Prima Uno Berhad - 2009

MARC has affirmed Prima Uno Berhad’s (Prima Uno) ratings of RM290.0 million Super Senior A, RM335.0 million Super Senior B and RM190.0 million Senior at AAA; RM40.0 million Mezzanine bonds at AA; and downgraded the rating on the RM95.0 million subordinated bonds from BB to BB-. MARC has assigned a negative outlook to the mezzanine and subordinated bonds and a stable outlook to all the other bonds. The affirmed ratings and stable outlook for both super seniors as well as senior bond classes reflect the maintenance of adequate credit enhancement consistent with the respective rating levels. The lowered rating on the subordinated bonds and negative rating outlook on the mezzanine and subordinated bonds reflect the weakened collateral pool resulting from the recent defaulted obligor and the expected deterioration in the credit quality of the pool, going forward, arising from the current challenging economic climate.

Prima Uno is a bankruptcy remote special-purpose company incorporated in Malaysia, established for the purpose of implementing and carrying out this primary CLO programme. Upon closing, RHB Investment Bank Berhad, the originator, transferred its rights, title and interest in, to and under a pre-identified RM950.0 million static portfolio of corporate loans to Prima Uno. The transaction has been structured as a true sale of a newly-originated corporate loans portfolio by the originator. The purchase of corporate loans was funded by proceeds from the issuance of the secured bonds.

As of April 2009, the collateral pool consists of 31 five-year non-amortizing interest-only loans with single bullet repayment. During the current review which covers the period from March 2008 to April 2009, the loan portfolio experienced downgrades with respect to six obligors with one obligor’s rating downgraded to D (default). The defaulted obligor exhibited a weakened liquidity profile and experienced a steep decline in its rating in 2008 from A- in March followed by a further four downgrades. MARC pre-emptively downgraded the said obligor to D in December following a missed payment on its secured obligation. In January 2009, the obligor subsequently failed to meet its CLO loan interest payment. The downgrades of the remaining obligors were attributed to an increase in their overall risk profile in view of the current challenging economic climate and tight liquidity positions.

Excluding the two defaulted loans, the portfolio’s weighted average rating factor (WARF) deteriorated to 9.71 from 8.14 translating to a weighted average rating of A-/BBB+. As of April 2009 obligors rated A- and above accounted for 61.0% of the total portfolio (March 2008: 70.7%). Results on a series of cash flow  runs  performed  using  the revised  default rates on the outstanding  performing loans of RM910.0 million indicate that the Super Senior A, Super Senior B and Senior; and Mezzanine bonds are able to withstand the stresses at the AAA and AA rating levels respectively. Nevertheless, with the slowdown in the global and local economy in the near term, MARC holds the view that further negative credit migration to the loan portfolio is expected in particular for obligors shadowrated at BBB+ and below which accounts for 14 of the portfolio’s 31 performing loans.

As of February 6, 2009 (per servicer’s computation) Prima Uno’s overcollateralization (OC) ratios reported a marginal decline to 313.8%, 145.6%, 111.7% and 106.4% (March 2008: 317.2%, 147.2%, 112.9% and 107.6%) for the Super Senior A, Super Senior B, Senior and Mezzanine bonds, respectively. However, they were above the minimum required ratios. In addition, Prima Uno’s interest coverage ratios exceeded the minimum required level of 120%. As at April 2009, the credit enhancement for Super Senior A, Super Senior B, Senior and Mezzanine bonds were 222.1%, 49.4%, 14.6% and 9.2% (March 2008: 221.7%, 49.3%, 14.5% and 9.1%) respectively.

MARC will continue to monitor the performance of the transaction closely to ensure that its ratings on Prima Uno remain consistent with the available credit enhancement.

Strengths

Weaknesses