MOODY'S RATES SINGAPORE'S CRL REALTY'S SECURITIZATION TRANSACTION Aaa
Moody's Investors Service has assigned definitive ratings of Aaa to the Class A1 and Class A2 notes, Aa2 to the Class B notes and A2 to the Class C notes issued by Aragorn Investment Corporation Limited. The transaction is a cross-border securitization sponsored by Singapore-based CRL Realty Pte Ltd (CRL Realty) using both deferred payment and progressive payment receivables as underlying collateral. It is brought to the market by Bayerische Hypo- und Vereinsbank AG, Singapore branch (HVB Singapore). The complete rating actions are as follows:
Issuer: Aragorn Investment Corporation Limited
US$28 million Class A1 Notes due 2008, rated Aaa
US$73 million Class A2 Notes due 2008, rated Aaa
S$10 million Class B Notes due 2008, rated Aa2
S$10 million Class C Notes due 2008, rated A2
The ratings address the timely payments of interest on, and the ultimate repayment of principal of, all classes of notes at par by the legal final maturity date in March 2008. Prospective ratings were assigned on December 11, 2002.
In assigning the definitive ratings, Moody's mainly considered the following factors:
1) the subordination provided to the Class A1 and Class A2 notes by the Class B and Class C notes, and the subordination provided to the Class B notes by the Class C notes;
2) the over-collateralization provided by the underlying receivables;
3) for the Class A1 and Class A2 notes, the cross-currency swap provided by HVB Singapore as the currency swap provider;
4) the underwriting commitment for the Class A1 notes provided by HVB Singapore;
5) the construction and payment facilities provided by HVB Singapore to respectively cover cost overruns and payment shortfalls due to construction delays;
6) the cash collateral provided by HVB Singapore under the cross-currency swap, the underwriting commitment for the Class A1 notes and the construction and payment facilities;
7) the regulatory protection offered by the Housing Developers (Control and Licensing) Act (the "Act"), and the subsidiary legislation - namely, the Housing Developers Rules and Housing Developers (Project Account) Rules (the "Rules") - which regulates the flow of funds into and from the developers' project accounts;
8) the S$16.7 million balance in the project account, and the S$6.7 million pre-funded construction escrow account with an additional S$49.1 million to be deposited in September 2003 - when the Class A1 notes are funded - to cover the remaining budgeted development costs payable in the future;
9) the S$11.6 million pre-funded expense reserve account to cover interest payments on the notes, plus certain fees and expenses from the closing date to the expected maturity date;
10) the current condition of Singapore's residential market and the historical payment performances of buyers of residential units in Singapore;
11) the experience of CRL Realty in budgeting and controlling the development costs and managing the development of residential property projects; and
12) the legal and structural protections of the transaction, including the payment distribution mechanism and the 3-year tail period.
Aragorn Investment Corporation Limited, the issuer, issues 4 classes of notes. It uses the issuance proceeds from the Class A2 notes, Class B notes and Class C notes to purchase the underlying receivables from CRL Realty, and to fund various transaction accounts. HVB Singapore subscribes for the Class A1 notes on the closing date, and will fund them in September 2003.
CRL Realty is currently developing a 398-unit residential project (the Waterina project) in Singapore. As of December 12, 2002, 338 units had been sold under the deferred payment scheme and another 15 units under the progressive payment scheme. The unpaid portion of the purchase prices of these units, together with the purchase prices of the 45 unsold units, constitute the receivables in this transaction for a total receivables amount of about S$267 million.
As of December 12, 2002, existing buyers had made deposits totaling S$27.4 million under the two payment schemes. The deposits are in the project account and had been used to pay for the development costs. The remaining approximately S$16.7 million at the closing date will be used to cover the development costs of the yet-to-be completed project.
In addition, from the notes' issuance proceeds, S$6.7 million is deposited into the construction escrow account. When HVB Singapore pays for the Class A1 notes in September 2003, all the proceeds will also be deposited into the construction escrow account to cover the budgeted but unpaid costs.
To cover the risk of cost overruns, CapitaLand Residential Limited, the parent of CRL Realty, provides a cost-overruns undertaking of up to 8% of the unpaid budgeted development costs. If this cost-overruns undertaking is fully utilized or unavailable for any reason, HVB Singapore will cover any additional cost overruns of up to S$25 million under a revolving construction facility.
Quarterly interest payments on the notes from the closing date to the expected maturity date in March 2005 come from a pre-funded S$11.6 million expense reserve account, which is funded from the notes' issuance proceeds. The principal repayments to the investors depend primarily on 1) the collection of the remaining portions of the purchased receivables from the buyers, 2) the sales proceeds from the 45 unsold units, and 3) proceeds from foreclosed units due to defaults, if any, among existing buyers.
If the notes cannot be repaid in full by the expected maturity date, there is a 3-year tail period to pay down the notes and step-up interest will be paid on the then-outstanding balance of the notes. HVB Singapore provides a US$15.6 million payment facility to cover interests due on the Class A1 and Class A2 notes during the tail period, and another S$4.7 million payment facility to cover interests on the Class B and Class C notes and S$-denominated payment obligations, such as taxes, senior fees and expenses, etc.
To mitigate the risk of the currency mismatch between the S$-denominated receivables and the US$-denominated Class A1 and Class A2 notes, the issuer and HVB Singapore enter into a currency swap agreement.
HVB Singapore provides cash collateral to secure its various obligations under the transaction, which include those under the currency swap, the underwriting commitment for the Class A1 notes, and the construction and payment facilities. The cash collateral matches the obligations in terms of currency and amount.
A more detailed analysis of the transaction will soon be available at Moody's website http://www.moodys.com.
The issuer, Aragorn Investment Corporation Limited, is a newly established bankruptcy-remote special purpose company incorporated with limited liability in Singapore. CRL Realty is a multi-project developer specializing in project developments and is a wholly owned subsidiary of CapitaLand Residential Limited. CapitaLand Residential Limited is, in turn, the residential property arm of CapitaLand Limited. CapitaLand Limited is one of Singapore's largest conglomerates and is involved in, among others, property and property-related services.
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.
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