Fitch Affirms JANY Sukuk Company Limited's Senior Debt at 'A'
Fitch Ratings has affirmed the rating of JANY Sukuk Company Limited (JANY), the guaranteed trust certificate issuance programme of The Goldman Sachs Group Inc. (Goldman), at 'A'.
The certificate programme's rating is equalised with Goldman's Issuer Default Rating (IDR) of 'A', which was last reviewed on Dec. 13, 2016.
KEY RATING DRIVERS
The equalisation of the certificate programme's rating to those of Goldman's is due to the Sukuk's structure, which contains the following elements:
--Upon a trust dissolution event, J. Aron & Company (J. Aron) will be obliged under the Murabahah Agreement to acquire or arrange for a third party purchaser to acquire, JANY's beneficial interest in the commodities comprised in the Wakalah portfolio.
--The deferred payment price payable to the issuer under the Murabahah contract will be sufficient to fund payment of the face amount and any periodic distribution amounts due on the certificates upon (and any additional periodic distribution amounts accruing for a period of up to 14 days following) the occurrence of a trust dissolution event or the scheduled dissolution date of the trust.
--Goldman unconditionally and irrevocably guarantees the payment obligations of J. Aron under the Murabahah contract, including an obligation to pay the face amount and any periodic distribution amounts due on the certificates upon (and any additional periodic distribution amounts accruing for a period of up to 14 days following) the occurrence of a trust dissolution event or the scheduled dissolution date of the trust.
Additionally, the guarantee noted above ranks pari passu with all other unsecured and unsubordinated indebtedness of Goldman, which supports the equalisation of ratings.
Fitch has given no consideration to any underlying assets or any collateral provided, as Fitch understands that the issuer's ability to satisfy payments due on the certificates will ultimately depend upon J. Aron and Goldman satisfying their unsecured payment obligations to the issuer under the transaction documents described in the prospectus.
By affirming such ratings to the programme and certificates to be issued under it, Fitch does not express an opinion on the programme structure's compliance with Shari'ah principles or whether the relevant transaction documents are enforceable under applicable law.
The Sukuk programme does not benefit from a cross-default provision within the guarantee documents, while certain other Fitch-rated Goldman debt issuances benefit from these provisions. In the event of Goldman's bankruptcy or insolvency, Fitch believes this could result in time-related subordination of the Sukuk notes relative to other creditors of Goldman whose claims would be accelerated in the event of default. However, the outcome for the Sukuk notes would be uncertain, and would depend on the remaining maturity of the notes, the performance of the reference collateral and the actions of the regulatory authorities in a bankruptcy scenario. Goldman's ratings continue to be supported by its investment banking franchise, solid liquidity position, better-than-average capital position, and strong risk management. The ratings are constrained by Goldman's focus on capital market activities and relatively higher wholesale funding.
SENIOR UNSECURED DEBT
The rating of the programme will be influenced by changes in Goldman's long-term IDR. A downgrade of Goldman's IDR would result in a downgrade to JANY's long-term debt rating. Depending on the magnitude of a downgrade of Goldman, this could potentially result in notching between the Sukuk programme and Goldman's IDR to reflect potential time-related subordination associated with the lack of a cross-default provision.
Goldman's rating upside is viewed as limited to the 'A' rating category reflecting the cyclicality of many of Goldman's business activities and its primary reliance on wholesale, confidence-sensitive funding sources. To the extent that the company is able to further improve both its returns on equity and the stability of its earnings profile while at the same time further reducing its reliance on wholesale funding and maintaining above-peer-level capital ratios, there could be some longer-term upside to the company's ratings. Downward rating pressure for Goldman could be triggered by a material loss, significant increase in leverage and/or deterioration in liquidity levels. Similarly, any unforeseen outsized or unusual fines, settlements or charges could also have adverse ratings implications.