PhilRatings upgrades asset-backed MRT III notes

MANILA, Philippines - The Philippine Rating Services Corp. has upgraded the issue rating for MRT III Funding Corp.’s asset-backed notes given the elevated railway line’s improving financial capacity.

The asset-backed notes issue is a securitization of future dividends from Metro Rail Transit Corp. (MRTC) which flow through a series of holding companies and special purpose vehicles, to MRT III Funding Corp., the issuer of the notes. MRT III owns the elevated railway line traversing Edsa.

The dividends arise from equity rental payments made by the Department of Transportation and Communications (DOTC) to MRTC under a 25-year build -lease-transfer (BLT) agreement for the construction of the Light Rail Transit System Phase 1 in Metro Manila.

PhilRatings said the issue rating was revised upwards to PRS A plus for tranche 2-F and PRS A for tranches 2-G and 3.

A rating of PRS A means the borrower’s capacity to meet its financial commitments is still strong even if the obligations are more susceptible to the adverse effects of changes in economic conditions.

PhilRatings cited a report of the issue trustee, Bank of New York Mellon, which said it held a balance of $140.7 million for the notes as of end-May.

The balance, PhilRatings said, is more than enough to cover the principal payment of $100.884 million for tranche 2-F due on Aug. 7.

“The risk of non-payment for Tranche 2-F, therefore, was considered minimal at the time of rating,” PhilRatings said.

PhilRatings said the government has kept its favorable track record regarding timely remittance of equity rental payments resulting in a more established pattern of collections. This has allowed existing balances to exceed scheduled principal payments given maturing note tranches.

The credit rating issuer also noted the punctual principal payments of $66 million for Tranche 1 in August 2007.

“In PhilRatings’ view, the prompt principal payment of Tranche 1 further lends support to the rating upgrade, with the current regularity in the remittance of ERPs by the government. This fosters greater confidence that future principal payments of maturing Notes will be met as scheduled,” it said.