MARC DOWNGRADES ABS SAMUDERA RECEIVABLES BERHAD's SERIES A NOTES TO AA+; OUTLOOK NEGATIVE

Sep 23, 2011 -
MARC has completed its review of ABS Samudera Receivables Berhad's (ASRB) rating on its Series A notes issued under its RM250.0 Medium Term Notes Programme and downgraded the rating to AA+ from AAA. The outlook is negative. The rating review had focused on a reassessment of credit protection for the RM5.0 million of outstanding notes, taking into account unexpected tax liabilities arising at the special purpose vehicle (SPV) level, including potential tax penalties. Also, key transaction performance data only recently became available for ASRB's collateral pool of consumer finance receivables as with the computation of tax liabilities. Additionally, MARC notes that the tax returns have yet to be filed for 2009 and 2010. The negative outlook on the rating considers the uncertainty surrounding ASRB's ultimate tax liability and corresponding cash flow implications.

The lowered rating reflects reduced credit support for Series A notes based on MARC's cash flow simulation analyses incorporating cash outflows for ASRB's estimated tax liabilities of RM1.95 million for 2007, 2008 and 2010 and potential tax penalties. (ASRB incurred a loss in 2009.) MARC's revised cash flow runs confirm that the transaction can no longer support updated AAA stress scenarios for default and prepayment of underlying receivables as a result of the unexpected tax liabilities. The revised rating of AA+ on the Series A notes, meanwhile, is supported by cash balances held in ASRB's designated accounts, and the adequate credit quality and performance of consumer finance receivables in the current collateral pool.

ASRB is a bankruptcy remote special purpose vehicle incorporated for the sole purpose of issuing up to RM250 million in MTNs to finance the purchase of eligible consumer financing receivables from Koperasi Shamelin Berhad (KSB). Notes Series-A is secured by a receivables pool (Portfolio-A) of consumer loans to public sector employees originated by Koperasi Shamelin Berhad (KSB). Portfolio-A is serviced via monthly salary deductions at source and administered by Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa). At closing, the outstanding value of Portfolio-A was RM25.0 million (Portfolio-A) versus RM25.0 million of MTNs under Notes Series-A. KSB is established under the Co-operative Societies Act 1993, and its main source of revenue is derived from consumer financing offered to eligible members comprising mainly civil servants. The quality of KSB’s loan portfolio has been relatively stable in the past, based on low levels of default observed.

Since transaction close, Portfolio-A has seen a vast amount of prepayments as a result of refinancing by borrowers. As of May 31, 2011, the pool’s cumulative prepayment rate was observed to be 49.24%, falling slightly below MARC’s assumed prepayment rate of 50%. The effects of prepayments are moderated, to some extent, by prepayment penalties imposed via the Rule of 78s method. MARC expects that prepayments rates to remain high as the collateral pool’s outstanding balance has been reduced significantly and comprises seasoned loans.

Meanwhile, credit performance of the collateral pool has remained under AAA-stress limits, reflected by a cumulative default rate of 2.43%, falling well below MARC’s projected default rate of 12.45% for the corresponding period. MARC believes that the collateral pool’s credit performance will continue to remain satisfactory going forward.

Credit enhancement under Notes Series-A is provided by the sizable excess spread and a liquidity reserve. As of June 30, 2011, the amounts contained in the designated accounts, including the liquidity reserve, stood at RM7.09 million. This amount represents a credit enhancement factor before taxes of 1.41 times.
MARC’s negative outlook reflects uncertainty with respect to the actual extent of the potential tax penalties and how it will affect credit support for the notes. Accordingly, the negative outlook reflects the possibility of further downgrading should ASRB’s tax burden prove to be significant enough to affect full repayment of the notes.

Contacts:
Ruben Khoo, +603-2082 2265/ rubenkhoo@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.