RAM Ratings reaffirms AAA rating of AmMortgage's First Note Series, backed by Telekom's staff housing loans

Published on 21 September 2011
RAM Ratings has reaffirmed the AAA rating of the RM339.38 million Medium-Term Notes (First Note Series) issued by AmMortgage One Berhad (AmMortgage or Issuer), with a stable outlook. The First Note Series represents the first issuance from AmMortgage’s RM250 million Commercial Papers and RM1 billion Medium-Term Notes Programme. This transaction involves the securitisation of staff housing loans originated by Telekom Malaysia Berhad (TM or the Originator).

The rating reflects the available over-collateralisation (OC) of 10.65%, based on RM242.99 million of outstanding principal receivables and RM5.25 million of permitted investments and cash balances as at 30 June 2011. The OC provides protection against losses arising from defaults under a AAA-stress scenario, delinquencies, prepayments and negative yield spreads in the transaction. The rating is also supported by the lower default risk of the staff housing loan compared to commercial loans, given that the repayments are directly deducted at source. As at 30 June 2011, the underlying loan portfolio recorded cumulative net defaults of 0.26%, well below our base-case assumption of 0.71%. Prepayment of the loan portfolio has minimal impact on the transaction as prepaid loans can be passed through to amortise the bonds, thereby mitigating any negative carry for the transaction. Within the first 2 years of the transaction, 30.4% (RM115.03 million) of the First Notes Series had been redeemed ahead of its maturity date on 29 September 2034.
The AAA rating also factored in credit enhancement provided by the Originator. The transaction features an undertaking by TM to make monthly subsidy payments to the Issuer based on a fixed rate. In addition, TM has also set aside a fund which is used to compensate the Issuer if any of the underlying loans that exceed 70% loan-to-value (LTV) threshold turn delinquent. Furthermore, TM is obligated to assume the monthly repayments of any loan that is in arrears and falls within a pre-determined eligibility.

As part of the credit enhancement for the transaction depends on TM fulfilling its undertakings, the rating of the First Note Series is strongly linked to TM’s credit profile. Nonetheless, we derive comfort from TM’s superior credit profile, underpinned by its sturdy financial standing and strategic role as the national telecommunications company. RAM Ratings has also reviewed the servicing abilities of the Portfolio Servicer, AmBank (M) Berhad, including its administration of the entire TM Employee Mortgage Scheme for and on behalf of TM. We view AmBank’s resources, processes and capabilities to be commendable; AmBank has adequately performed its servicer responsibilities, as required under the transaction.

Media contact
Tan Han Nee
603 7628 1023
hannee@ram.com.my