MARC is currently undertaking a review for possible downgrades on the long-term ratings of Aegis One Bhd’s (Aegis One) RM900.0 million senior secured bonds and RM100.0 million subordinated secured bonds. MARC had announced in March 2006 the reaffirmation with negative outlook on the long-term ratings of Aegis One’s senior and subordinated bonds at AAA and BB respectively following the increase in weighted average rating factor to 8.99 from 8.19.  The review for possible downgrades is based upon the downgrades of two obligors to D following their failure to pay interest on their loans under the transaction on the interest payment date, 25th May 2006; and, the increase in weighted average rating factor to 16.42 from 8.99 (as at end-December 2005), translating the weighted average rating of the portfolio at BBB.  Prior to the defaults of the two borrowers, the portfolio weighted average rating was between A- and BBB+. 

The large increase in weighted average rating factor from 8.99 to 16.42 is brought about by the rating migration at the lower end of the credit scale as MARC’s weight factors are negatively skewed by design i.e. the weighting increases as the credit quality decreases.

The two loan borrowers which defaulted on the interest payments belong to the farming and agriculture and clothing/textile industries.  Aegis One had issued letters of demand to the two loan borrowers on 6 June 2006 and is in the midst of pursuing legal action to recover the outstanding loans.  MARC will monitor the progress of legal action closely and assess the potential for recovery of the defaulted loans which will be factored into the rating action.  MARC will announce the rating action within thirty days of this announcement.

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.