CMT – BT

Moody’s downgrades CMT-sponsored notes

MOODY’S Investors Service yesterday said that it has downgraded two series of notes sponsored by CapitaMall Trust (CMT) due to insufficient liquidity.

The ratings agency downgraded the US$255.5 million series 25 floating rate notes and the 175 million euro (S$300 million) series 30 floating rate notes to Aa1 from Aaa. The notes are due in April 2014 and are expected to mature in October 2012.

They were issued by Silver Maple Investment Corporation, which is sponsored by CMT – a unit of CapitaLand.

In all, Moody’s placed three series of notes on review for possible downgrades on March 1.

This was prompted by insufficient liquidity, according to the ratings firm’s latest guidelines for Singapore commercial mortgage-backed securities, or CMBS transactions.

Yesterday, Moody’s said that the series 25 and series 30 notes were downgraded. A third set of notes – the US$72.1 million series 18 floating rate notes due in December 2011 were confirmed at Aaa.

Moody’s recently published a guideline saying that the minimum level of liquidity protection should be sufficient to cover the senior payment obligations of a CMBS issuer for at least six months.

The rating of a transaction lacking sufficient liquidity will be linked to the rating of the sponsoring real estate investment trust.

In this case, the risk of insufficient liquidity is because CMT is an operating entity and is not bankruptcy remote. Moody’s said: ‘It has other creditors and if it defaults on those obligations, these other parties can bring legal action, including bankruptcy proceedings, against it. If that happens, there may be cash flow disruption upon a mortgage loan event of default.’

CMT already has the available funds to repay the series 18 notes on the expected maturity date, so the rating for this series was confirmed at Aaa.

But as there is no liquidity for the series 25 and 30 notes, the ratings for these were linked to the rating for CMT. After taking into consideration the notes’ expected maturity in October 2012 and the A2 rating of CMT, Moody’s downgraded the notes to Aa1 from Aaa.