MRT-3’s asset-backed securities still under review by Philratings

The Philippine Ratings Services Corp. (Philratings) said its PRS Aa rating for MRT III Funding Corp. Ltd.’s asset-backed securities (ABS) remains under "continuing review."

Philratings said the review was due to the fact that no settlement or restructuring has yet been finalized and announced with respect to the $21 million past due maintenance fees payable to Sumitomo Corp. of Japan.

A rating of PRS Aa is defined as: "Margins of protection may not be as large as in PRS Aaa-rated issues. Fluctuation of protective elements may be of greater amplitude or there may be elements which make the long-term risks appear somewhat larger than for PRS Aaa-rated issues."

PRS Aaa-rated securities, on the other hand, are defined as those with the smallest degree of investment risk.

Philratings said negotiations are still ongoing between the Department of Transportation and Communication and Sumitomo as the period for negotiations for the finalization of a restructuring agreement extended to Feb. 27, 2004, subject to the fulfillment of some payment conditions within this month.

Philratings said it was issued a written confirmation by The Bank of New York, trustee bank for the MRT III transaction, that the $3.1 million in note interest due on Feb. 9, 2004 was paid on schedule.

"Information on bank balances likewise reflected the deposit of $3.15 million in liquidity reserve on Feb. 6, 2004. The setting up of a $3.15 million liquidity reserve is one of the credit enhancements that PhilRatings looked at in assigning its rating," Philratings said

The consortium that operates the MRT system is planning to raise $100 million from the sale of bonds backed by future rental fees from the government.

The MRT bonds, which will be sold in a secondary public offering, will be listed at the Luxembourg Stock Exchange and eventually be listed in the soon-to-be-established fixed income exchange to be operated by the BAP Consulting Inc.

The bonds will have several maturities ranging from four to 23 years and are expected to generate yields of 10.5 to 13 percent a year.

The MRT bonds, which were originally issued last Aug. 7, 2002 with a total present value of $378 million, are a securitization of cashflows arising from equity rental payments from the DOTC under a build, lease and transfer agreement relating to the MRT 3 project.

The ABS will be available only to qualified institutional buyers and investors which include banks, insurance companies, trust funds and pension funds.

Under the build-lease transfer agreement between the DOTC and the MRT, the government made a commitment to pay the MRT group a total of $2.4 billion over a 25-year period.

Members of the consortium involved in the offering are are the Fil-Estate Group, Anglo-Philippine Holdings Corp., Railco Investments, Sheridan LRT Holdings, and DBH Inc., which together hold 77 percent of MRT stock.

The MRT bond issue is considered the biggest and most significant securitization ever completed in the Philippine capital market.

Its success is expected to generate more interest in ABS as alternative financing for companies while the market has yet to show signs of stability and banks have remained reluctant to lend more money.

Proceeds of the public offering will primarily be used to fund the second phase of the MRT, which will link the EDSA MRT to the Light Rail Transit (LRT)-1 station in Monumento.

Some of the proceeds will also be used by members of the consortium to retire debts or strengthen operations.