The advantage of the pre-funding scenario is that it transfers future
funding risk to the capital markets at the inception of the transaction but has the disadvantage of reinvestment risk (negative carry) until the funds are fully deployed in the reinsurance trust.
The rating, however, derives comfort from the low land cost of the project, modest
funding risk and the promoter's experience of successfully completing a similar project (Technopolis-I) in the past.
The new contract removes all credit and
funding risk to Polaris immediately and also eliminates the need for Polaris to maintain a retail credit cash deposit with HSBC, which was $49.
This
funding risk is further mitigated by the quality of the receivables portfolio in that the majority of the receivables are from BBB+ or better rated credits.
Assuming all financial commitments complete as expected, the
funding risk to the company is effectively reduced into 2003 and possibly beyond.
The commercial loans and core deposits acquired from FBF have led to improved portfolio diversification and reduced
funding risk.
Potts continued, "We have reduced our
funding risk and improved our liquidity since the beginning of the quarter.
Also, a more conventional debt-to-equity leverage ratio analysis was used for assessing
funding risk.
Additionally, a more conventional debt to equity leverage ratio analysis was used for assessing
funding risk.
This requires the REIT to access the capital markets more frequently than it would if it were able to retain its earnings, which adds
funding risk to the REIT's profile.
The rating downgrade was prompted by the material increase in long-term
funding risks for eurozone sovereigns with high levels of public debt such as Italy and growing downside risks to Italy's economic growth due to a weakening global outlook, the rating agency said.
The ratings agency blamed a "material increase in long-term
funding risks for the euro area", due to lost confidence in eurozone government debts.
