RAM Ratings reaffirms ratings of Quill Capita's RM134 million CP/MTN, issued by subsidiary Boromir Capital

Published on 07 December 2011
RAM Ratings has reaffirmed the respective long-term ratings of Boromir Capital Sdn Bhd’s (“Boromir”) Class A, Class B, Class C and Class D Commercial Papers/Medium-Term Notes (“CP/MTN”) Programme at AAA, AA2, A1 and A2; all the long-term ratings have a stable outlook. At the same time, the short-term ratings of each class of notes under the CP/MTN Programme have been reaffirmed at P1. The ratings reflect the credit support provided by the loan-to-value ratios (ranging from 45.86% to 56.38%) and debt service coverage ratios (ranging from 1.65 times to 2.03 times) that commensurate with the rating of each class of notes under the CP/MTN Programme, as well as the healthy performance of the securitised properties.
Boromir, a special-purpose vehicle, had been set up by the sponsor of this transaction — Quill Capita Trust (“QCT”) – to carry out the commercial real estate-backed transaction involving a portfolio of 4 office buildings and 1 industrial property (collectively known as “the Properties”), with a combined market value of RM359.50 million as at 31 December 2010. QCT is a real-estate investment trust that is involved in the acquisition of and investment in commercial properties in Malaysia.

RAM Ratings views the Properties to be of above-average quality. Notably, they are fully occupied by reputable multinational corporations (“MNCs”) from a diverse range of industries. Furthermore, the Properties are situated in prime and near-prime locations throughout the Klang Valley, thus catering well to the business needs of their tenants. However, tenant-concentration risk remains significant as all of the Properties are occupied by single tenants. “All said, these tenants are reputable MNCs that possess strong business and credit profiles, thus providing some degree of comfort with respect to the reliability and timeliness of lease payments,” notes Siew Suet Ming, RAM Ratings’ Head of Structured Finance Ratings.

We highlight that about 83% of the leases (based on the total net lettable area) in the portfolio will expire within 3 years. In this regard, we believe that these lease agreements are very likely to be renewed as the tenants have already invested significant capital expenditure on the buildings to cater to their own requirements. Hefty relocation costs also act as a buffer against non-renewal risk to some extent. Similarly, these factors mitigate any potential pressure on the rental rates of the Properties due to the upcoming supply of office buildings in the Klang Valley (including Cyberjaya) within the next few years.

Notably, the performance of the Properties had remained healthy during the period under review, with a net property income (“NPI”) of RM12.47 million in 1H 2011. For the full year, we expect an NPI of RM24.94 million against our projected sustainable cashflow of RM22.14 million. We anticipate the cashflow generated by the Properties to remain stable throughout the tenure of the transaction as their rental rates have been fixed via lease contracts, with renewal options that range from 3 to 5 years.

Media contact
Yong Keck Phin
(603) 7628 1183
keckphin@ram.com.my