MARC has assigned ratings of MARC-1/AAA to RM125.0 million Senior Class A Notes and MARC-1/AA to RM50.0 million Senior Class B Notes (Senior Notes) of Mutual Streams Sdn Bhd (MSSB). MSSB is a bankruptcy remote special purpose vehicle that will be issuing up to RM650.0 million Commercial Papers/Medium-Term Notes (Notes) to purchase a designated piece of land together with its building, Mines Shopping Fair (Mines); renting the property to tenants for the benefit of the senior noteholders; and utilising rental collections to meet coupon payments. The Subordinated Class C MTN of up to RM475.0 million is unrated. The ratings reflect the quality of the property; irrevocable and unconditional put and call options which mitigate refinancing risk; and the strong credit standing of the call options holder, CapitaLand Retail Limited (CRTL). 

The transaction has been structured on an interest-only basis, with no amortisation of principal prior to maturity date. Monthly rental collections from tenants form the source of coupon payments for the Notes. The transaction incorporates a put and two call options exercisable by Malaysian Trustees Berhad (Trustee) and CRTL respectively, which will address the redemption of Senior Notes at maturity. 

MSSB purchased Mines from Mines Shopping Fair Sdn Bhd (MSF), a wholly owned subsidiary of Country Heights Holdings Berhad for a total consideration of RM432.0 million. The sale of Mines has been structured as true-sale for legal purposes and upon completion of sale, the existing rental (tenancy) agreements will be assigned to MSSB.

The asset to be securitised is Mines, a 4 1/2 storey shopping complex with a net lettable area of 648,840 sq. ft. (includes the area of 5,143 sq. ft. under the Venice Walk lease) located in Mines Resort City.  As at end of July 2007, the occupancy rate stood at 83% with anchor tenants, Giant Hypermarket, Hot Market, Wonder Bowl Sdn Bhd and TGV Cinemas Sdn Bhd, occupying 38.1% of total occupied area. Net operating income (NOI) has been trending upwards over the last five years with an average annual growth rate of approximately 17.4%. Higher growth in NOI is expected going forward, upon the completion of planned asset enhancement works by CapitaLand Retail Project Management Pte Ltd (Malaysian Branch) (CRPM), the Servicer. Through CRPM, CRTL will lend its expertise in repositioning and enhancing retail properties to improve the performance of Mines.

Under the proposed transaction, a Senior CPs/MTNs Put Option in favour of the Trustee and Senior CPs/MTNs Call Option in favour of CRTL (both options being irrevocable and unconditional) have been incorporated thus mitigating refinancing and market risk of the Senior Notes.  A Property Call Option in favour of CRTL in respect of Mines exercisable at any time post issuance, allows MSSB to redeem the outstanding Senior Notes ahead of its scheduled maturity.  MARC views CRTL’s credit standing as very strong premised on CRTL being a wholly owned subsidiary of CapitaLand Ltd; possessing the requisite technical expertise and knowledge in retail properties; undertaking sound management strategies and recording commendable historical financial performance.

Using a discounted cash flow valuation approach, MARC’s assessed capital value for the property is RM290.0 million. MARC has applied LTVs of 43.3% and 60.1% to size the ‘AAA’ Class A Notes and ‘AA’ Class B Notes respectively.  Based on base case cash flow projections, debt service coverage ratios (DSCRs) are solid with minimum DSCRs at 4.78 and 3.18 times for Senior Class A and Senior Class B Notes respectively.