinance Company (NMRC) bond issuances for which Dunn Loren Merrifield Advisory Partners acted as Issuing House for each of the bond issuances.
PBSP is sponsored by Primero Transport Services Limited (PTSL) who also plays the critical role of servicer under the transaction. PTSL was incorporated in 2014 with its primary objective being road transportation, importation and sales of vehicle spares. PTSL is currently operating Nigeria’s only BRTS, which is also the longest BRT route in the West African Coast, currently circa 35.5 kilometers. The total current number of buses in the company’s fleet has increased from 70 to 434 buses and they commute over 200,000 passengers per day.
PTSL’s plan is to become a major player in Lagos state’s transportation sector with a view to continuously increase its number of buses to meet public demand. Having won a bid to operate buses on the Abule Egba – Oshodi route (under construction), Primero is looking to further increase its assets to over 1,200 buses. It is expected that the Abule Egba – Oshodi route, which is currently planned for 2020 commencement, will increase the company’s overall cashflows.
Outlook
Patronage of the BRTS has been strong along the existing route and we anticipate a steady growth in patronage as the BRTS is currently the only effective and organised public transport system in Lagos State. Furthermore, ticket prices have been relatively stable, however, inflationary pressure and expected increase in fuel prices due to anticipated removal of the fuel subsidy should drive up tick prices in the mid to long term. It is expected that the above factors would result to increased revenue (from ticket sales) and higher DSCR for the Series 1 Bond.
We expect the operating dynamics of PTSL to improve significantly following the issuance of the Series 1 Bond which will enable the company to begin to operate at economically optimal levels expected of BRT operators at a minimum.
- This is principally dependent on the allocation of N9bn towards the funding of working capital required to make operational the remaining 194 or less buses waiting to be put into service.
- The primary purpose of issuing the Series 1 Bond is to ease off all existing constraining factors currently plaguing the company in addition to providing it with the necessary ammunition to respond to the opportunity presented by the Franchise Agreement
- At a Spare Ratio of 12% as permitted by the Franchise Agreement considering the level of demand along the allocated corridor, PTSL being an economic rational entity is expected to respond positively to this by ensuring its fleet are up to the levels permitted by the Franchise Agreement.
- Global Standard Practice of BRT Operators keeps Spare Ratio at minimum of circa 20% which we consider to be the worst case for PTSL noting that the company is in a unique (almost monopoly) position where there is huge demand for the service it provides.
- The Servicer Quality Rating Report from Agusto & Co. and provided to investors casts no doubt on PTSL’s ability to take adequate care of its fleet paying acknowledgement to the maintenance unit of the company which comprises of well-trained professionals with a technician-to-bus ratio of 1:6, better than global benchmark of 1:10.
- Current levels of operations show that the company has consistently had on the average more than 90% roll-out of available fleet, subject to available working capital; a feat which is indicative of the company’s capacity and willingness to mine its available fleet. We expect this to continue going forward.