OREANDA-NEWS. August 03, 2015. Fitch Ratings has assigned South Africa-based MMI Group Limited's (MMI) proposed issue of subordinated debt securities a 'A+(zaf)(EXP)' expected rating. The rating is in line with Fitch's standard notching practices.

The final rating is contingent on the receipt of final documents conforming to the information already received.

KEY RATING DRIVERS
The notes are rated two notches below MMI's National Long-term rating of 'AA(zaf)'. This reflects one notch for the level of subordination and one more for "Moderate" non-performance risk. The latter reflects the notes' material interest deferral features, including a provision for interest deferral at the request of the regulator.

MMI expects to use the proceeds of the proposed subordinated debt issue to finance the redemption of ZAR1bn 8.50% fixed coupon notes (MGL01). MMI will redeem these notes on 15 September 2015.

MMI is proposing to issue two fixed rate notes, one with a 12-year maturity, callable after seven years (MMIG05), and another with a 15-year maturity, callable after 10 years (MMIG04). The fixed rate coupons will be payable semi-annually, and will be determined on the auction date by reference to the yields on the R2023 bond (MMIG05) and R186 bond (MMIG04), respectively. The notes include a mandatory interest deferral feature which is triggered when the company's level of regulatory minimum capital requirement is breached.

The subordinated debt has been structured for Tier 2 Own Funds eligibility according to QIS3 specifications under the Solvency Assessment and Management regime. According to Fitch's methodology, this subordinated bond is classified as 100% capital due to regulatory override within Fitch's risk-based capital calculation and is classified as 100% debt for the agency's financial leverage calculations.

The group's financial leverage (16.2% at end-2014) is expected to remain commensurate with the ratings following the proposed redemption of the 8.50% notes.

RATING SENSITIVITIES
The ratings on the subordinated debt securities are notched down from the issuer's rating and are therefore sensitive to changes in MMI's National Long-term rating.