Published on 11 November 2014
RAM Ratings has reaffirmed the AAA/stable
ratings of Premium Commerce Berhad’s (PCB) RM355 million Class A and
RM12 million Class B Notes Series 2012-A (collectively, the 2012-A
Notes). The ratings address the likelihood of timely payment of coupons
and the redemption of the outstanding principal by their respective
maturity dates. The ratings do not, however, address the prepayment risk
of either class.
This transaction involves the securitisation of
automobile hire-purchase (HP) receivables originated by 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 reaffirmation is premised on the credit enhancement in the form of respective overcollateralisation (OC) levels of 19.35% and 11.97% for the Class A and Class B Notes as at end-August 2014. The healthy ratios are driven by better-than-expected asset performance and the pass-through mechanism embedded in the transaction, which have resulted in faster-than-anticipated amortisation of the 2012-A Notes. These OC levels provide robust protection against the risk of prepayment and default under the “AAA” stress rating scenario. As at 31 August 2014, the cumulative net default rate of the HP loans backing the 2012-A Notes stood at 0.13% - well below our base-case assumption of 1.02%. At the same time, the average actual prepayment rate came up to 0.34% – trending just slightly above the assumed low prepayment rate of 0.30%.
The reaffirmation is premised on the credit enhancement in the form of respective overcollateralisation (OC) levels of 19.35% and 11.97% for the Class A and Class B Notes as at end-August 2014. The healthy ratios are driven by better-than-expected asset performance and the pass-through mechanism embedded in the transaction, which have resulted in faster-than-anticipated amortisation of the 2012-A Notes. These OC levels provide robust protection against the risk of prepayment and default under the “AAA” stress rating scenario. As at 31 August 2014, the cumulative net default rate of the HP loans backing the 2012-A Notes stood at 0.13% - well below our base-case assumption of 1.02%. At the same time, the average actual prepayment rate came up to 0.34% – trending just slightly above the assumed low prepayment rate of 0.30%.
We have, for now, maintained our assumptions on
prepayments and defaults given our concerns about potential asset
deterioration in the near to medium term. While the National Automotive
Policy introduced early this year is expected to have a minimal impact
on car buyers, with some adopting a “wait and see” approach, the
scheduled implementation of the Goods and Services Tax in April 2015 and
mounting inflationary pressures following the resumption of the
Government’s subsidy-rationalisation programme may heighten default
risk. We will therefore continue monitoring the transaction’s
performance against our assumed parameters.
In addition, the ratings are supported by the
transaction’s structural features, which include a pass-through
mechanism that reduces any potential negative carry, and a Liquidity
Facility Reserve to cover potential shortfalls in senior expenses and
coupon payments on the Class A Notes.
As at 31 August 2014, the HP receivables in the
portfolio comprised 5,086 HP loans, with an outstanding principal
balance of RM181.3 million. These loans had a weighted-average (WA)
seasoning of about 32 months and a WA remaining tenure of 33 months. The
average size of the loans stood at RM35,655 as at the same date.
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