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

Published on 24 April 2013

RAM Ratings has reaffirmed the AAA rating of Tresor Assets Berhad’s (“Tresor”) outstanding RM50 million Tranche G Senior Bonds (“Senior Bonds”), with a stable outlook. The stable outlook reflects our view that the securitised loan pool (“the Portfolio”) of Tranche G 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 G is the seventh issuance under this programme, which is secured against a pool of personal loans originated by Koperasi Wawasan Pekerja-Pekerja Berhad (“KOWAJA”), a co-operative. As at end-December 2012, the Senior Bonds were supported by RM43.32 million of outstanding receivables and RM66.29 million of cash and permitted investments, resulting in a collateralisation level of 219.22%. Based on the available cash balances, Tresor should be in a position to fully redeem all outstanding Senior Bonds in October 2013, as permitted under 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 December 2012, the cumulative net default rate of the receivables pool came up to 5.23% (as a percentage of the principal balance on the purchase date), compared to RAMs’ base-case assumption of 6.63%. At the same time, the cumulative prepayment rate stood at 50.35%, i.e. within the cumulative high- and low-prepayment-rate scenarios. As at end-December 2012, the Portfolio’s principal balance was represented by 2,413 loans, with a weighted-average seasoning of 35 months; the average loan size worked out to RM17,952, with a weighted-average remaining term-to-maturity of 122 months.

To date, RCE Marketing - as the servicer - 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 has been affected by several regulatory developments such as Suruhanjaya Koperasi Malaysia’s Garis Panduan 6 and Garis Panduan 7. Due to the halt in KOWAJA’s disbursement of new loans between November 2010 and June 2011, RCE Marketing’s gross receivables have experienced an average decline of 3.7% in the last 2 financial years. As a result, its pre-tax profit for FY Mar 2012 slipped 3.5% y-o-y to RM118.16 million.

Given the security arrangements under this transaction, bondholders’ access to the secured assets may be frustrated if RCE Marketing becomes bankrupt – the transaction may still require RCE Marketing to continue acting on its behalf to exercise its rights. Nonetheless, we opine that this risk is manageable at this juncture in view of RCE Marketing’s still-moderate credit profile. Having said that, RAM highlights that this transaction should be fully cash-collateralised within the next 6 months; this will help moderate against any deterioration in the Servicer’s credit profile.

Despite the uncertainties surrounding RCE Marketing’s future business and financial profiles, RAM 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 G 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