MARC has placed CapOne Berhad’s (CapOne) Bonds comprising RM600.0 million super senior Class A-1 secured bonds and RM250.0 million senior Class A-2 secured bonds rated AAA and RM50.0 million mezzanine Class B secured bonds rated A- on MARCWatch Negative. The RM100.0 million subordinated bonds rated C are not affected by this rating action.

CapOne is a bankruptcy remote special-purpose company incorporated in Malaysia established for the purpose of carrying out the static cash flow transaction. The collateral for the rated bonds consist of loans newly generated by EON Bank Bhd at transaction close in September 2005. The entire portfolio of 25 corporate borrowers has been shadowrated by MARC.

This action is taken following a significant decline in the collateral performance which has resulted in the deterioration of the weighted average rating from A-/BBB+ to BBB+/BBB with an increase in the weighted average rating factor (WARF) to 10.67 presently from 9.39 since the interim review in April 2008. This has led MARC to believe that the assigned ratings of the super senior, senior and mezzanine may no longer be consistent with the available credit enhancement. MARC is now reviewing the ratings for possible downgrade and will incorporate its recovery expectations in respect of the revised WARF in the new cash flow runs for CapOne.

Of the original portfolio of 25 corporate loans, 22 corporate loans, amounting to RM880.0 million are currently performing. To date, the portfolio has experienced 3 defaults totalling RM120.0 million. Since April 2008, the portfolio experienced one upgrade and two downgrades. The downgraded obligors come from the automotive and utility sectors. The three-notch downgrade of the automotive company to BB+ from BBB+ was premised on the deterioration in the obligor’s liquidity position and financial flexibility. A Letter of Demand for the full repayment of the said loan, which is now subject to mandatory prepayment, has been issued by the trustee.

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

Contacts:
Anthony Eng, 03-2090 2255/ anthony@marc.com.my;
Azlina Mohamed Noor Beg, 03-2090 2254/ azlina@marc.com.my.