Moody’s hikes credit rating of PSALM

MANILA, Philippines - The Power Sector Assets and Liabilities Management Corp. (PSALM) has received a rating upgrade from Moody’s Investors Service due to improved creditworthiness as guaranteed by the Asian Development Bank (ADB).

In its recent report, Moody’s said it has upgraded its rating to Aaa from the previous Baa1 on the Tranche B bonds issued by PSALM.

“The Tranche B bonds are now in the ADB-guarantee period. Their rating is driven by the rating on the ADB, and bondholders are exposed only to the risk of default by the ADB. Hence, the rating on the Tranche B bonds is at the same level as that of the ADB,” Moody’s said.

PSALM’s Tranche B involved the issuance of Y37-billion guaranteed bonds with interest of 3.55 percent and will fall due on 2022.

Rationalizing its rating, Moody’s said the upgrade was prompted by the start of the ADB guarantee period.

“After the interest payment on Dec. 13, 2012, all Tranche B bonds’ future periodic interest payments and final principal payment on the maturity date will be guaranteed by the ADB. As such, Tranche B bonds’ rating is driven by the rating of the ADB,” it said.

Moody’s pointed out that “the Aaa rating of the Tranche A bonds is directly linked to the rating of the ADB and is not affected by this rating action.”

The ratings of the Tranche A and Tranche B bonds, Moody’s said, would address the expected loss posed to investors by their respective maturity dates in December 2020 and December 2022.

The rating agency pointed out that the bonds also benefit from two irrevocable and unconditional guarantees: the Philippines government’s full guarantee and the ADB’s partial guarantee.

The Philippines government’s full guarantee covers full payments of principal and interest, as well as any withheld amounts or deductions throughout the life of the two tranches. The ADB’s partial guarantee covers all accrued interest in each tranche’s final 10 years (the ADB-guarantee period), as well as the principal payment of each tranche on the final maturity date.