LGU Guarantee retains AA+ credit rating from PRSC

MANILA, Philippines - LGU Guarantee Corp. (LGUGC) retained its PRS Aa plus  (corp) issuer credit rating from Philippine Rating Services Corp.

LGUGC is  a private guarantor of local government unit debt and development financing owned by a consortium led by the Development Bank of the Philippines and the Bankers Association of the Philippines.

“Companies rated PRS Aa differ from the highest rated corporations only to a small degree, and have a strong capacity to meet their financial commitments relative to that of other Philippine corporations.  A plus or a minus sign is added to further qualify the ratings,” PhilRatings said.

The company initially requested for a credit rating back in 2010 in connection with its request with the Bangko Sentral ng Pilipinas (BSP) to lower the risk weight of all projects which it guarantees.

Given the PRS Aa plus credit rating assigned by PhilRatings to LGUGC since 2010, the BSP reduced the risk weight for projects guaranteed by LGUGC from 50 percent to 20 percent. The company has been renewing its credit rating annually since 2010.

Incorporated on March 2, 1998, LGUGC  is the first private corporation to go into the guarantee business in the Philippines and to introduce a guarantee mechanism for LGU borrowings in the country.  The LGUGC credit guarantee serves to protect private financial institutions  and other investors against a payment default by LGUs.

PhilRatings said the rating assigned to LGUGC reflected the following considerations: continued financial stability as guarantee fees and program management fees have consistently been able to cover all operating expenses,  more than sufficient reserves to cover probable losses in relation to outstanding guarantees,  sound capital structure with flexibility in liquidity despite the conversion of the Asian Development Bank (ADB) shares into a loan, the solid experience and track record of key members of the board and of management, particularly in terms of banking and guarantee operations, and strong institutional linkages.

The rating also took into consideration LGUGC’s resilience during a period of severe economic stress has yet to be tested.

LGUGC has continued to post a healthy growth in revenue which adequately covers its operating expenses and enables it to grow its assets at the same time.

The company posted a net income of P89.4 million on the back of P150.4 million in revenues.