LGU Guarantee maintains top credit rating

MANILA, Philippines - LGU Guarantee Corp. (LGUGC), a private credit guarantor partly owned by multilateral institutions catering to local government units, has maintained its rating of PRS Aa plus from domestic credit watcher PhilRatings Services Corp.

A PRS Aa plus issuer credit rating suggests a strong capacity to meet financial commitments. It differs from the Aaa-rated corporations to a small degree.

In retaining the rating, PhilRatings primarily considered LGUGC’s strong institutional linkages, experience and track record of key members of the board and of management; maintenance of good asset quality, with no claim on its guarantee since it started operations in 1998; strong capital cushion; ample reserves to cover probable losses; multiple layers of financial flexibility which enhance its liquidity; and increasing profitability, with guarantee fees and program management fees.

PhilRatings also took into account significant competitive challenges in terms of expanding and developing new markets on a sustained basis; “political risk” when dealing with local government units and/or government regulatory agencies; and fairly untested resilience during a period of severe domestic economic stress given the company’s relatively short 13-year history.

LGUGC is the first private corporation to go into the guarantee business in the Philippines and was incorporated in 1998. It was also the first to introduce a guarantee mechanism for LGU borrowings in the country. It is the private sector link in public-private partnerships for local development financing. LGUGC mobilizes the resources of private sector financial institutions for funding local development projects.

The company has been considered an authority in LGU debt and development financing as evidenced by its partnerships and citations with various institutions such as the United States Agency for International Development (USAID) and the Bangko Sentral ng Pilipinas (BSP).

Since it began operations in 1998, it has experienced no call on its own guarantee portfolio. Also, the company’s investments are mostly in government securities and highly rated bonds.