RAM Ratings reaffirms AAA rating of Tresor Assets Berhad’s Tranche F Senior Bonds, with stable outlook

Published on 02 May 2012

RAM Ratings has reaffirmed the AAA rating of Tresor Assets Berhad’s (“Tresor”) outstanding RM50 million Tranche F Senior Bonds (“Senior Bonds”), with a stable outlook; the RM25 million Tranche F Subordinated Bonds are not rated. The stable outlook reflects our view that Tranche F’s securitised loan pool (“the Portfolio”) will continue performing satisfactorily throughout the transaction’s tenure.

Tresor is a special-purpose vehicle set up to undertake a RM1.5 billion funding programme involving receivables purchased by RCE Marketing Sdn Bhd (“RCE Marketing”). Tranche F is the fourth issuance under this RM1.5 billion programme, which is secured against a pool of personal loans originated from Koperasi Wawasan Pekerja-Pekerja Berhad (“KOWAJA”). As at end-December 2011, the Senior Bonds were supported by RM50.75 million of outstanding receivables and RM61.87 million of cash and permitted investments that corresponded to a collateralisation level of 187.71%. Based on the available cash balances, Tresor should be able to make an early redemption on all of the outstanding Senior Bonds in June 2013.

The rating reaffirmation is premised on the available credit enhancement provided by the overcollateralisation level, the structural features of the transaction and the Portfolio’s performance. As at 31 December 2011, the cumulative net default rate of the receivables pool came up to 3.98% (as a percentage of the principal balance on the purchase date), compared to RAM Ratings’ base-case assumption of 5.36%. At the same time, the cumulative prepayment rate stood at 41.75%, i.e. within the cumulative high- and low-prepayment-rate scenarios. As at end-December 2011, the Portfolio’s principal balance was underpinned by 3,350 loans, with a weighted-average seasoning of 29 months; the average loan size worked out to RM15,150, with a weighted-average remaining term-to-maturity of 113 months.

To date, RCE Marketing - as the servicer of the transaction - has fulfilled its duties and obligations under the transaction. However, we note a potential weakening in the longer-term credit profile of RCE Marketing that could affect its ability to function as the servicer. RCE Marketing’s business model of providing personal loans to civil servants via co-operatives (“co-ops”) had been affected by several regulatory developments. The regulator of co-ops, Suruhanjaya Koperasi Malaysia (“SKM”), had earlier directed KOWAJA to halt its disbursement of new loans, only to lift the restrictions in June 2011 with revised conditions. SKM had also adopted Bank Negara Malaysia’s Responsible Financing Guidelines which, among others, restricts penalising borrowers for early settlement. Albeit the regulatory changes, RCE Marketing’s pre-tax profit for the 9 months ended 31 December 2011 recorded at RM34.43 million (FYE 31 March 2010: RM27.74 million).

We note that RCE Marketing has to date adequately performed its duties as the servicer, with monthly servicer reports received on a timely basis. Given the security arrangements under this transaction, the management of the relevant accounts relies heavily on RCE Marketing. Should RCE Marketing fail in its role as 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.

Despite the uncertainties surrounding RCE Marketing’s future business and financial profile, RAM Ratings reiterates that the rating of the Senior Bonds is not affected because the performance of the underlying Portfolio and the security position of the bondholders remain intact. Essentially, receivables that had been securitised prior to the regulatory changes will not be affected. We highlight that the AAA rating addresses the likelihood of timely payment of coupons and ultimate payment of principal on the Tranche F bonds by their respective maturity dates; it does not indicate the likelihood of prepayment.

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