RAM Ratings assigns AAA and AA2 ratings to Premium Commerce Berhad’s Notes Series 2014-A

Published on 05 November 2014

RAM Ratings has assigned respective ratings of AAA and AA2 to Premium Commerce Berhad’s (PCB) RM182 million Class A and RM4 million Class B Notes Series 2014-A (the 2014-A Notes). The ratings only address the credit risks associated with the Notes and do not reflect the likelihood of prepayment.

Instrument	Rating/Outlook	Issue amount(RM million)	Tenure (years, from date of issuance)
Class A Tranche 1 Notes	AAA/Stable	55.0	1
Class A Tranche 2 Notes		85.0	3
Class A Tranche 3 Notes		40.0	5
Class A Tranche 4 Notes		2.0	7
Class B Notes	AA2/Stable	4.0	7
Total Rated Amount		186.0
Class C Notes	Unrated	12.25	7
Total	-	198.25

PCB is a special-purpose, bankruptcy-remote entity specifically incorporated to undertake the securitisation of the HP receivables of Tan Chong & Sons Motor Company Sdn Bhd (TCSM) and TC Capital Resources Sdn Bhd (TC Cap or the Servicer/Originator), via the issuance of a series of MTN under the RM2 billion MTN Programme (the Programme). TC Cap is the HP financing arm of Tan Chong Motor Holdings Berhad (Tan Chong), which in turn – via TCSM – holds the sole right to assemble and distribute Nissan and Ultimate Dependability (UD) vehicles in Malaysia. The 2014-A Notes is the 8th drawdown from the Programme.

The ratings of the Class A and Class B Notes Series 2014-A are based on the credit enhancement provided by the respective overcollateralisation (OC) levels of 8.99% and 6.65%. The ratings also reflect the transaction’s structural features, i.e., the pass-through mechanism which reduces any potential negative carry and the Liquidity Facility Reserve (LFR) that acts as a buffer in covering shortfalls in senior expenses and the Class A Notes’ coupon payments.

The 2014-A Notes are backed by a HP portfolio of RM216.0 million of HP receivables as at 31 October 2014, with an aggregate loan principal outstanding of RM198.4 million. This portfolio comprises 5,143 contracts, with an average original loan size of RM54,438 and an average remaining loan size of RM42,008, a weighted-average (WA) original tenure of 55.12 months, a WA remaining tenure of 43.50 months and a WA seasoning of 11.61 months.

RAM highlights that loans backed by the Almera vehicle model – a model that is targeted at the middle-income segment – contribute about 52% of the total principal balance backing the 2014-A Notes. As such, the 2014-A Notes is exposed to a greater degree of risk from deterioration in asset quality as borrowers in this segment could be more sensitive to inflationary pressures and rising interest rates. While we understand that Tan Chong has been more selective in the approval of Almera loans, it remains to be seen if the HP portfolio will remain intact and perform in line with other securitised portfolios.

Notably, the monthly default rate performance of the previous securitised pools has been largely below our base case expectation. We note however, that the average prepayment rates of recent issues, i.e., the 2010-A Notes, the 2010-B Notes, the 2011-A Notes and the 2012-A Notes, have trended closer to our low-prepayment-rate assumption. Nonetheless, we have chosen to maintain our assumptions, given potential changes in the automobile industry which may affect the portfolio’s performance. Furthermore, inflation concerns arising from the Government’s subsidy rationalisation plan and the introduction of the GST next year may heighten default risks. We will maintain our assumptions on prepayments and defaults for now while closely monitoring relevant developments.

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