RAM Ratings reaffirms AAA ratings of Tan Chong’s securitised auto loans under Notes Series 2009-A

Published on 20 May 2013

RAM Ratings has reaffirmed the AAA ratings of Premium Commerce Berhad’s (“PCB”) RM151 million Class A and Class B Notes Series 2009-A (collectively, “the 2009-A Notes”), with a stable outlook. As at 31 March 2013, an aggregate RM21 million of the Class A and Class B Notes remained outstanding. This transaction involves the securitisation of automobile hire-purchase (“HP”) receivables from TC Capital Resources Sdn Bhd (“TC Cap”) and Tan Chong & Sons Motor Company Sdn Bhd (“TCSM”) under PCB’s RM2 billion Medium-Term Notes Programme.

The AAA ratings for the 2009-A Notes reflect the available credit enhancement provided by the overcollateralisation (“OC”) ratios supported by the securitised HP receivables. The OC ratios for the Class A and Class B Notes stood at a respective 55.62% and 48.21% as at end-March 2013. The improved ratios were driven by better-than-assumed asset performance and the faster-than-expected deleveraging of the transaction. These levels of OC provide sufficient protection against the risk of prepayment and defaults under the “AAA” stressed rating scenario for the 2009-A Notes. The monthly net default rate in recent months averaged at 0.01%, i.e. below our post-ramp-up monthly default assumption of 0.02%. At the same time, the average monthly prepayment rate stood at 0.49% - within our 0.30% monthly low-prepayment rate and 1.25% monthly high-prepayment rate assumptions.

The ratings are also supported by the transaction’s legal and payment structures. This mainly involves the pass-through mechanism that reduces any potential negative carry. The pass-through feature allows all 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.

As at 31 March 2013, the HP receivables in the portfolio comprised 1,083 HP contracts, with an outstanding principal balance of RM25.64 million. These loans had a weighted-average seasoning of about 46 months and a weighted-average remaining tenure of 28 months. The weighted-average size of the loans stood at RM25,296 as at the same date.

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Umar Marzuki

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umar@ram.com.my