This transaction is a CMBS backed by 30-year lease and fee payments from the government office centre in northern Bangkok, which is developed and managed by the Ministry of Finance’s wholly owned asset development company – Dhanarak Asset Development Company Limited (DAD). A full rating breakdown is provided at the end of this commentary.
Key Rating Drivers
The ratings reflect irrevocable and unconditional lease payments from the Treasury Department (TD) of the finance ministry, which is the sole obligor under the lease agreements with DAD. As DAD SPV’s cash flows are predominantly derived from the lease payments, the transaction is linked to the creditworthiness of the TD. The lease payments from the TD are paid directly to DAD SPV, mitigating commingling risk. Based on scheduled annual lease payments, Fitch expects that the transaction will be able to maintain a debt service coverage ratio of at least 1.0x and withstand a refinancing rate higher than the agency’s assumption of 15%.
The ratings are also underpinned by available reserves and a long-term swap agreement guaranteeing return on cash between 2008 and 2025. The first payment of the bonds was made in late November 2012; Fitch expects a timely repayment of the next bond, which will mature in November 2015.
The lease payments paid by the TD come from a budget appropriation each year; thus the transaction is subject to the risk of a delay in the government’s budget appropriation process. General practice for government units is to use the previous year’s appropriated amount as a benchmark until the appropriation process is completed and the budget is allocated. This was the case for the lease payments in October 2013, which were based on the amount paid in 2012. Since the commencement of payments in July 2008, DAD SPV has received all lease payments as scheduled. The most recent set of lease payments was made on 24 October 2014; Fitch expects the next set of payments to be made in a timely manner in October 2015.
Funding of any unpaid lease payments due from the TD is likely to come from DAD, which is obligated to advance any unpaid lease payments for the TD. At present, DAD has an outstanding THB2.3bn unsecured liquidity facility from Krung Thai Bank Public Company Limited (AA+(tha)/Stable/F1+(tha)) for this purpose. DAD’s operating performance and financial position improved in 2014, and Fitch considers state support would be forthcoming if needed, given its state enterprise status.
Rating Sensitivities
The ratings are based on the creditworthiness of TD, which is a unit of the Ministry of Finance. Fitch considers a downgrade due to asset performance unlikely due to the irrevocable and unconditional pre-determined lease payments from the TD.
DAD SPV:
THB2bn DAD15NA (ISIN TH088803PB00) due November 2015 affirmed at ‘AAAsf(tha)’; Outlook Stable
THB1.8bn DAD20NA (ISIN TH088803UB03) due November 2020 affirmed at ‘AAAsf(tha)’; Outlook Stable
THB5bn DAD25NA (ISIN TH0888035B07) due November 2025 affirmed at ‘AAAsf(tha)’; Outlook Stable
THB2.2bn DAD20NB (ISIN TH0888A3UB08) due November 2020 affirmed at ‘AAAsf(tha)’; Outlook Stable
THB6bn DAD25NB (ISIN TH0888A35B09) due November 2025 affirmed at ‘AAAsf(tha)’; Outlook Stable
THB5.5bn DAD25NC (ISIN TH0888B35B08) due November 2025 affirmed at ‘AAAsf(tha)’; Outlook Stable