|
This presale report is based on information as of July 31, 2007. The rating shown is preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final rating that differ from the preliminary rating.
Issuer: First Commercial Bank (FCB; twAA-/Stable/twA-1+) in the capacity of trustee for Taipei City Government 2007-1Partial Ground Lease Rent Receivable Securitization Special Purpose Trust (the SPT) Collateral: Participation rights in the form of claims against partial rent incomes each quarter until June 25, 2017 under four ground lease agreements Expected Closing Date: August 30, 2007 Final Legal Maturity Date: June 25, 2017 Seller: Taipei City Government (TPE City Gov.) Servicer/Credit Enhancement Provider: TPE City Gov. Trustee/Account Bank: FCB Arranger/Underwriter: Polaris Securities Co. Ltd. (twA/Stable/twA-1) Issue: NT$1.8 billion trust beneficial certificates due 2017 Rating Dependents: Credit enhancement provider The 'twAAA' preliminary rating assigned to the NT$1.8 billion trust beneficial certificate that is expected to beissued through the SPT reflects the sound legal structure of the transaction, the credit enhancement provided by TPE City Gov., and the sufficiency of cash inflows to cover all senior obligations of the trust each period. This transaction is the first ground lease securitization deal and also the first one originated by the government sector in Taiwan. The certificates will be backed by the fixed-amount claim (the Fixed Amount) against the rent collections arising from four ground lease agreements each quarter until June 2017. TPE City Gov. is obligated to top up the gap between the rent collection and the Fixed Amount, if any, under all circumstances. As of the publishing date of this report, based on the assessment result from Standard & Poor's Rating Services, it is Taiwan Ratings' opinion that TPE City Gov. possesses a commensurate credit quality toward the transaction. STRENGTHS, CONCERNS, AND MITIGATING FACTORS Strengths
Concerns
Mitigating Factors
The transaction is structured in accordance with the Financial Asset Securitization Law (FASL) and Trust Law of Taiwan, adopting a true sale structure, and using a Special Purpose Trust (SPT) as the intermediate entity. The SPT will need to comply with Taiwan Rating's Special Purpose Vehicle criteria. At closing, the originator will entrust the collateral to the SPT. FCB, the trustee, will in turn issue one tranche of trust certificates and pay the proceed there-from to the originator to settle the entrustment. TPE City Gov. will act as servicer to collect rent incomes for the SPT. Upon termination of TPE City Gov. acting as servicer, FCB, the trustee, will step in to fulfill the service function. TPE City Gov. will also act as credit enhancement provider to top up the gap between the Fixed Amount and the collection, if any. (Please refer to the section 'CREDIT ENHANCEMENT AND CASH FLOW ANALYSIS' for detail) The diagram below outlines the transaction structure: COLLATERAL AND PROPERTY CHARACTERISTICS The asset pool of this transaction is composed of a participation right in the form of fixed-amount claims against the rent collections under four ground lease agreements where the underlying properties are four plots of land located in Xinyi District in Taipei City. The fixed amount claimable under the participation right is equal to New Taiwan dollar (NT$) 50,499,997 per quarter and NT$201,999,988 per annum until June 2017. The ground lease agreements were entered into by TPE City Gov. with four lessees. The minimum expected remaining effective tenor as of the closing date is around 44 years. All lessees are prohibited from subleasing, entrusting, or set any lien on the leasehold interests to third parties. The rent levels are subject to changes in the promulgated land values announced by the regulator. The underlying properties are four plots of land owned by TPE City Gov., not designated for public use, and located in Xinyi District. The total size of the land is around 31,455 square meters. Xinyi District is a new financial central business district in the city and is the location of landmark buildings such as Taipei 101 Tower and Taipei World Trade Center. Xinyi District is also a recreational center with department stores, convention centers, luxury hotels, and cinemas. Currently Xinyi District is easily accessible by both bus and subway. A new subway line is under construction, upon the completion of which will further increase the accessibility of the district. TERMS AND CONDITIONS OF THE CERTIFICATES The trust beneficial certificates will receive fixed coupon payments in arrears and principal redemptions following a soft amortization schedule per quarter. The legal maturity date is June 2017. All distributions must follow the waterfall specified on the transaction documents. Taiwan Ratings dose not define failure to meet the soft amortization as default. Article 41 of the FASL stipulates that incomes from trust collateral, after deducting costs and necessary expenses, belong to the beneficiaries. The interest distribution, however, will be subject to withholding tax at the rate stipulated by the tax authority. Consequently, interest received by certificate holders will be net of tax withheld. CREDIT ENHANCEMENT AND CASH FLOW ANALYSIS TPE City Gov. will provide credit enhancement in the form of promptly topping up gap between the rent collection and the Fixed Amount each quarter, regardless of the causes of such gap. Based on a credit assessment conducted by Standard & Poor's Rating Services, Taiwan Ratings considers TPE City Gov.'s credit quality commensurate with this transaction. As the capital of Taiwan, Taipei City is also the political and commercial center. The city contributes 50% of total national income taxes despite only accommodating 10% of Taiwan's population. It is a municipality directly under the Executive Yuan, the central government authority. TPE City Gov.'s fiscal policy is governed by the Budget Act. Despite the city government's high debt burden compared to its operating revenue, its liquidity profile remains healthy. Taiwan Ratings will perform a cash flow analysis to make sure the Fixed Amounts resulting from the rent collection and the credit enhancement aforementioned are sufficient under the premise that timely interest payments and ultimate principal redemptions can be achieved. Commingling Risk Obligor Set-off
Risk Vacancy and Prepayment
Risk Liquidity Risk The transaction is structured in accordance with the FASL and Trust Law of Taiwan, which provides for the establishment of the SPT, the legally perfected transfer of assets from the originator to the SPT, and protection from other creditors' and third parties' claims. Taiwan Ratings will need to receive satisfactory legal and tax opinions prior to the closing of the transaction.
|