Jul 2007 Financial News

National Commercial Bank of Jamaica (NCB) raises US$50m - Builds pool of international credit

Jul 25, 2007

National Commercial Bank of Jamaica (NCB) has raised another US$50 million in securitised notes on the international market, which CEO Patrick Hylton says will be used for loans, investments and other transactions.

NCB used a Cayman Islands-incorporated special purpose vehicle called Jamaica Diversified Payments Rights Company (JDPRC) to raise the cash, backed by its diversified payment rights, or DPRs.

DPRs generally refer to electronic payment orders for third party transactions conducted, in this case, through NCB — for example, remittances, commercial trade transactions including exports, and worker compensation.

Earnings from such transactions would likely to be captured in what NCB lists in its account as Foreign Exchange Trading and Transactions Gains, which, for the financial year to September 30, 2006, netted J$1.05 billion.

Good price

Hylton declined to disclose the rate on the notes, but told Wednesday Business: "We got it at a good price."

"We are in the market and if the funds are available at a good price we may take it," Hylton said. "We will lend it out, invest some of it or use it in the normal course of business."

Last year NCB, using the same vehicle, raised $100 million in securitised notes, for which, like with the latest offer, the rating agency, Fitch Ratings, assigned a 'BBB-' issuer default rating. Those series of 2006-1 notes were priced at the U.S. dollar-denominated 3-month London Inter-Bank Rate (LIBOR) plus a reset of 180 basis points.

"The business line is important to NCB as many of its top corporate clients are exporters," said Fitch.

The DPR-backed notes were the not first securitised instruments issued by NCB, having since 2001 raised an estimated US$225 million against future accounts receivables on credit cards issued primarily by Visa International and Master Card International. These 'variable funding certificates' were issued through Citibank NA and administered by the American bank's parent, Citicorp.

NCB made its last US$92.5 million drawdown of those receipts last September. Repayment of the debt approximates the floating US dollar-denominated 1-month LIBOR plus 135 basis points.

The new 2007-1 floating rate notes have a one year 'interest only' period, when not principal will be paid, followed by a seven year amortisation period.

Fitch explained the instruments' positive rating partly on the fact the collection accounts maintained at designated deposit banks or DDBs and are required to be controlled by an indenture trustee - that is, the agent of a bond issuer who handles the administration of the loan and ensures the debt is serviced. The possibility of "government interference" or sovereign risk, the ratings agency added, was low.

In fact, Fitch's 'BBB-' rating, or investment grade with low to moderate credit risk is higher than Jamaica's 'B+' rating on equivalent issues. The rating was also influenced by the DPR's level of coverage of the debt servicing charges under the two issues.

"Coverage levels for the existing 2006-1 series are significantly high, averaging about 50 times maximum quarterly debt service over the past year," said Fitch. "É NCB's current and future DPR business is adequate to support the ratings of these future flow notes."

The coverage on the 2007-1 notes is estimated at 30 times the debt servicing costs.

"Following on the positive response from the market to the US$100 million that we raised in 2006 and the profile of NCB in terms of consistency in its performance, our financial advisors indicated that there was an opportunity for us to access an additional sum at attractive rates and terms," said NCB group deputy managing director Dennis Cohen.

"We have taken advantage of this in order to raise funds for general banking purposes such as loans and other investments."

Outside of the current transaction, up to its financial yearend last September, NCB was $21.4 billion in debt to the credit card companies and holders of its DPR notes.

Quarterly interest payments on the US$100 million DPR began last June, while redemption of the principal debt is scheduled over five years, starting June 2008 to March 2013.

Source:
Lavern Clarke, Business Editor
The Jamaica Gleaner
Wednesday July 25, 2007

http://www.jamaica-gleaner.com/gleaner/20070725/business/business1.html