PhilRating retains credit rating for asset-backed notes of MRTC

MANILA, Philippines - Philippine Rating Services Corp. retained its credit rating of Baa minus for MRT III Funding Corp.’s asset-backed notes.

The asset-backed notes issue is a securitization of future dividends from Metro Rail Transit Corp. (MRTC), flowing through a series of holding companies and special purpose vehicles, to the issuer, for the benefit of noteholders.   

An obligation rated “PRS Baa” connotes adequate protection parameters and may possess certain speculative characteristics. However, adverse economic conditions and changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

PhilRatings said its decision to retain the rating was premised on continued and prompt satisfaction by the Development Bank of the Phils. (DBP) of the conditions stated in its letter to PhilRatings dated April 13, 2010 and a similar letter dated May 5, 2010 by MRTC. 

In the said letters to PhilRatings, DBP and MRTC committed that scheduled deposits will be made to the Collection Account of MRT Funding Corp. with Bank of New York Mellon (BoNY Mellon). 

Such will be done to gradually fund the $33.885 million maturity of Tranche 2-C of the Notes on 6 August 2010.       

PhilRatings said it shall continuously monitor developments relating to the MRT III transaction and may change the rating at any time, should circumstances warrant so.

Verification by PhilRatings with BoNY Mellon on April 8, 2010 confirmed that the collection account amounted to $5 million, thus satisfying the initial commitment made by DBP to PhilRatings to deposit a total of $5 million to the collection account on April 7, 2010.

“The compliance gives assurance, though limited at this time, that subsequent deposits will be made as scheduled.

DBP’s and MRTC’s performance of the conditions as stated in their April 13 and May 5 letter, respectively, will be closely and continuously monitored by PhilRatings, taking into account its impact on MRT III Funding Corporation’s capability to pay the notes going forward,” PhilRatings said. 

MRTC entered into a built-lease-transfer agreement in 1991 with the Philippine government for the construction and maintenance of rail projects, specifically Phase 1 of MRT.  As the lessee, the government pays lease rentals to MRTC. By 2002, however, some members of the MRTC consortium decided to cash in, rather than wait for the government to complete its future lease rental payments.  These members tapped the capital markets and packaged these future payments into the MRT III Funding Corp. Asset-Backed Notes. 

Currently, DBP and Land Bank of the Philippines jointly own 73.92 percent of the notes.