MARC has downgraded its ratings on Straight A’s Portfolio Sdn Bhd’s (Straight A’s) RM200 million Murabahah Underwritten Notes Issuance Facility (MUNIF) to MARC-4ID from MARC-1ID on account of the heightened collectibility risk of certain receivables securing the facility. Accordingly, MARC opines that Straight A’s no longer has the capacity to meet its obligations under the MUNIF without relying on external support. The lowered ratings are, therefore, based on MARC’s evaluation of the credit support derived from a corporate guarantee from Straight A’s intermediate holding company, Oil-Line Engineering & Associates Sdn Bhd (OLEA). The ratings remain on MARCWatch Negative, where they have been since May 22, 2008.

The facility’s long-term rating is notched down from Oilcorp Berhad’s (Oilcorp) long-term rating of BBID to reflect structural subordination. Its short-term rating has been equalised with that of Oilcorp, and reflects the precarious state of Oilcorp’s finances and heightened risk of non-payment with regards to an upcoming debt redemption on October 7, 2009.

Straight A’s is a special purpose vehicle formed by Oilcorp’s wholly-owned subsidiary, OLEA for the purpose of securitising receivables from assigned contracts of OLEA and/or its subsidiaries.

The current outstanding amount of RM80 million under the facility was drawn down with the assignment of receivables from two obligors, namely Plants Biofuel Corporation Sdn Bhd (PBC) - RM26 million; and Plant & Offshore Technology Sdn Bhd (POT) - RM54 million. The receivables were originated between August 30, 2007 and April 29, 2008. PBC is a Malaysian-incorporated subsidiary, which is ultimately owned by a start-up integrated biodiesel company incorporated in the US. MARC was informed that OLEA had received payments from POT, but has yet to transfer the said amounts to the designated accounts of Straight A’s under the rated facility, resulting in the commingling of the designated funds.

The MARCWatch Negative incorporates the possibility of Oilcorp defaulting on its redemption on October 7, 2009.

Contacts:
Anandakumar Jegarasasingam 03-20902250/ kumar@marc.com.my;
Eric Chua 03-20902245/ cheekiong@marc.com.my