RPT-Fitch Affirms Doosan Infracore's Capital Securities at 'A-'

Thu Jul 17, 2014 3:12am EDT

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July 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Korea-based Doosan Infracore Co., Ltd.'s (DI) USD500m capital securities at 'A-'. The rating reflects the credit enhancement provided to investors by the credit facility provider (CFP) banks.

KEY RATING DRIVERS

Credit Enhancement by Banks: The rating reflects the credit enhancement provided to investors by Korea Development Bank (AA-/Stable), Woori Bank (A-/Stable) and Hana Bank (A-/Stable). Investors in the securities are granted the right to put the securities to Core Partners Limited, a special purpose company unrelated to DI. The abovementioned banks provide a five-year irrevocable and unconditional commitment via a credit agreement to lend Core Partners an amount sufficient to meet its put obligations. This amount includes the then outstanding principal and any accumulated distribution payments.

Put Option: Investors can exercise the put option if DI fails to redeem the securities at the end of the fifth year (2017), when the distribution rate steps up by 500 basis points. Investors also have the right to exercise the put option in a number of other instances prior to the fifth year, including the bankruptcy of DI.

Fitch's Rating Assumptions: In rating the securities, Fitch has taken the view that investors will exercise the put option at the end of the fifth year (2017) if DI chooses not to redeem the securities. As a result, the rating reflects the banks' commitment to fund Core Partners to meet its obligations to the investors. However, the rating is capped at the lowest of Fitch's assessments of the banks due to the several but not joint obligations of the banks under the credit agreement. Any change in the lowest of Fitch's assessments of the banks will result in an equivalent change to the instrument rating.

DI's Credit Not Considered: DI's standalone credit strength is not a consideration in the instrument rating as the credit agreement remains in force even if DI is declared bankrupt. However, DI may elect to defer distribution payments during the credit agreement period without triggering the put option. Investors will receive any deferred distributions only upon the exercise of the put option.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include-

-Downgrades in the lowest rated of the CFP banks

Positive: Future developments that may, individually or collectively, lead to positive rating action include-

-Upgrade in the lowest rated of CFP banks

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