MARC is currently undertaking a review for possible downgrades on the long-term ratings of Kerisma Bhd’s (Kerisma) RM870.0 million senior secured bonds, RM30.0 million mezzanine secured bonds and RM100.0 million subordinated secured bonds. The review for possible downgrades is based upon the downgrade of an obligor to D following the obligor’s failure to pay interest on its loan under the transaction on the interest payment date, 5th June 2006; ten downgrades of obligors, one of which was downgraded to BBB- vis-à-vis only three upgrades; and, the increase in weighted average rating factor to 13.10 from 7.75 (as at end May 2005), translating the weighted average rating of the portfolio to trend closer to BBB.  As of the last rating review rating conducted in May 2005, the portfolio weighted average rating was A-. 

The significant increase in weighted average rating factor from 7.75 to 13.10 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 loan borrower which defaulted on the interest payments belongs to buildings, materials and real estate sector (industry classification per MARC’s cash flow CDO methodology).  Kerisma had issued a letter of demand to the loan borrower on 10 July 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 loan which will be factored into the rating action. 

The loan borrower which was downgraded to BBB- belongs to the transportation industry.  The downgrade triggers a mandatory loan repayment. 

MARC will announce the rating action within three weeks of this announcement.

Kerisma 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 June 2004, Alliance Merchant Bank Bhd (Alliance Merchant) as the originator transferred its rights, title and interest in, to and under a pre-identified portfolio of corporate loans to Kerisma. The transaction is structured as a true sale of the corporate loans portfolio from the originator.