MARC has affirmed 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 AA and B respectively. The affirmation is premised on the ability of the portfolio to currently withstand AA-stress scenario; the protective features, i.e. the overcollateralization and interest coverage ratios incorporated into the transaction; adequate supervision of the corporate loans by the portfolio manager; and, the liquidity reserve which provides for three months interest coverage for the senior bonds.

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.

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 six upgrades and twelve downgrades over the past four years. Following defaults by two obligors in May 2006, the portfolio concentration increased with 23 obligors spread across 15 industries. The transaction parties are in regular talks with the defaulted obligors to recover the defaulted loans and MARC is monitoring the recovery efforts closely.

Despite the portfolio rating remaining intact at A-/BBB+, the collateral performance exhibited further credit deterioration as reflected by the increase in the weighted average rating factor to 8.88 from 8.15. The deterioration is attributed to four rating downgrades, two of which by a single notch, one by two notches and another by three notches. As at December 2006, the portfolio exposure to credits rated BBB (lowest rating allowable) increased to seven obligors representing 29.1% (May 2006: 15.4%) of the total portfolio. Nevertheless, the portfolio’s exposure to credits rated A- and above remains unchanged from May 2006, representing 62.1% of the total portfolio.

As anticipated, Aegis One’s overcollateralization (OC) ratio as at end November 2006, dipped to 101.11%, below its required minimum of 105.0%, triggering an early redemption of the senior bonds. A sum of RM12.63 million or a redemption rate 1.40%, had been channelled to partially retire the senior bonds on 8 December 2006, resulting in the OC ratio to improve slightly to 102.55%. MARC expects a partial redemption in May 2007 (subsequent to the next calculation date), funded by available excess spread. The interest coverage (IC) ratio as at end November 2006 at 174.72%, was comfortably higher than the required minimum of 120.00%. The liquidity reserve account stood at RM11.7 million as at 10 January 2007, effectively providing for three months interest coverage on the senior bonds and may be available to offset losses in the portfolio should any further losses occur prior to the final redemption in November 2007.