MARC has affirmed the 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 at AA-, A- and C, respectively. The affirmation is premised on the stabilized credit quality of the underlying loans portfolio since MARC’s last rating action in February 2008; higher credit enhancement level for the senior and mezzanine secured bonds at 4.9% and 1.4% respectively (January 2008: 4.5% and 1.0%); and liquidity support provided by a non-amortizing liquidity reserve account which stood at RM42.4 million as of June 2008.

Kerisma is a bankruptcy remote special-purpose company incorporated in Malaysia, established for the purpose of carrying out the primary collateralized loan obligation (CLO) programme. At transaction close, the originator, Alliance Investment Bank Bhd transferred its rights, title and interests in a pre-identified RM1,000.0 million static portfolio of corporate loans to Kerisma. The transaction is structured as a true sale of newly-originated corporate loans portfolio from the originator. On closing, proceeds from the issuance of the rated bonds were utilised to fund the purchase of the loans portfolio.

As at todate, the portfolio supporting the transaction consists of 22 performing corporate loans from 15 industries. The loans have been structured as five-year interest-only loans with a bullet repayment to mirror the repayment schedule of the rated bonds. From February 2008 to August 2008, MARC noted a marginal improvement in the credit quality of the underlying corporate loans. The portfolio experienced one single-notch downgrade to A from A+ and three upgrades since MARC’s last rating action in February 2008. Obligors rated A- and above now account for 63.2% of the value of performing loans, up from 57.5% in January 2008. Since transaction was originated, the portfolio had experienced a total of three obligor defaults with a cumulative default amount of RM130.0 million. Excluding the defaulted loans, the portfolio’s weighted average rating factor stood at 8.73, translating to a weighted average rating (WAR) of A-/BBB+. Given the WAR of A-/BBB+, MARC ran a series of stress tests at each rating level to assess the ability of the senior and mezzanine bonds to withstand revised default rates employed on its remaining RM870.0 million non-defaulted loans portfolio and is of the opinion that the ratings of Senior and Mezzanine bonds of AA- and A- commensurate with the credit quality of the portfolio and credit enhancement level available.

As of June 2008, overcollateralization (OC) ratios for Senior and Mezzanine bonds remained unchanged at 100.0% and 96.7%, below the required minimum of 105% and 104%, respectively. Nevertheless, Kerisma’s reported interest coverage (IC) ratios remained well above the minimum of 120%, stood at 252.5% and 243.4% for the Senior and Mezzanine bonds, respectively. The non-amortizing liquidity reserve account of RM42.4 million as of June 2008 continues to serve as liquidity buffer to ensure timely coupon payments. The liquidity reserve is expected to be utilised towards redeeming the senior and mezzanine secured bonds at maturity.

Contact: 
Chia Suil Fun, Tel/email: (603) 2092 5398/ sfchia@marc.com.my;
Azlina Mohamed Noor Beg, Tel/email: (603) 2092 5398/ azlina@marc.com.my