Bangkok--26 Oct--Moody's Investors Service
Approximately USD 110 million of debt affected
Moody's Investors Service has today downgraded to Ca from Caa1 the senior secured rating for the US$110 million 12% senior secured notes due November 2011 ("2011 Notes") issued by Pakuwon Jati Finance BV, and guaranteed by guaranteed by PT Pakuwon Jati Tbk ("Pakuwon") and its subsidiary, PT Artisan Wahyu (AW).
At the same time, Moody's has affirmed the Caa1 corporate family rating of Pakuwon. The outlook for the ratings remains negative.
The rating action follows Pakuwon's announcement that it is commencing an exchange offer and consent solicitation for the 2011 Notes, which are due in November 2010. Details of the exchange offer can be found in the issuer comment of 23 October 2009 on www.moodys.com.
"If successful, the transaction will constitute a distressed debt exchange, which is a default event under Moody's definition. The downgrade of the 2011 Notes to Ca considers this default and our assessment of the higher economic loss when compared to the original payment promise for the Notes," says Peter Choy a Moody's Vice President and Senior Credit Officer.
"The Caa1 corporate family rating reflects our forward-looking view of the company, assuming that the transaction closes as proposed," adds Choy.
Moody's recognizes that the completion of the exchange offer would address Pakuwon's near-term liquidity stress. Specifically, the benefits would include (1) a 2-year grace period on principal repayments for the amount of cash settlement funded by bank borrowings and a 5-year grace period for the portion refinanced by the new notes; (2) fewer cash-interest payments being settled by more notes; and (3) a relaxed interest coverage covenant, which changes from 2.5x to 2.0x.
Despite such benefits, the Caa1 corporate family rating continues to reflect the company's weak liquidity profile against the backdrop of the slowdown in the property market and tightened conditions in the credit market. Its Superblock Gandaria project heightens its exposure to the property sector's cyclicality and development risks.
Partially mitigating these negative factors is the moderately diversified and stable recurrent income that it receives from its commercial, hotel and residential operations in Surabaya.
The negative outlook captures uncertainty over whether the exchange offer and consent solicitation will be successfully completed. If the exchange offer fails to go ahead, the corporate family rating will be lowered further to reflect the higher probability of default and lower expected recovery rate.
The last rating action for Pakuwon was taken on 16 March 2009 when its ratings were downgraded to Caa1 from B3 with a negative outlook.
Pakuwon has been assigned its ratings based on factors that Moody's believes are relevant to the risk profile of Pakuwon, such as the company's (i) business risk and competitive position compared with other firms within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. These attributes were compared against other issuers both within and outside Pakuwon's core industry; Pakuwon's ratings are believed to be comparable to those of other issuers of similar credit risk.
Headquartered in Surabaya, Indonesia, Pakuwon is engaged in the development, management and operation of shopping centers, office buildings, condominium towers, hotels and residential townships, mainly in Surabaya, East Java. The company was listed on the Jakarta Stock Exchange in 1989.
Hong Kong
Peter Choy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308