MOODY'S ASSIGNS PROVISIONAL (P)Aaa.tw RATING TO TAIWAN'S FIRST REAT DEAL
Hong Kong, June 3, 2004 -- Moody's Taiwan Corporation has assigned provisional National Scale Ratings to the two series of beneficiary certificates to be issued by an asset trust which will own a certain portion of the IBM Building located in Taipei City. This is the first Real Estate Asset Trust securitization transaction arranged under Taiwan's Real Estate Securitization Law ("RESL") enacted in July 2003. The transaction is sponsored by Tong Yang Chia Hsin International Corporation ("Chia Hsin International"). Société Générale, Taipei Branch, acts as the arranger with Industrial Bank of Taiwan as the joint arranger.
The provisional National Scale Ratings assigned are as follows:
(P)Aaa.tw to NTD 1.63 Billion Series A Beneficiary Certificate due 2012
(P)A3.tw to NTD 0.5 Billion Series B Beneficiary Certificate due 2012
The above ratings address the expected loss the investors of the Series A and Series B beneficiary certificates may face by the legal final maturity date in December 2012.
In assigning the ratings, Moody's considered, among other things, the following factors:
1. the quality and value of the IBM Building;
2. the structural features which include the cash flow mechanism, the presence of various pre-funded reserve funds, the experience of the property manager and the leasing manager, and the availability of back-ups for each;
3. the level of subordination to be provided to each series of beneficiary certificates by those junior to them in accordance with their payment priorities;
4. based on Moody's stabilized value and net cash flow, the balloon loan-to-value ratio and stressed debt service coverage ratio for each series of beneficiary certificate which would range from 37% to 53% and from 2.00 times to 1.42 times at the expected maturity date in June 2011 respectively; and
5. the legal integrity of the transaction and the fulfillment of various requirements under the RESL.
The National Scale Ratings are not comparable to Moody's global ratings, which do not carry a jurisdiction identification symbol. Specifically, a Aaa.tw rating on Moody's Taiwan National Scale indicates an issuer or issue with the strongest domestic creditworthiness and the lowest likelihood of credit loss on local currency obligations relative to other local issuers or issues.
Moody's emphasized that National Scale Ratings are not opinions on absolute default risks. These national ratings do not address systemic risk or the expectation of loss associated with systemic events that could affect all issuers - even those that receive the highest ratings on the national scale.
International Bank of Taipei, in its capacity as the trustee, will issue the NTD-denominated Series A beneficiary certificate, Series B beneficiary certificate and subordinated beneficiary certificate.
Chia Hsin International currently owns all but several floors of the IBM Building. On the closing date, Chia Hsin International will entrust its ownership in the building and 137 car parks to the newly set-up trust in exchange for the issuance proceeds from the Series A and Series B beneficiary certificates and the ownership of the subordinated beneficiary certificate. The term "the IBM Building" used hereunder refers to the portions of the IBM Building that would be transferred to the trust.
The payments on the Series A and Series B beneficiary certificates will derive from the rental collections paid by tenants. The holders of the beneficiary certificates will also be entitled to the trust assets, which include, among other things, the IBM Building, the piece of land where it is located, the tenancy agreements, the insurance policies and insurance proceeds, and the transaction accounts.
Interest payments and principal prepayments will be made once every six months, and the Series A beneficiary certificate will have priority over the Series B beneficiary certificate.
Rental collections from the tenants will first be applied to pay the various fees and expenses that the transaction has incurred. The remaining collections will then be used to fulfill the interest payment obligations on both the Series A and Series B beneficiary certificates, and to replenish the reserve funds to their required levels. If there is excess cash, it will be employed to pay down the most senior beneficiary certificate for an amount not exceeding NTD 60 million on each payment date. Any shortfall will be carried forward to subsequent payment dates.
UNDERLYING TRUST ASSETS
The IBM Building was completed in 1986 and is situated in the central business district of Taipei City, the financial centre of Taiwan. It is easily accessible by bus and various MRT stations.
Current tenants are involved in industries such as finance, chemicals & petroleum and retail-related business. Although finance tenants take up the largest share of lettable space and rent, the transaction has a mechanism - by way of reserve funds - to mitigate this tenant concentration risk.
When rating the transaction, Moody's considered the attributes of the IBM Building, the outlook for the office market in Taiwan, along with the deal's payment mechanism, structural features and the subordination available to each series of beneficiary certificate. Consequently, Moody's is of the opinion that the subordination levels of the Series A beneficiary certificate and the Series B beneficiary certificate are sufficient to protect their investors against loss that is consistent with their respective ratings.
PROPERTY MANAGER AND LEASING MANAGER
Chia Hsin International, which already has 17 years of experience in managing the IBM Building and its leasing contracts, will continue to be the property manager and leasing manager in this transaction. The company was established in 1973 and over time has evolved into a diversified conglomerate with interests in areas such as real estate investment, cement warehousing and transportation, and building materials. CB Richard Ellis Limited, Taiwan branch, will be the back-up property manager and leasing manager. The experience of these transaction parties adds credibility and stability to the management of the IBM Building.
A full pre-sale report will be available on Moody's website: http://www.moodys.com.tw
Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction. Upon a conclusive review of the final versions of all the documents and legal opinions, Moody's will endeavour to assign definitive ratings to the transaction. A definitive rating may differ from a provisional rating. Moody's ratings address only the credit risks associated with the transaction; other non-credit risks have not been addressed, but may have significant effect on yield to investors. Moody's ratings are subject to revision, suspension or withdrawal at any time at our absolute discretion.
Moody's Investors Service is a publisher of rating opinions and research. It is not involved in the offering or sale of any securities, nor is it acting on behalf of the offering party. This release is not a solicitation or a recommendation to buy, hold or sell securities.
Michael M. Ye
Structured Finance Group
Moody's Asia Pacific Ltd.
Asst Vice President - Analyst
Structured Finance Group
Moody's Asia Pacific Ltd.
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