Securitization in Nigeria: DLM Advisory Partners (DLMAP) successfully arranged and issued a second future flow securitization in the Nigerian Capital Markets with the securitisation of Primero Transport Services Limited’s (“PTSL”) Bus Rapid Transit System (BRTS) ticket receivables, under an N100 billion medium-term bond programme. At the time of closing the N16.5 billion Series 1 bond, the yield was priced at 17% and fully subscribed. DLMAP has become the dominant issuer of securitized paper in the Nigerian market in recent years.
The Issuer
Primero BRT Securitisation SPV Plc (PBSP), the Issuer, is a special purpose company set up as a separate and distinct entity to purchase the BRTS ticket receivables from PTSL, securitize and sell under a bond issuance programme.
The Sponsor
PBSP is sponsored by 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.
The future flow securitisation will allow the company to monetize its existing and predictable cash flows from ticket sales receivables, generated in the ordinary course of business. These receivables, having been sold to PBSP under an operating asset and receivables sale and purchase agreement, will be used by the Issuer to meet the principal and interest payment obligations owed to investors.
Key Credit Enhancements
In addition to the company’s strong cash flow, the transaction is supported by the following key credit enhancements:
- Cash Reserve Account; and
- Liquidity facility, to be issued by Sterling Bank Plc in the form of Standby Letter of Credit.
Future flow securitisation transactions in Nigeria
Securitisation of future flow receivables has a relatively short history in Nigeria. The first important future flow securitised transaction in Nigeria occurred in 2017 with the securitisation of the Combined Expatriate Residence Permit and Alien Card (CERPAC) receivables due to Continental Transfert Technique Limited; this was arranged and issued by DLM Advisory Partners. Following the successful issuance of the Primero BRT Securitisation SPV Plc Series 1 note, the current value of future flow securitised transactions in the Nigerian debt capital markets stands at N33.06billion.
Going forward, the appetite for structured debt instruments appears to be on the rise, with more professional and institutional investors looking to participate in new offers. It is believed that the market will continue expanding as companies look for more economically viable funds for capital expansion and other business development objectives.
Outlook
Patronage of the BRTS has been strong along the existing route and we anticipate 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 uptick 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.