RAM Ratings upgrades rating of Premium Commerce's Class B Notes Series 2010-B, reaffirms Class A Notes' rating

Published on 29 December 2011
RAM Ratings has reaffirmed the AAA rating of Premium Commerce Berhad’s (“PCB”) Class A Notes Series 2010-B (“2010-B Notes”) while upgrading the rating of its Class B Notes, from AA2 to AAA; both long-term ratings have a stable outlook.
This transaction involves the securitisation of automobile hire-purchase (“HP”) receivables from Tan Chong & Sons Motor Company Sdn Bhd (“TCSM”) and/or TC Capital Resources Sdn Bhd (“TC Cap”) under PCB’s RM2 billion Medium-Term Notes (“MTN”) Programme. The 2010-B Notes represent the fourth of 5 issues under PCB’s RM2 billion HP Receivables-Backed MTN Programme (“the Programme”). As at 31 October 2011, RM181 million of the Class A and Class B Notes remained outstanding.

The ratings of the Class A and Class B Notes are premised on the available credit enhancement in the form of overcollateralisation (“OC”) that provides sufficient buffer to cover loss of cashflow arising from defaults and prepayments under an AAA stressed scenario. The higher OC ratios for the Class A and Class B Notes of 16.19% and 14.20%, respectively, are supported by the healthy performance of the underlying securitised portfolio and the faster-than-assumed deleveraging of the transaction. As at end-September 2011, the cumulative net default rate for the HP portfolio backing the 2010-B Notes stood at 0.03%, well below our base-case assumption of 0.55%. In addition, the average monthly prepayment rate stood at 0.27% – broadly within our low-prepayment-rate assumption of 0.30% per month. Going forward, RAM Ratings expects the default performance of the underlying securitised pool to remain within our expectations. With the overnight policy rate expected to be maintained until at least 1H 2012 amid the lacklustre global economic outlook, prepayments should remain subdued.

The ratings are also supported by the transaction’s legal and payment structures. These mainly involve the pass-through mechanism that allows collections - after meeting senior expenses and coupon obligations - to be deployed for early redemption of the Notes on each quarterly coupon-payment date, in the pre-determined order of priority. This partially addresses the negative carry of the Notes Series due to low investment returns.

As at 31 October 2011, the HP receivables in the portfolio comprised 3,869 HP contracts, with an outstanding principal balance of RM180.29 million. These loans had a weighted-average seasoning of about 19 months and a weighted-average remaining tenure of 46 months. The average size of the loans stood at RM60,910 as at the same date.

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