Thailand Financial News

HK$2 Billion of Mortgage-Backed Securities Rated.
Moody’s Investors Service has assigned Aaa ratings to Series 2006-1’s Class A and Class B notes (the “notes”) issued by Bauhinia MBS Limited (the “issuer”). The notes are backed by a static pool of residential mortgage loans originated by the Hong Kong Housing Authority (”HA”) and sold to the Hong Kong Mortgage Corporation (”HKMC”) during 2001 to 2003.

This is the first un-guaranteed RMBS transaction sponsored by HKMC. The Hongkong and Shanghai Banking Corporation Limited (”HSBC”) brought the transaction to the market. The complete rating action is as follows: Issuer: Bauhinia MBS Limited HK$300 million Class A-1 Notes due December 2007, rated Aaa HK$740 million Class A-2 Notes due December 2009, rated Aaa HK$700 million Class A-3 Notes due December 2011, rated Aaa HK$260 million Class B Notes due October 2017, rated Aaa The ratings address the expected loss posed to the investors by the legal final maturity. The structure allows for timely payments of interest and ultimate payment of principal at par on or before the rated final legal maturity date. The expected loss only takes into account the scheduled yield and the principal repayment on the notes. Moody’s ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors. In assigning the ratings, Moody’s considered, among other things, the following factors: 1. the credit quality of the underlying residential mortgage loans; 2. the subordination level provided to the Class A notes by the Class B notes; 3. the guarantee provided to the Class B notes by HKMC; 4. the transaction’s structural features, which include HKMC’s payment obligations under the payment deed to provide the issuer with cash flow to pay interest on the notes and fees and expenses to various third parties, and under the liquidity facility to address any principal liquidity shortfall for the Class A notes due to timing of receipt of the underlying mortgage repayments; 5. the presence of a pre-funded reserve fund and the interest rate swaps; 6. the experience of HKMC as the master servicer; and 7. the legal integrity of the transaction. TRANSACTION SUMMARY Series 2006-1 issues the Class A-1, A-2 and A-3 notes (together, the “Class A notes”) and the Class B notes. The Class A notes benefit from the subordination provided by the Class B notes, and the Class B notes enjoy an unconditional and irrevocable guarantee provided by the HKMC. Hence, the rating on the Class B notes is closely linked to HKMC’s domestic currency long-term issuer rating, which is currently at Aaa. The Class A-1, A-2 and A-3 notes have bullet principal repayment in 2007, 2009, and 2011 respectively. Starting from closing date, the issuer accumulates the principal payments it receives from the mortgage loans in order to fulfill such bullet repayment obligations. If there is any shortfall between the then available principal collections and the issuer’s principal payment obligations on each of Class A’s three maturity dates, HKMC will, with certain drawdown conditions, provide a liquidity facility to cover such a shortfall. On the other hand, if there is any excess principal collection after accumulating the required principal amount, such excess will, subject to certain conditions, be used to pay down the Class B notes. The notes are interest bearing but the underlying mortgage loans are interest free. HKMC will, under a payment deed, pay one-month HIBOR plus
a margin on the then current principal amount outstanding of the mortgage loans to the issuer to cover its various obligations including the interest on the notes. The issuer has entered into an interest rate swap with HSBC (Aa2/P-1/B+) to mitigate the interest rate mismatch between HKMC’s HIBOR-linked payment to the issuer and the issuer’s fixed rate payment on the Class A  notes. In rating the transaction, Moody’s considered, among other factors, the mortgage loan-by-loan information and the various performance parameters of the mortgage loans. Moody’s also took into account the impact of commingling risk on the transaction. Moody’s believes that the subordination available for the Class A notes
– coupled with the structural features built into the transaction — sufficiently protect the Class A note holders against any losses incurred by a commingling event or defaults in the mortgage loans. A more detailed analysis of the transaction will be available at Moody’s website: http://www.moodys.com Hong Kong
Min Ye Hong Kong
Marie Lam