MARC has reaffirmed with negative outlook the long-term ratings of Aegis One Bhd’s (Aegis One) RM900.0 million senior secured bonds and RM100.0 million subordinated secured bonds at AAA and BB respectively. The reaffirmation is premised on the weighted average rating of Aegis One’s portfolio of corporate loans at A-/BBB+; comfortable overcollateralization and interest coverage ratios; the adequacy of supervision of the corporate loans by the portfolio manager and the liquidity reserve equivalent to three months interest coverage of the senior bonds. The negative outlook is premised on the increase in weighted average rating factor to 8.99 from 8.19 previously and the resultant susceptibility for weighted average rating factor to increase to 10.00 translating to a weighted average rating of the portfolio at BBB+ should there be further downgrade of BBB-rated obligors.

Aegis One is a bankruptcy remote special-purpose company incorporated in Malaysia, established for the primary purpose of undertaking this primary collateralized loan obligation (CLO) programme. Upon closing in November 2002, Affin Bank Bhd (Affin Bank) as the originator transferred its rights, title and interest in, to and under a pre-identified portfolio of corporate loans to Aegis One. The transaction is structured as a true sale of the corporate loans portfolio from the originator. As this is a primary CLO, none of the corporate loans in the pre-identified portfolio were direct transfers from Affin Bank’s books.

Since transaction closing, Aegis One’s portfolio of 25 underlying securitized corporate loans with

total exposure of RM1,000.0 million, experienced a
total of nine upgrades and ten downgrades over the past three years. The rating migrations are mainly concentrated in the A- and BBB+ rating categories.

During the year under review, the portfolio exposure to credits rated BBB (lowest rating allowable) remained at four obligors representing 14.0% of total portfolio. However, two obligors were downgraded to BBB-. With seven downgrades, two of which were from BBB to BBB- and four upgrades during the year, the portfolio’s weighted average rating deteriorated to 8.99 from 8.11 in 2004, with the proportion of credits rated A- and above representing 60.5% (2004: 64.5%) of total portfolio exposure.

The two obligors which were downgraded to BBB- belong to the farming & agriculture and clothing/textile industries. MARC will monitor these obligors closely and assess whether further rating actions in respect of these obligors are required.

As at end November 2005, Aegis One’s overcollateralization (OC) ratio remained at 111.11%, above the required minimum of 105.00%. The interest coverage (IC) ratio as of the same date increased to 198.06, up from end November 2004’s 169.96%, and is also higher than the required minimum of 120.00%. The liquidity reserve account remained unutilized at RM11.7 million, representing three months interest coverage on the senior bonds, as required under the terms of the transaction.