RAM Ratings reaffirms AAA/Stable rating of Tan Chong Motors' auto-loan securitisation notes

Published on 18 June 2015

RAM Ratings has reaffirmed the AAA/stable rating of Premium Commerce Berhad’s (PCB) RM6 million Class B Notes Series 2010-A (2010/2017). The rating addresses the likelihood of timely payment of coupons and ultimate repayment of principal by its maturity date. However, the rating does not address the prepayment risk of the Class B Notes.

The reaffirmation of the rating is based on the ample credit support accorded by the overcollateralisation (OC) ratio of 394.62% as at end-May 2015, backed by RM11.80 million of outstanding hire-purchase (HP) receivables and RM2.04 million of available cash. The OC ratio is underpinned by the portfolio’s better-than-assumed performance and the faster-than-expected deleveraging of the transaction. RM3.20 million of the Class B Notes had been partially prepaid as at 6 May 2015, leaving an outstanding amount of RM2.80 million. This OC level provides ample protection against the risk of defaults and prepayments under our “AAA” stressed rating scenarios for the Notes. Furthermore, the rating is supported by the transaction’s structural features, which include a pass-through mechanism to minimise any potential negative carry. Based on the monthly collections from the outstanding Notes, we anticipate the rated amount of the 2010-A Notes Series to be fully redeemed within the next 1-2 quarters.

As at 31 March 2015, the cumulative net default rate for the HP loan receivables stood at 0.08%, better than our base-case assumption of 1.26%. The cumulative prepayment rate as at the same date came up to 17.54%, i.e. within our prepayment-rate assumption. The HP receivables in the portfolio comprised 839 HP loans, with an outstanding principal balance of RM13.72 million. These loans had a weighted-average (WA) seasoning of approximately 66 months and a WA remaining tenure of 18 months. The average size of the loans stood at RM16,355.

While RAM’s outlook on PCB’s ultimate parent, Tan Chong Motors Group Berhad (Tan Chong), has been revised from stable to negative, we do not anticipate the servicing quality to be affected given that the servicer - TC Capital Resources Sdn Bhd (TC Cap) - has maintained its management track record on its HP portfolio. This is underscored by its credit-assessment guidelines and improved infrastructure, with the addition of payment channels over the years.

The 2010-A Notes Series involves the securitisation of automobile HP receivables from TC Cap under PCB’s RM2 billion HP Receivables-backed MTN Programme. PCB is a special-purpose, bankruptcy-remote entity that had been specifically incorporated to undertake the securitisation of the HP receivables of TC Cap and Tan Chong. TC Cap is the HP financing arm of Tan Chong, which in turn holds the sole rights for the assembly and distribution of Nissan and Ultimate Dependability vehicles in Malaysia.

Media contact
Chin Jin Han
03-7628 1168
jinhan@ram.com.my