MRTC's asset-backed notes maintains high rating despite pandemic


Philippine Rating Services Corporation (PhilRatings) has maintained its high rating of PRS Aa minus with a Stable Outlook for Tranche 3 of MRT III Funding Corporation’s Asset-Backed Notes.

The Asset-Backed Notes issue is a securitization of future dividends from Metro Rail Transit Corporation (MRTC), which flow through a series of holding companies and special purpose vehicles, to MRT III Funding Corporation, the Issuer of the Notes.

The dividends arise from Equity Rental Payments (ERPs) made by the Department of Transportation and Communications (DOTC) to MRTC under a 25-year build-lease-transfer (BLT) agreement for the construction of the Light Rail Transit System, Phase 1 (LRTS Phase 1, or MRT) in Metro Manila.

Obligations rated PRS Aa are of high quality, and are subject to very low credit risk. The obligor’s capacity to meet its financial commitment on the obligation is very strong.

A Stable Outlook is assigned when a rating is likely to be maintained or to remain unchanged in the next twelve months.

Historically, ERP remittance by the government has not consistently followed a regular pattern. From 2005 to 2007, the issue rating for the Notes underwent a series of downgrades as the then irregular ERP remittance by the government raised significant doubts on the timely payment of maturing Note tranches.

PhilRatings noted though that, despite the then irregularity in ERP remittance, however, the government managed to make full and prompt payment on the Note tranches as these became due in previous years.

Significant also is the subsequent established pattern of regular ERP remittance by the government, which was noted by PhilRatings after its 2010 annual monitoring of the Notes’ issue rating.

“These positive developments were major rating considerations in the subsequent issue ratings that were assigned to the Notes,” the ratings agency said.

It added that, “based on PhilRatings’ checking and the representation of particular parties, prompt debt servicing of the outstanding Notes has continued amidst the pandemic (including during the zero ridership period experienced by the system in April and May 2020).”

Albeit possible administrative changes following the installation of a new national leadership in 2022 may bring about developments that may impact the train system, PhilRatings believes that it is highly likely that prompt debt servicing of the Notes will continue moving forward, as the new leadership is expected to continue exerting efforts to maintain, at the least, the country’s investment-grade credit rating.

The continuation and improvement of operations of the train system is also critical in supporting the transportation needs of the general commuting public.