The decision announced on Friday by Moody's Investor Service to upgrade the credit rating of the Class B notes which fund Edcon's securitised debtors' book reflects a lower bad debt experience on these debtors.
"Edcon's strength in credit management and debt collection as well as the state of the art credit management systems contributed to the meaningful improvement in the quality of the debtors' book," said Mark Bower, Chief Executive Group Services.
In July 2002 Edcon concluded the first full securitisation of consumer debt in South Africa with R2,3 billion of receivables sold to an independent company called On the Cards.
"We were pleased that the re-rating came now," said Bower. "The original securitisation runs for 2 years and 11 months, expiring in June 2005 and a re-rating mid-term confirms the conservativeness built into the initial structure. Now the notes carry even less risk for investors."
Moody's have re-rated the OntheCards Class B notes, representing R200 million and 9% of the total issue, from Baa2 to A3, a jump of two levels. Class A notes, representing R1,73 billion could not be upgraded as they are already at the highest level being Triple A rated.
Moody's attributed the re-rating to the 'better than expected debtor performance'.
"In basic terms," said Bower, "this means that for accounts owned by On the Cards, collections have been higher and bad debts lower than expected, so cash flows to investors are considered more secure."
Moody's have also recently upgraded Edcon's own long-term corporate rating outlook from stable to positive.