RAM Ratings has reaffirmed the AAA/Stable ratings of Premium Commerce Berhad’s (PCB) Class A and Class B Notes Series 2009-A (collectively, the 2009-A Notes).

Published on 18 June 2014

RAM Ratings has reaffirmed the AAA/Stable ratings of Premium Commerce Berhad’s (PCB) Class A and Class B Notes Series 2009-A (collectively, the 2009-A Notes). The ratings address the likelihood of timely payment of coupons and ultimate repayment of 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 provided by the respective overcollateralisation (OC) levels of 128.97% and 96.26% as at end-March 2014. The healthy ratios are underpinned by better-than-assumed asset performance and the faster-than-expected deleveraging of the transaction. These OC levels provide sufficient protection against the risk of prepayments and defaults under the “AAA” stressed rating scenario. As at 31 March 2014, the cumulative net default rate for the HP loans backing the 2009-A Notes stood at 0.23% - well below our base-case assumption of 1.08%. At the same time, the cumulative prepayment rate of 23.95% remains within our cumulative low- and high-prepayment-rate assumptions.
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 planned Goods and Services Tax in April 2015 and mounting inflationary pressure following the resumption of the Government’s subsidy-rationalisation programme may heighten default risk. We will therefore continue to monitor the transaction’s performance against our assumed parameters.
Meanwhile, the ratings are also 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 March 2014, the HP receivables in the portfolio comprised 678 HP contracts, with an outstanding principal balance of RM12.3 million. These loans had a weighted-average (WA) seasoning of about 63 months and a WA remaining tenure of 20 months. The WA size of the loans stood at RM19,050 as at the same date.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my