RAM Ratings reaffirms AAA ratings of Tan Chong’s sponsored Notes Series 2011-A

Published on 18 December 2013

RAM Ratings has reaffirmed the AAA/Stable ratings of Premium Commerce Berhad’s (PCB) RM197 million Class A and Class B Notes Series 2011-A (collectively, the 2011-A Notes). As at 31 August 2013, an aggregate RM80 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) under PCB’s RM2 billion MTN Programme. TC Cap is the HP financing arm of Tan Chong Motor Holdings Berhad, which in turn holds the sole rights for the assembly and distribution of Nissan and Ultimate Dependability vehicles in Malaysia.

The AAA ratings of the 2011-A Notes are based on the credit enhancement provided by their respective overcollateralisation (OC) levels of 23.71% and 17.53% as at end-August 2013. The healthy 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. As at 31 August 2013, the cumulative net default rate for the HP loans backing the 2011-A Notes stood at 0.12% - well below our base-case cumulative default rate of 1.35%. At the same time, the monthly prepayment rate averaged at 0.34% - trending close to our low-prepayment-rate assumption of 0.30%. Nonetheless, we have maintained our assumptions on prepayments and defaults while closely monitoring some relevant developments. The revised National Automotive Policy, which is widely expected to be announced in January 2014, will be a major influence on the future direction of the local auto industry. Moreover, mounting inflationary pressures following the resumption of the Government’s subsidy-rationalisation programme and the introduction of the GST may also heighten default risk.

Meanwhile, the ratings are also supported by the transaction’s legal and payment structures. This transaction features a pass-through mechanism that reduces any potential negative carry while a Liquidity Facility Reserve (a minimum of RM1 million or 1% of the nominal value of the Class A Notes) acts as a buffer to cover shortfalls in senior expenses and coupon payments on the Class A Notes.

As at 31 August 2013, the HP receivables in the portfolio comprised 2,470 HP contracts, with an outstanding principal balance of RM84.76 million. These loans had a weighted-average (WA) seasoning of about 33 months and a WA remaining tenure of 34 months. The WA size of the loans stood at RM46,428 as at the same date.

Media contact

Yong Keck Phin

(603) 7628 1183

keckphin@ram.com.my