Wednesday, Mar 30, 2011
MARC has assigned the following long-term ratings to Special Coral Sdn Bhd’s (Special Coral) RM300 million Senior Class MTNs (Senior Notes) classes:
Senior Class MTN | Issue size | Rating | Outlook | |
| 1. | Class A | RM160 million | AAA | Stable |
| 2. | Class B | RM40 million | AA | Stable |
| 3. | Class C | RM35 million | A | Stable |
| 4. | Class D | RM25 million | BBB | Stable |
| 5. | Class E | RM10 million | BB | Stable |
| 6. | Class F | RM30 million | B | Stable |
| Total | RM300 million | |||
At the same time, MARC has assigned a B- long-term rating to the RM800 million Subordinated Class MTNs (Subordinated Notes). The outlook on all ratings is stable.
Special Coral is a bankruptcy remote special purpose vehicle established for the purpose of issuing up to RM1.1 billion Medium Term Notes Programme (MTN Programme). The proceeds of the issuance will be used to finance the purchase of Queensbay Mall (the property), which comprises such portion of the individual units/strata parcels, accessory parcels area, parking bays and rights under all tenancy agreements in relation to the property, among others, to meet future capital expenditure and working capital requirements for Queensbay Mall and all expenses incurred in connection with this transaction. The transaction has been structured on an interest-only basis, with no amortisation of principal prior to maturity date. The rentals collected from tenants will serve as the source of payment for coupon payments on the Senior Notes.
The ratings of the respective classes under the Senior Notes reflect loan-to-value (LTV) ratios of 40.1%, 50.1%, 58.9%, 65.2% 67.7% and 75.2% respectively for Class A through Class F notes. The ratings also reflect the projected cash flow performance of the mall and consequent combined debt service coverage ratios (DSCR) of between 1.74 times (x) and 5.39x for the Senior Notes. The LTV and DSCR computations are based on the projected cost of funding for three-year MTNs. The ratings also take into account call options granted to CapitaMalls Asia Limited (CMA), an entity of very strong credit standing. The risk of shortfalls in monthly rental collections against semi-annual coupon payments is mitigated by an undertaking by CMA to cover shortfalls in coupon obligations. The B- rating assigned to the Subordinated Notes considers the notes’ subordinated priority in payment relative to the Senior Notes and higher risk of non-payment under stressed scenarios involving declines in net operating income (NOI) and the market value of the mall.
Special Coral had entered into seven sale and purchase agreements (SPA) on December 22, 2010 with the original owners of the securitised property – C P Mall Sdn Bhd, C P Park Sdn Bhd, Casapark Sdn Bhd, Cool Meadow Sdn Bhd, Dominion Power Sdn Bhd, Genetis Sdn Bhd and Techdom Sdn Bhd (which are also the originators of this transaction), for a total consideration of RM650 million. The sale of Queensbay Mall has been structured as true-sale for legal purposes, and upon completion of sale, all rights under all the tenancy agreements that existed between the tenants and the originators will be assigned to Special Coral for the benefit of the noteholders.
The asset to be securitised, Queensbay Mall, is an 8-storey shopping complex with a net lettable area of 890,709 sq ft located within the Queensbay integrated waterfront development area in Bayan Lepas, Penang. The securitised asset comprises 913,834 sq ft of gross retail area, which represents 90.5% of the mall entire gross retail area, and all the parking bays within the mall. The mall began operations at the end of 2007 with an initial occupancy rate of 80%. As of September 2010, the occupancy rate stood at 91.7%, with the top 10 tenants occupying about 47% of the total occupied area and contributing about 26% of the mall’s gross monthly income. The mall’s NOI has been trending upwards since commencing operations. The mall recorded a 22% increase in NOI in 2008, but this subsequently moderated to a 4% year-on-year increase as occupancy reached 90%. MARC expects further growth in NOI post-completion of planned asset enhancement works by CapitaLand Retail Malaysia Sdn Bhd (CRM), the servicer. Through CRM, CMA is expected to lend its expertise in repositioning and enhancing retail properties to improve the performance of Queensbay Mall. MARC’s assumed stabilised NOI of RM36 million factors in a 4% growth in NOI from 2009 levels.
The transaction structure provides for two call options – the Senior MTNs Call Option and Property Call Option – exercisable by CMA. The Senior MTNs Call Option is exercisable any time after the occurrence of a trigger event, event of default or reinstatement event while the Property Call Option is exercisable at any time post the first issuance, but is conditional upon the property being disposed into a real estate investment trust except in the event of a trigger event or event of default. Either one of the two call options may be exercised by CMA to provide funds for the repayment of the notes. MARC views CMA’s credit standing as very strong premised on CMA being a 65.5%-owned subsidiary of CapitaLand Limited (CapitaLand) and its adequate historical financial performance. Monthly cash flows generated by the securitised property will be trapped in accounts mainly controlled/governed by the trustee. The transaction structure also imposes an equal five-monthly build-up of coupon on Special Coral ahead of the coupon payment date.
The stable rating outlook on the senior note classes reflects expectations that the performance of the mall will remain reasonably consistent with MARC’s assumed stabilised NOI of RM36.0 million.
Contacts:
Nadia Edmaz Abdul Hadi, +603-2082 2262/ nadia@marc.com.my;
Ruben Khoo, +603-2082 2265 / rubenkhoo@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.