MARC has issued this update in connection with its ongoing monitoring and review of the Aegis transaction. Since the affirmation of the AA and B ratings of Aegis One Bhd’s (Aegis One) RM900.0 million senior secured bonds and RM100.0 million subordinated secured bonds (Secured Bonds) in February 2007, the underlying corporate loan portfolio has experienced further collateral deterioration. Two downgrades have occurred since February 2007, with one of the obligors’ rating downgraded to below BBB (lowest allowable rating). With the downgrade, the portfolio’s weighted average rating factor deteriorated further to 10.36 from 9.06 in May 2007. Nonetheless, MARC takes comfort that the obligor rated below BBB has procured a loan to refinance its obligation under Aegis One. As at July 2007, 33.5% of the obligors (by loan amount) are rated in the BBB band with 29.1% rated at BBB.

Due to the failure of Overcollaterization (OC) tests, the senior secured bonds have been deleveraging and as at September 2007, RM19.8 million of the original outstanding principal have been paid down . The OC ratio had first declined below the threshold of 105% in November 2006 to 101.1%. Due to the OC test failure, two early redemptions were effected in November 2006 and May 2007, funded by excess spread. With the early redemptions, the OC ratio has improved from 102.6% as of November 2006 to 103.4% presently.

The bonds are secured by 23 performing corporate loans amounting to RM910.0 million and a liquidity reserve of RM11.8 million as at September 2007. Although the OC ratio remains below the threshold of 105%, MARC is of the view that the AA rating of the senior secured bonds still commensurate with the level of credit enhancement currently available, following its review of the results of new cash flow runs generated on the performing RM910.0 million loans assuming zero recoveries.

To date, there have been no recoveries of defaulted loans and MARC does not expect any recovery prior to the final redemption of the bonds.

Additionally, MARC recognizes that there is a potential risk of missed payment on the final redemption date given that the due date for principal repayment on the corporate loans is the same day as the maturity date of the bonds, that is 29 November 2007. MARC understands that the trustee has requested for payment from the obligors three business days prior to the due date. Notwithstanding, Aegis One is seeking bondholders’ consent to extend the maturity date by 3 business days to provide sufficient time for clearance of payments from the obligors. As at the date of this update, the issue of payment dates remain unresolved. MARC expects the issue to be resolved following the bondholders’ extraordinary general meeting scheduled on October 30, 2007.

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.

MARC will continue to monitor the transaction and issue updates on material developments.