Ajman Sewerage $100 Mil bank loan rated 'AAA'(Ins)/'BBB'(SPUR); SPUR outlook stable

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The outlook on the underlying rating is stable.

In addition, a recovery rating of '3' has been assigned to the debt, indicating Standard & Poor's expectation of meaningful recovery of principal (in the range of 50%-80%) in the event of a default.

Ratings were assigned following receipt and satisfactory review of all final transaction documentation, including legal opinions.

The 'AAA' rating reflects the irrevocable, unconditional guarantee of timely scheduled payments by Ambac Assurance U.K. Ltd. (AAA/Stable/--).

Ajman Sewerage is using the proceeds of the loan to fund the construction of a sewerage collection system and treatment plant in the Ajman Emirate in the United Arab Emirates (UAE).

The underlying 'BBB' rating reflects a range of factors, including the ongoing exposure of revenues to potentially slow collection rates for connection fees; moderately weak covenants; and an evolving legal framework for projects in the Emirate of Ajman, with no track record of enforceability of security.

These weaknesses are offset by, among other factors, strong and explicit support from the Emirate of Ajman, the monopoly position of the operation within the Emirate of Ajman, and a strong economic and environmental rationale for the project.

'In addition, the security package provides lenders with step-in rights to the key project documents, and ownership in the event of a default,' said Standard & Poor's credit analyst Paul Lund.

Construction on the Ajman Sewerage project started in 2002, with the project assuming full collection risk for connection fees. The project defaulted on engineering, procurement, and construction (EPC) contract payments, and construction stopped in 2004 as collection rates were substantially behind those projected to support the initial funding of the project. Nevertheless, the underlying rating on the project takes into account the explicit support committed by the Government of Ajman, under its Financial Support Agreement, and is based on our expectation of the ongoing collection performance of the project.

'We expect the explicitly documented support from the Government of Ajman and EPC sponsors to offset any shortfall in the collection of connection fees during the construction phase of the project,' said Mr. Lund. 'Any rating movement, upward or downward, will depend on achieved collection rates, compared with stated expectations.'