Thursday, Sep 15, 2005
MARC has assigned ratings of AAA to CapOne Berhad’s (CapOne) RM600.0 million Super Senior Class A-1 and RM250.0 million Senior Class A-2 secured fixed-rate asset-backed bonds; AA to RM50.0 million Mezzanine Class B secured fixed-rate; and BB to RM100.0 million subordinated junior secured variable-rate asset-backed bonds respectively. The ratings are based on the total credit enhancement of 68.8%, 19.2% and 12.5% for the Super Senior Class A-1, Senior Class A-2 and Mezzanine Class B bonds respectively, the A- weighted average rating of the underlying corporate loans portfolio, the performance tests in place to divert cash flow in event of trigger, the establishment of a non-amortizing liquidity reserve equivalent to half coupon of the senior and mezzanine bonds that will be partially pre-funded and partially build-up from the excess spread. MARC has also considered the adequacy of the portfolio manager, Amanah SSCM Asset Management Bhd (Amanah SSCM), based on its past experience as portfolio manager in another collateralized loan obligation (CLO) programme, to monitor the performance of the corporate loans portfolio.
CapOne 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, EON Bank Bhd (EON Bank) as the originator, will transfer its rights, title and interest in, to and under a pre-identified RM1,000.0 million static portfolio of corporate loans to CapOne. 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 EON Bank’s books. To fund the purchase, CapOne will simultaneously issue the asset-backed bonds of RM600.0 million Super Senior Class A-1 secured, RM250.0 million Senior Class A-2 secured, RM50.0 million Mezzanine Class B secured and RM100.0 million subordinated secured bonds.
The underlying portfolio of corporate loans analyzed by MARC consists of 25 individual obligors from 14 different industry categories with a weighted average rating of A-. The highest industry concentration comes from the utilities category and represents 16.5% of the total portfolio of RM1,000.0 million. In terms of rating distribution, 67.5% of the portfolio is exposed to obligors rated A- and above. Upon closing, substitution of corporate loans is allowed only in very limited circumstances, i.e. where there is a mandatory prepayment or credit impairment event. Otherwise, the portfolio will remain effectively static post-closing.
In sizing the total credit enhancement, MARC has subjected the structure to different default timing and interest rate stress testing, consistent with a AAA rating and AA rating stress levels. The Super Senior Class A-1 bonds is supported by overcollateralization of 66.7% and liquidity reserves of 2.1% whilst the Senior Class A-2 and the Mezzanine Class B bonds is supported by overcollateralization of 17.7% and 11.1% and liquidity reserves of 1.5% and 1.4% respectively. While the liquidity reserves is expected to build-up to 1.5% of super senior and senior bonds (i.e. RM13 million) within the first year on closing, the liquidity reserves will be further built-up to pre-designated amounts if defaults on the corporate loans were to occur.
MARC’s rating methodology for collateralized debt obligations (CDO) is available at our website, www.marc.com.my.
CapOne 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, EON Bank Bhd (EON Bank) as the originator, will transfer its rights, title and interest in, to and under a pre-identified RM1,000.0 million static portfolio of corporate loans to CapOne. 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 EON Bank’s books. To fund the purchase, CapOne will simultaneously issue the asset-backed bonds of RM600.0 million Super Senior Class A-1 secured, RM250.0 million Senior Class A-2 secured, RM50.0 million Mezzanine Class B secured and RM100.0 million subordinated secured bonds.
The underlying portfolio of corporate loans analyzed by MARC consists of 25 individual obligors from 14 different industry categories with a weighted average rating of A-. The highest industry concentration comes from the utilities category and represents 16.5% of the total portfolio of RM1,000.0 million. In terms of rating distribution, 67.5% of the portfolio is exposed to obligors rated A- and above. Upon closing, substitution of corporate loans is allowed only in very limited circumstances, i.e. where there is a mandatory prepayment or credit impairment event. Otherwise, the portfolio will remain effectively static post-closing.
In sizing the total credit enhancement, MARC has subjected the structure to different default timing and interest rate stress testing, consistent with a AAA rating and AA rating stress levels. The Super Senior Class A-1 bonds is supported by overcollateralization of 66.7% and liquidity reserves of 2.1% whilst the Senior Class A-2 and the Mezzanine Class B bonds is supported by overcollateralization of 17.7% and 11.1% and liquidity reserves of 1.5% and 1.4% respectively. While the liquidity reserves is expected to build-up to 1.5% of super senior and senior bonds (i.e. RM13 million) within the first year on closing, the liquidity reserves will be further built-up to pre-designated amounts if defaults on the corporate loans were to occur.
MARC’s rating methodology for collateralized debt obligations (CDO) is available at our website, www.marc.com.my.