RAM Ratings reaffirms A1/P1 ratings of Blondal Resources' CP/MTN Programme, with stable outlook

Published on 14 December 2011
RAM Ratings has reaffirmed the respective short- and long-term ratings of P1 and A1 for Blondal Resources Sdn Bhd’s (Blondal Resources) RM70 million Commercial Papers and Medium-Term Notes Programme (CP/MTN); the long-term rating has a stable outlook. Blondal Resources had been specifically incorporated to undertake the securitisation of the hire-purchase (HP) receivables of Blondal Sdn Bhd’s (Blondal) subsidiary – Primuda Sdn Bhd (Primuda) - via the issuance of the CP/MTN. Blondal is involved in direct sales of household and industrial appliances, primarily under the Lux, Städa and HydroGuard brands.

The reaffirmation of the ratings is premised on the overcollateralisation (OC) levels of the CP/MTN. As at end-August 2011, Blondal Resources had RM11.00 million of outstanding CP, supported by RM20.25 million of HP receivables (the Portfolio); this resulted in a collateralisation level of 211% against the required minimum of 180% to maintain the A1/P1 ratings. The greater-than-required collateralisation is a result of Blondal’s replacement of defaulted/repossessed accounts as per the transaction requirements, which we opine provides sufficient protection against the risk of the Portfolio experiencing higher levels of defaults.

Based on updated historical data, the cumulative net default rate of the Portfolio stood at 7.07%, compared with our base-case assumption of 5.50%. The higher-than-expected default rate has been mainly driven by defaults on HP receivables (sewing machines and indoor water filters) originated in 2008/09. That said, HP receivables on outdoor point-of-entry (POE) water filters – currently the largest segment of receivables for Blondal and the Portfolio – show cumulative net default rates of 6.00% to 6.50%. This is the key reason for the easing of the Portfolio’s average monthly gross default rate, from 0.67% in 2010 to 0.57% in the first 8 months of 2011, supported by Blondal’s improved credit-approval and collection processes. In this regard, we have revised the base-case peak cumulative net default rate from 5.50% to 6.50%, to reflect our expectation that HP financing on POE water filters will increasingly form the bulk of Blondal’s receivables and the securitised pool. However, the minimum required collateralisation of 180% remains unchanged given the shorter remaining tenure of the transaction.

As of end-August 2011, Blondal had replaced the RM19.74 million of “losses arising from defaults and repossession” with RM21.60 million of new receivables. We highlight that the increased OC and dependence on Blondal’s replacement are more crucial given the current higher default levels of the Portfolio, which are expected to taper off. In this respect, the sustainability of the OC level relies on Blondal’s business continuity and HP loan origination; we derive some comfort from its 38-year operating track record. Failure to replace these receivables is tantamount to an early amortisation event.

While Blondal has provided an irrevocable corporate guarantee on all amounts due and payable under the CP/MTN, RAM Ratings has not placed any weight on this guarantee. Based on its latest financials, Blondal has managed to ride out the crisis and appears on track towards turning around its operating performance in FY Dec 2011. RAM Ratings will continue monitoring Blondal’s operations, i.e. sales and HP origination, as well as its financial position.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my