Can Lehman resurrect MRTC securitization?

Rumours circulate the bank is trying to salvage the $175 million Philippine securitization, two months after the deal was pulled.

When, at the eleventh hour, lead manager HypoVereinsbank decided to call off a $175 million securitization for the Metro Rail Transit Corp. (MRTC), the prospects of seeing any international asset-backed securitizations coming out of the Philippines seemed as remote as ever.

The deal was to be backed by equity rental payments received by the MRTC consortium from the Department of Transportation and Communication (DTC) for constructing the railway that runs over the EDSA highway in Metro Manila.

On the face of it, the transaction seemed to have everything going for it: secure payments under what seemed to be a government guarantee, ratings secured from Fitch and Moody's and good spreads on offer (with yields ranging from 9.52% to 13.17%).

However, the first indication that there were problems behind the scenes occurred when the scheduled closing date for the transaction was put back from March 7 to March 26, with sources familiar with the deal putting the delay down to unspecified 'documentation issues'. Then on March 24, Hypo took the decision to pull the deal, putting paid to 18 months of work by the bank, when it became clear that these issues could not be resolved.

It was felt initially that the problem was little more than the failure of some of the seven companies that make up the MRTC consortium to sign key documents on time, as they needed more time to get comfortable with them. But the last minute cancellation implied that something far more serious was afoot, and the rumour machine went into overdrive among ABS professionals in the region. /P> 

The popular consensus among bankers is that the deal got pulled because the MRTC failed to produce documental evidence of the contract between it and the DTC to show how much and how regularly the MRTC received payment for constructing the rail project. Without this, it was suggested, there was no evidence that the MRTC could guarantee it could meet its obligations to investors in terms of timely payments and so on.

Officials at Hypo have not substantiated whether this is what happened. Nonetheless, the one conclusion that can be drawn is that a bank would not cancel a deal it spent 18 months working on unless there was some fundamental, unsolvable problem hanging over it.

So it is more than a little surprising to hear whispers that Lehman Brothers, through the principal transactions group of its Thai subsidiary, Global Thai, has been looking at ways to salvage the deal. The bank declined to comment on the story on the grounds that it will not respond to market speculation or talk about deals that are in the works, but that has not dispelled a belief among ABS bankers in the region that Global Thai and MRTC have held serious discussions about the different options available to MRTC.

These, assuming the reports are true of course, could include Lehman buying the deal as an investment or trying to sell the deal to institutional investors, either by using the structure devised by Hypo û for which it would presumably have to pay fees û or a complete repackaging of the transaction.

Although there has been some speculation that MRTC and Lehman will try and sell the deal to end investors, this would seem an unenviable, perhaps impossible task. Presumably, any attempt to do so would involve the two parties trying to tap the same sort of investors that Hypo did when it was doing pre-marketing. To an outside observer, it would seem likely these investors would have serious reservations about buying into any new transaction, given the negative publicity that resulted from the cancellation first time round.

In any case, Lehman is keeping quiet about its rumoured involvement at this point in time, so it is yet to be seen whether we will see the MRTC deal resurrected or, as seems more likely, it will remain derailed on a permanent basis.

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