RAM Ratings reaffirms AAA rating of Tresor Assets' Tranche H Senior Bonds, with stable outlook

Published on 06 October 2011
RAM Ratings has reaffirmed the AAA rating of Tresor Assets Berhad’s (Tresor) RM75 million Tranche H Senior Bonds, with a stable outlook; the RM25 million Tranche H Subordinated Bonds are not rated. The stable outlook reflects our view that the performance of Tranche H’s securitised loan pool (the Portfolio) will remain satisfactory throughout the transaction’s tenure.

Tresor is a special-purpose vehicle set up to undertake a RM1.5 billion funding programme involving receivables purchased from RCE Marketing Sdn Bhd (RCE Marketing). RCE Marketing is a wholly-owned subsidiary of RCE Capital Bhd and is involved in the business of providing personal loans through strategic tie-ups with cooperatives. Tranche H represents the 8th issuance (out of 9 issued to date) under this RM1.5 billion programme. The Tranche H Bonds are secured against a pool of personal loans originated by Koperasi Wawasan Pekerja-Pekerja Berhad (KOWAJA), and feature loans with tenures of up to 15 years. As at end-June 2011, RM75 million of the Tranche H Senior Bonds remained outstanding, supported by RM74.84 million of outstanding receivables and RM41.29 million of cash and permitted investments that correspond to a collateralisation level of 154.84%.

The reaffirmation of the rating is premised on the available credit enhancement provided by the overcollateralisation level, available excess spread, structural features of the transaction and performance of the Portfolio. As at 30 June 2011, the receivables pool recorded a cumulative net default rate of 2.32% (as a percentage of the original principal balance on the purchase date), compared to RAM Ratings’ base-case assumption of 3.99%. At the same time, the cumulative prepayment rate stood at 20.73%, translating into an average monthly prepayment rate of 1.73% which is in line with our assumptions. As at end-June 2011, the Portfolio contained 3,924 loans, with a weighted-average seasoning of 18 months; the average loan size worked out to RM19,072 with a weighted-average remaining term-to-maturity of 125 months.

In November 2010, RAM Ratings had highlighted Suruhanjaya Koperasi Malaysia’s (SKM) directive to KOWAJA to halt the disbursement of new loans - effective 1 December 2010 - as KOWAJA's financing arrangement with RCE Marketing had been deemed non-compliant by SKM. We had also emphasised that the performance of Tresor’s securitised loan portfolios would not be affected; the salary-deduction mechanism for existing loan receivables remained intact.

On 8 June 2011, KOWAJA received SKM’s approval to obtain funding from RCE Marketing, subject to certain operational and funding conditions as well as a funding limit of RM200 million. Under the new financing scheme, KOWAJA is not permitted to assign its receivables to any third party (including RCE Marketing), although it can assign the proceeds of such receivables. This new arrangement will expose RCE Marketing to KOWAJA's credit risk; RCE Marketing’s financial profile could be affected if KOWAJA fails to fulfil its loan obligations. At the same time, without an available pool of receivables from KOWAJA, RCE Marketing’s ability to seek funding through its existing securitisation programme – currently its primary source of funding – will be curtailed.

Despite the abovementioned challenges to RCE Marketing’s future business and financial profile, RAM Ratings reiterates that they do not affect the ratings of the Tranche H Senior Bonds as the performance of the underlying securitised loan pool and the security position of the bondholders remain intact. Essentially, receivables that were securitised prior to SKM directive will not be affected. That said, in the event that RCE Marketing’s credit profile deteriorates significantly, which we do not envisage at this juncture, its ability to function as the Servicer of this transaction could be affected.

In light of the security arrangements under the transaction, the management of the relevant accounts depends heavily on RCE Marketing. Should RCE Marketing fail in its role as the Servicer, cashflow to the bondholders may be temporarily disrupted until a replacement servicer is appointed. Nonetheless, we opine that this risk is still manageable in view of RCE Marketing’s moderate credit profile. We note that RCE Marketing has to date adequately performed its duties as the Servicer under this debt programme, with monthly servicer reports received on a timely basis.
RAM Ratings highlights that the AAA rating addresses the likelihood of timely payment of coupons and ultimate payment of principal on the Tranche H bonds by their respective maturity dates; it does not indicate the likelihood of prepayment.

Media contact
Woon Tien Ern
(603) 7628 1040
tienern@ram.com.my