Business

Thursday May 28, 2009

Kerisma bondholders may not get full payment

By JAGDEV SINGH SIDHU


KUALA LUMPUR: Holders of the highest rated debt of Kerisma Bhd, a special-purpose vehicle for a collateralised loan obligation (CLO) programme, may not receive full payment on their investment next month as three big loans are in trouble.

“The bonds expire in June and are now going to default,” said one banker.

Kerisma is a bankruptcy remote special-purpose company established to carry out the CLO programme. Its originator is Alliance Investment Bank Bhd, which transferred its rights, title and interests in RM1bil worth of corporate loans to Kerisma.

The business of structuring CLOs in the country is relatively new. Pengurusan Danaharta Nasional Bhd was the first but a bank-originated CLO was first done by Affin Investment Bank in 2002.

Structured by Nomura, Aegis One, which saw the senior tranche carry a higher yield than AAA rated papers at that time, was deemed a success for the fledging structured products market. Subsequent CLO programmes after Aegis One and Kerisma were CapOne, Idaman Capital and Prima Uno.

Kerisma’s troubles are not new as the CLO has seen downgrades in the past. The problem this time is that some of the corporate loans bundled into the CLO – which are from a wide range of industries, relating to shipping, construction and autoparts – have gone bad.

On May 22, Malaysian Rating Corp Bhd (MARC) downgraded the Kerisma bonds and kept its negative outlook.

“The rating actions reflect reduced likelihood of full principal payments to both classes of bonds on the legal final maturity on June 3, 2009 arising from potential rescheduling of repayment dates of three underlying loans involving RM127mil of principal outstanding in total,” said MARC in its statement.

MARC said credit enhancement to the senior secured bonds and mezzanine bonds indicated both classes could only withstand further losses of up to about RM45mil and RM15mil respectively.

“The three obligors which have submitted loan rescheduling proposals to Kerisma’s bondholders are seeking to extend their loan maturities beyond the legal final maturity date of the senior and mezzanine bonds,” said MARC.

Indications are that bondholders might refuse to extend the loan maturities and the options before them might be limited.

The Kerisma CLO was structured so that it does not have a recourse back to the Alliance Financial Group but there is a school of thought that suggests Alliance step forward and help deal with the bad loans to ensure the senior tranche holders get full payment. It does not have to do so but a default could sour the appetite for CLO issues.

The Alliance Financial Group declined comment when contacted.

The other concern is the impact a default could have on the senior tranche holders. Provisions for such bad debt could most likely have been made given the deterioration of Kerisma’s ratings over time.

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