26 November 2009
Standard & Poor's Ratings Services said yesterday that its "BB" underlying rating on the $100 million (Dh367m) senior secured bank loan issued by Ajman Sewerage remained on CreditWatch, where it was placed with negative implications on September 22, 2008.
The recovery rating on the loan is unchanged at "3".
"The CreditWatch placement reflects continued uncertainty surrounding the date of the actual completion of construction works as well as the level of drawdown under the government of Ajman construction bank guarantee," said Standard & Poor's credit analyst Karim Nassif.
The loan has an unconditional and irrevocable guarantee of scheduled interest and principal on the debt provided by Ambac Assurance. Under S&P's criteria, a rating on a monoline-insured debt issue reflects the higher of the rating on the monoline and its underlying rating (Spur). Therefore, the debt rating on the loan reflects that on the Spur.
Ajman Sewerage is using the proceeds of the loan to fund the construction of a sewerage collection system in Ajman under a 25-year concession agreement which expires in 2034.
"We aim to review the CreditWatch within the next two months once discussions over the breach of the actual completion date are finalised. At that time, we will seek greater clarity on the company's plan to improve the quality of treated effluent, as well as any impact this could have on short- to medium-term capex. Furthermore, we expect to receive greater clarity from Ajman Sewerage over the level of drawdown required in mid-2010 under the construction guarantee."
The agency said that it could lower the rating if any factors lead it to believe that the breach of the actual completion date may not be waived. In addition, any weakening of the project's liquidity position could also lead to a negative rating action. This could arise, for example, through the commitment of additional capex in 2010, or a material deterioration in fee collection rates compared to the cure plan. A decision to materially change the nature and level of reserve funding anticipated over the life of the transaction could also lead to a negative rating action.
However, S&P can affirm the rating and revise the outlook to "stable" should there be a resolution of the breach of the actual completion date, an improvement in the quality of treated effluent, along with continued higher-than-anticipated net cash flows.
Standard & Poor's Ratings Services said yesterday that its "BB" underlying rating on the $100 million (Dh367m) senior secured bank loan issued by Ajman Sewerage remained on CreditWatch, where it was placed with negative implications on September 22, 2008.
The recovery rating on the loan is unchanged at "3".
"The CreditWatch placement reflects continued uncertainty surrounding the date of the actual completion of construction works as well as the level of drawdown under the government of Ajman construction bank guarantee," said Standard & Poor's credit analyst Karim Nassif.
The loan has an unconditional and irrevocable guarantee of scheduled interest and principal on the debt provided by Ambac Assurance. Under S&P's criteria, a rating on a monoline-insured debt issue reflects the higher of the rating on the monoline and its underlying rating (Spur). Therefore, the debt rating on the loan reflects that on the Spur.
Ajman Sewerage is using the proceeds of the loan to fund the construction of a sewerage collection system in Ajman under a 25-year concession agreement which expires in 2034.
"We aim to review the CreditWatch within the next two months once discussions over the breach of the actual completion date are finalised. At that time, we will seek greater clarity on the company's plan to improve the quality of treated effluent, as well as any impact this could have on short- to medium-term capex. Furthermore, we expect to receive greater clarity from Ajman Sewerage over the level of drawdown required in mid-2010 under the construction guarantee."
The agency said that it could lower the rating if any factors lead it to believe that the breach of the actual completion date may not be waived. In addition, any weakening of the project's liquidity position could also lead to a negative rating action. This could arise, for example, through the commitment of additional capex in 2010, or a material deterioration in fee collection rates compared to the cure plan. A decision to materially change the nature and level of reserve funding anticipated over the life of the transaction could also lead to a negative rating action.
However, S&P can affirm the rating and revise the outlook to "stable" should there be a resolution of the breach of the actual completion date, an improvement in the quality of treated effluent, along with continued higher-than-anticipated net cash flows.
© Emirates Business 24/7 2009
