MARC has assigned ratings of AAA to Prima Uno Berhad’s (Prima Uno) RM290.0 million Super Senior A, RM335.0 million Super Senior B and RM190.0 million Senior secured fixed-rate asset-backed bonds; AA to RM40.0 million Mezzanine secured fixed-rate; and BB to RM95.0 million subordinated junior secured variable-rate asset-backed bonds respectively. The ratings are based on the total credit enhancement of 232.1%, 54.1%, 18.2% and 12.6% for the Super Senior A, Super Senior B, Senior and  Mezzanine 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; and the establishment of a non-amortizing liquidity reserve equivalent to half coupon of the super seniors, 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 other collateralized loan obligation (CLO) programmes, to monitor the performance of the corporate loans portfolio.

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 (RHB Investment) as the originator, will transfer 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 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 RHB Investment’s books. To fund the purchase, Prima Uno will simultaneously issue the asset-backed bonds of RM290.0 Super Senior A secured, RM335.0 million Super Senior B secured, RM190.0 million Senior secured, RM40.0 million Mezzanine secured and RM95.0 million subordinated secured bonds.

The underlying portfolio of corporate loans analyzed by MARC consists of 33 individual obligors from 15 different industry categories with a weighted average rating of A-. The highest industry concentration comes from building, materials and real estate representing 15.3% of the total portfolio of RM950.0 million. In terms of rating distribution, 70.5% 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 A bonds is supported by overcollateralization of 227.6% and liquidity reserves of 4.5% whilst the Super Senior B bonds and the Senior bonds are supported by overcollateralization of 52.0% and 16.6% and liquidity reserves of 2.1% and 1.6% respectively.  The Mezzanine bonds is supported by overcollateralization of 11.1% and liquidity reserves of 1.5% respectively. While the liquidity reserves is expected to build-up to 1.6% of the super seniors 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.