Ajman Sewerage underlying bank loan rating on watch neg on low collections and works delays

The insured long-term rating on the loan is 'AA' with a negative outlook, reflecting the unconditional and irrevocable guarantee provided by Ambac Assurance U.K. Ltd. (AA/Negative/--) of scheduled interest and principal on the loan.

"The CreditWatch placement reflects weaker-than-anticipated collection rates for connection and service fees reported in the six months ended June 2008,"

said Standard & Poor's credit analyst Karim Nassif.

"Connection and service fee collections ranged between 40% to 50% for some properties against an expected minimum of 60% collection of connection fees and 100% collection of service fees on all properties, excluding some contingency for vacancy rates, under the company's 2006 financial model assumptions. As a result, the company has reduced the forecast collection rates for 2008 through 2010."

Furthermore, the CreditWatch placement also reflects the fact that construction delays are likely to force Ajman Sewerage to postpone the substantial completion milestone date of Oct. 6, 2008, by about three to four months. This is a result of delays to the completion of pumping stations, the sewerage network, and force mains works; however, on Aug. 29, 2008, these were all more than 90% complete.

"We will resolve the CreditWatch status of the underlying rating following discussions over the next quarter with Ajman Sewerage to understand the likely effect of lower-than-expected collection rates and the construction delay," Mr Nassif said. "In addition, we will monitor progress in achieving substantial completion, the improvement of collection rates, and the ongoing discussions with lenders regarding any potential covenant breaches. We could lower the underlying rating by more than one notch if we see no indication that the project's performance in these areas is improving or if the project is forecast to breach its required covenants in 2010.