RAM Ratings has reaffirmed the AAA/stable ratings of Premium Commerce Berhad’s (PCB) RM176 million Class A and RM5 million Class B Notes Series 2013-A (collectively, the 2013-A Notes); the ratings have a stable outlook. The ratings address the likelihood of timely payment of coupons and the redemption of th

Published on 03 November 2016

RAM Ratings has reaffirmed the AAA/stable ratings of Premium Commerce Berhad’s (PCB) RM176 million Class A and RM5 million Class B Notes Series 2013-A (collectively, the 2013-A Notes); the ratings have a stable outlook. 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 risk of early redemption associated with the 2013-A Notes.

The reaffirmation of the ratings is premised on the transaction’s better-than-assumed performance, as well as sufficient credit enhancement in the form of respective overcollateralisation (OC) ratios of 32.27% and 22.40% for the Class A and Class B Notes as at end-August 2016. The OC ratios were backed by RM66.28 million in outstanding principal balance and RM15.73 million of cash and permitted investments. 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 end-August 2016, the underlying assets performed better than our assumptions – its cumulative net default rate of 0.30% was well below our assumed base case of 1.51%. Separately, the portfolio’s average monthly prepayment rate since issuance remained stable at 0.22%. The transaction has been deleveraging as a result of both prepayments and its better-than-assumed default performance.

Going forward, the portfolio’s default risk may increase amid the generally unfavourable macroeconomic climate and rising cost of living (stemming from inflationary pressures such as the weaker ringgit, toll-rate hikes and potentially more subsidy-rationalisation measures). The transaction may be susceptible to these negative pressures, as more than 65% of the loans by outstanding principal balance are Nissan Almera car buyers (initial: 63%), who may be more sensitive to adverse changes in the macroeconomic environment. Nevertheless, TC Capital Resources Sdn Bhd’s (TCCR) increased focus on collections should partially mitigate this. The available asset coverage should also provide a sufficient buffer vis-à-vis absorbing any spike in default rates. Given the depressed market conditions, prepayment rates may not increase substantially despite a cut in the overnight policy rate by Bank Negara Malaysia. We note, however, that the transaction should be able to withstand zero prepayments while still promptly meeting all the obligations under Notes Series 2013-A.

As at 31 August 2016, the portfolio consisted of 3,215 hire-purchase (HP) loans, with an outstanding principal balance of RM66.28 million. These loans had a weighted-average (WA) seasoning of about 41 months and a WA remaining tenure of 26 months. The average size of the loans stood at RM20,616 as at the same date.

This transaction involves the securitisation of automobile HP receivables originated by TCCR under PCB’s Asset-Backed RM2 billion MTN Programme. TCCR is the HP financing arm of Tan Chong Motor Holdings Berhad (Tan Chong), which in turn holds the sole rights for the assembly and distribution of Nissan and Ultimate Dependability vehicles in Malaysia.

While Tan Chong’s rating has been downgraded from AA2 to A1, we do not expect TCCR’s servicing quality to be affected given its track record of successfully managing its securitised portfolios. This is underscored by its improved infrastructure, with additional payment channels over the years.

Analytical contact                                        Media contact
Chin Jin Han                                                  Padthma Subbiah
(603) 7628 1168                                            (603) 7628 1162
jinhan@ram.com.my                                      padthma@ram.com.my