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Lagos economy not impacted despite Visionscape’s defaulted debt, says Fitch

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Fitch Ratings has affirmed the positive economic rating of Lagos State despite the defaulted debt of Visionscape Sanitation Solutions (VSS), which halted the waste management agreement.In a statement dated March 28, 2019, Fitch said the state’s B+/(AA+(ngn)/ratings remained unaffected by the default of the SPV Municipality Waste Management Contractors Limited (MWMCL) led by Visionscape, occasioned by the frustrated contract and the subsequent resolution of the House of Assembly.

The SPV is a private consortium led by VSS, a company mandated to manage Lagos’ waste collection and disposal.Early last month, the SPV was reported to have missed the semi-annual principal and coupon payments for about N800 million on the N4.85 billion tranche under MWMCL’s N50 billion medium term note programme.

The bond was reportedly issued by MWMCL to raise funds for the purchase of recycling trucks and equipment, linking debt service to the proceeds coming from Lagos for the implementation of the waste-recycling contract.Some market participants had deemed MWMCL’s default to imply also the default of Lagos, given the state’s irrevocable standing payment order (ISPO), whereby a stream of its own internally-generated revenue (IGR) was remitted to the SPV account for debt servicing.

But the global rating agency described the ISPO, as well as similar arrangements in other countries, as a mechanism enhancing the predictability of payment flows from an administration, potentially enabling it to address liquidity stress by prioritising the payment of certain liabilities.

“Lagos reportedly committed itself to pay for a service, but those payments were discontinued in 2018 once the waste collection halted and the House of Assembly issued a subsequent resolution.“Under Fitch’s criteria, Lagos’ ratings are not impacted because the defaulted debt is not Lagos’ direct debt. Because its multi-annual commitment towards Visionscape is unlikely to qualify as a PPP counter-party obligation. This would make the credit quality of the bond and its issuer detached from that of Lagos,” the statement added.


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