RDS — the old African Bank — settles senior debt payment

COLLECTIONS ON THE COMPANY’S OUTSTANDING DEBT BOOK CONTINUE TO RUN SMOOTHLY

Residual Debt Services (RDS) — the old African Bank that was placed under curatorship in 2014 — has fully repaid senior unsecured creditors.

The company said on Tuesday that senior unsecured stub instrument holders were paid about R2.486bn on Monday, taking their full nominal payment to R7.1bn including interest equal to the Johannesburg Interbank Average Rate (Jibar) plus 300 basis points. The R7.1bn settlement consists of the nominal amount of R3.6bn plus interest of about R3.5bn meaning creditors have almost doubled their investment over six years.

RDS also announced a first part payment to subordinated stub instrument holders of about R214m and said it expects to make a second payment of between R200m and R250m to holders of the subordinated stub instruments at the end of January 2023. The contractual carrying value of the subordinated instrument holders increased to R7.3bn from R6.7bn in 2021 due to the accrual of interest.

“RDS has reached a significant milestone and is pleased to settle the senior unsecured stub instruments in full today,” curator Craig Du Plessis said.

“Collections on the RDS loan book have been higher than expected during the curatorship of RDS. We are therefore pleased that the subordinated stub instrument holders have and will continue to benefit from our collection efforts going forward.”

After the old African Bank was put into curatorship its material liabilities were ring fenced in RDS to separate the bad debts from the good, with the latter transferred to the new African Bank. The bad debts were termed residual stub ” debt senior and “subordinate instruments and entitled both holders to payments from RDS over time.

However, before any payments could be made RDS had to establish an indemnity reserve of R3bn and an operating cash float of R500m in April 2016.

In November RDS and the new African Bank agreed to reduce the indemnity reserve from R3bn to R500m while the operational float was cut to R300m, leaving RDS surplus cash of R2.7bn to begin paying out residual stub debt holders.

“This notable achievement is testament to the ongoing collaboration between ourselves and the collection activities of African Bank since the restructuring was successfully concluded in 2016,” said Du Plessis. “I am pleased that we were able to fully repay and almost double the senior unsecured stub instrument holders’ investment over six years.”

RDS also announced on Tuesday that its net advances fell to R110m for the year to endSeptember, from R184m the prior year. The company said collections on its outstanding debt book continue to run smoothly though it expects reduced future collections as the book is “run-down”.

The company’s overall provision coverage increased to 76% from 71% due to the ageing of the book and collections models being conservatively recalibrated.

Operating costs fell to R186m in the financial year from R254m in 2021 as a result of lower collections fees paid to African Bank.