LRA Assigns Preliminary Debt Instrument Rating to Fixed Income Investment I (Pvt) Ltd – Trust 03

Fixed Income Investment I (Pvt) Ltd – Trust 03 is a Special Purpose Vehicle ("SPV") incorporated to securitize Treasury Bond up to LKR~1.5bn Face Value. The rating reflects the robust securitization structure that ensures regular interest and principal repayments to the investors. The rating incorporates key risk (Interest rate change) being borne by the investors. The credit risk is considered very low as the securitization is for the Government of Sri Lanka's long-term fixed-rate Treasury Bond (less than 10 years maturity). Interest rate fluctuations, if any, are likely to impact the value of the bond, giving rise to market risk. This risk, along with early repayment, will be undertaken by the investors, as clearly mentioned in the offering document. Under the current scenario of stabilized interest rates, the bond remains exposed to moderate market risk. However, in case of increase in interest rates, the value of the bond will be affected. This may also impact liquidity of the bond as well. The entire transaction will be routed through a trustee to ensure timely and secure payments. Furthermore, LRA also takes into account the ability of the Treasury Bond securitization promoter (Capital Alliance Holdings Limited, which is Rated "A-" by LRA). The promoter's experience in managing funds and Capital Markets is expected to facilitate its smooth execution.
There is a built-in curing period (3 days), in case a payment is missed. The investors will receive fixed returns only if they hold their positions until maturity and not in the case of early redemption. Every ~90th day, the investors will have the option to roll over or pre-terminate the bond at market value. The average return on the trust certificates offered by the Treasury Bond securitization stands at ~11.10% (net of fees), which will be provided only if the instrument is held to maturity. All settlements would be made through the Fixed Income Investment I (Pvt) Ltd – Trust 03 account maintained with the Trustee (People's Bank). All settlements would be made under the direct supervision of the Trustee. Until all the agreed payments are made to the trust receipt owners, any excess amount will not be withdrawn. The Trustee will ensure timely payments and other legal aspects of the transaction. The rating of the SPV depends on the timely payments of the interest and principal amount of the Treasury Bond securitization. Going forward, the probability of occurrence of a triggering event that may lead to a risk of non-payment of interest and/or principal to the investors, will be closely surveilled.

About the Entity
Fixed Income Investment I (Pvt) Ltd – Trust 03 (“the Company”), a Special Purpose Vehicle (SPV), was incorporated under the Companies Act No.07 of 2007. The registered office of the Company is situated at level 5 Millennium House, No 45/58 Colombo. The Company is a ~100% owned subsidiary of CAL Holdings Limited. The ultimate majority ownership of CAL Holdings remains with Mr. W.A.T. Fernando (through Ashthi Holdings (Pvt.) Limited) and Ms. Shiromal Cooray (through Jetwing Travels (Pvt.) Ltd).

About the Instrument
The Company will buy Treasury Bonds to securitize them and issue trust receipts to investors against these securitized bonds. The total size of the securitization is LKR~1.5bn (Face Value) with an average gross return of ~11.10% on the trust certificates, net of fees, if held to maturity.