MARC has placed long term ratings of Kerisma Berhad’s (Kerisma) RM870.0 million senior secured bonds, RM30.0 million mezzanine secured bonds and RM100.0 million subordinated secured bonds (Bonds) on MARCWatch Negative following a missed interest payment by an obligor belonging to the automotive industry. This most recent default leads MARC to believe that the AAA, AA- and B ratings of the senior, mezzanine and subordinated bonds are no longer consistent with the credit enhancement available. MARC is reviewing the ratings for possible downgrade and will incorporate its recovery expectations in respect of the defaulted loan in the new cash flow runs generated for Kerisma.

The Bonds are currently secured by 22 performing corporate loans amounting to RM870.0 million and a liquidity reserve of RM39.3 million. Since transaction close, the underlying portfolio securing the Bonds has experienced a total of 11 downgrades and 5 upgrades. Inclusive of the new obligor default, the portfolio has experienced 3 defaults. However, an obligor which defaulted in its interest payment in May 2007 has made good its outstanding interest payments in November 2007. The interest received from this obligor has contributed to recoveries under the transaction.

Kerisma is a bankruptcy remote special-purpose company incorporated in Malaysia, established for the purpose of carrying out this primary Collateralised Loan Obligations (CLO) programme. At transaction close in November 2004, Alliance Merchant Bank Bhd (Alliance Merchant), the originator, extended newly generated loans to a selected group of 25 corporate borrowers and assigned the rights, title and interests in and to the corporate loans to Kerisma. The transaction is structured as a true sale of the corporate loans portfolio from the originator.

MARC expects to resolve this MARCWatch placement within the next month.