RAM Ratings upgrades rating of Tan Chong's sponsored Class B Notes Series 2011-A to AAA

Published on 14 December 2012

RAM Ratings has upgraded the rating of Premium Commerce Berhad’s (“PCB”) RM4 million Class B Notes Series 2011-A (“Class B Notes”) from AA2 to AAA while reaffirming the AAA rating of its RM133 million Class A Notes Series 2011-A (“Class A Notes”). Both long-term ratings have a stable outlook. 

PCB is incorporated to undertake the securitisation exercise involving the automobile hire-purchase (“HP”) receivables of Tan Chong Motor Holdings Berhad’s (“Tan Chong”) subsidiary - TC Capital Resources Sdn Bhd (“TC Cap”) - via the issuance of a series of notes (“Notes Series”) under its RM2 billion HP Receivables-backed Medium-Term Notes Programme. TC Cap is the HP financing arm of Tan Chong, which in turn holds the sole rights for the assembly and distribution of Nissan and Ultimate Dependability vehicles in Malaysia. Notes Series 2011-A (“2011-A Notes”) represents the fifth of 6 issues under the Programme. As at 30 September 2012, RM137 million of the Class A and Class B Notes remained outstanding.  

The rating actions are premised on the continued strengthening of the available asset coverage, underpinned by the sturdy performance of the securitised portfolio and the deleveraging of the transaction. As at end-September 2012, the respective overcollateralisation (“OC”) ratios for the Class A and Class B Notes stood at 13.63% and 10.31%, backed by RM132.86 million of principal balance on the HP receivables and RM18.27 million of available cash. Meanwhile, the cumulative net default rate for the 2011-A Notes’ underlying HP receivables stood at 0.10%, well below our base-case cumulative default rate of 0.88%. The cumulative prepayment rate as at the same date stood at 4.79%, i.e. within our respective cumulative low- and high-prepayment rate assumptions of 4.50% and 18.75%. These levels of OC provide sufficient protection against the risk of prepayment and default under the “AAA” stressed rating scenario for the 2011-A Notes.

The ratings are also supported by the transaction’s legal and payment structures. These include a pass-through mechanism, which reduces any potential negative carry arising from low reinvestment returns, and a RM1 million Liquidity Facility Reserve that acts as a buffer to cover shortfalls in senior expenses and coupon payments on the Class A Notes.

As at 30 September 2012, the HP receivables in the portfolio comprised 3,086 HP contracts, with an outstanding principal balance of RM132.86 million. These loans had a weighted-average (“WA”) seasoning of about 22 months and a WA remaining tenure of 40 months. The WA size of the loans stood at RM58,703 as at the same date.

Media contact

Lee Sook Wei

(603) 7628 1017

sookwei@ram.com.my