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

Published on 31 October 2012

RAM Ratings has reaffirmed the AAA rating of Tresor Assets Berhad’s (“Tresor”) outstanding RM50 million Tranche H Senior Bonds (“Senior Bonds”), with a stable outlook; the RM25 million Tranche H Subordinated Bonds are not rated. The stable outlook reflects our view that the securitised loan pool (“the Portfolio”) of Tranche H 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 H is the eighth issuance under this programme, which is secured against a pool of personal loans originated from Koperasi Wawasan Pekerja-Pekerja Berhad (“KOWAJA”). As at end-July 2012, the Senior Bonds were supported by RM55.58 million of outstanding receivables and RM43.38 million of cash and permitted investments that corresponded to a collateralisation level of 197.92%. Based on the available cash balances, Tresor would be in a position to make an early redemption on all outstanding Senior Bonds in January 2014, as permitted by the transaction documents.

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 July 2012, the cumulative net default rate of the receivables pool came up to 5.51% (as a percentage of the principal balance on the purchase date), compared to RAM Ratings’ base-case assumption of 5.59%. At the same time, the cumulative prepayment rate stood at 35.75%, i.e. within the cumulative high- and low-prepayment-rate scenarios. As at end-July 2012, the Portfolio’s principal balance was underpinned by 3,075 loans, with a weighted-average seasoning of 30 months; the average loan size worked out to RM18,076, with a weighted-average remaining term-to-maturity of 115 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 its longer-term credit profile 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”) has been affected by several regulatory developments such as Suruhanjaya Koperasi Malaysia’s (“SKM”) Garis Panduan 6 and Garis Panduan 7. Due to the halt in the disbursement of new loans by KOWAJA between November 2010 and June 2011, RCE Marketing’s gross receivables have experienced an average 3.6% decline in the past 2 financial years. In fiscal 2012, RCE Marketing’s pre-tax profit slipped 3.6% year-on-year to RM118.16 million.

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 manageable at this juncture in view of RCE Marketing’s still-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 as 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 H bonds by their respective maturity dates; it does not indicate the likelihood of prepayment.

Media contact

Ang Jae Han

(603) 7628 1020

angjaehan@ram.com.my