Published on 15 Dec 2017.
RAM Ratings has reaffirmed the AAA/stable ratings of Premium Commerce Berhad’s (PCB or the Issuer) Class A and Class B Notes under its Notes Series 2013-A, Notes Series 2014-A and Notes Series 2015-A. Concurrently, we have maintained the negative Rating Watch on Notes Series 2016-A, pending the outcome of the Issuer’s proposed resolution (on 28 November 2017) to extend the maturities for 2 of the 5 series under its Class A Notes (at higher coupon rates). The proposed extension is expected to help alleviate the liquidity pressure faced by the 2016-A Notes.
The negative Rating Watch that was first placed in September 2017 on the 2016-A Notes, reflects the increased liquidity risk follows the marked deviation in performance of the said notes, in terms of both monthly default rates and prepayment behaviour relative to PCB’s earlier securitised portfolios. RAM’s rating actions consider our revised loss assumptions for the respective Notes Series, which are reflective of the trends exhibited by TC Capital Resources Sdn Bhd’s (TCCR) more recently originated loan portfolios as well as the performance of its securitised portfolios.
Notes Series 2013-A | Rating/ Outlook | Rating Action | Issued Amount (RM million) | Outstanding Amount^ (RM million) | OC Ratio^ |
Class A Notes | AAA/Stable | Reaffirmed | 176.0 | 22.0 | 45.31% |
Class B Notes | AAA/Stable | Reaffirmed | 5.0 | 5.0 | 18.40% |
Class C Notes | Not rated | - | 13.0 | 13.0 | - |
Notes Series 2014-A | Rating / Outlook | Rating Action | Issued Amount (RM million) | Outstanding Amount^ (RM million) | OC Ratio^ |
Class A Notes | AAA/Stable | Reaffirmed | 182.0 | 30.0 | 54.33% |
Class B Notes | AAA/Stable | Reaffirmed | 4.0 | 4.0 | 36.18% |
Class C Notes | Not rated | - | 12.25 | 12.25 | |
Notes Series 2015-A | Rating / Outlook | Rating Action | Issued Amount (RM million) | Outstanding Amount^ (RM million) | OC Ratio^ |
Class A Notes | AAA/Stable | Reaffirmed | 166.0 | 89.0 | 18.80% |
Class B Notes | AAA/Stable | Reaffirmed | 5.0 | 5.0 | 12.48% |
Class C Notes | Not rated | - | 10.0 | 10.0 | |
Notes Series 2016-A | Rating / Outlook | Rating Action | Issued Amount (RM million) | Outstanding Amount^ (RM million) | OC Ratio^ |
Class A Notes | AAA/RW Negative | 204.0 | 179.0 | 8.93% | |
Class B Notes | AA2/RW Negative | 4.5 | 4.5 | 6.38% | |
Class C Notes | Not rated | 11.25 | 11.25 | | |
OC = overcollateralization, including balances in the Collection Account.
^As at 31 August 2017
In this review, RAM has analysed 42 new static pools from January 2014 to June 2017, covering the originator’s entire loan portfolio. Stacked against its earlier historical static pools originated between 2008 and 2009, the more recent pools show defaults accelerating at a faster pace, and peaking at a higher rate than previously observed.
Notably, the loss trend has varied between the newer (i.e. 2015-A and 2016-A) and older (i.e. 2013-A and 2014-A) securitised pools, reflecting the shift in the overall loan portfolio towards a more risky profile. The newer loans have, on average, longer tenures with higher financing margins. While the default rates of the 2013-A and 2014-A pools are still well below our base-case assumptions, the 2015-A and 2016-A pools show steeper and more volatile default rates. We believe that the newer pools reflect this heightened risk as a result of the originator’s strategy of favouring more competitive loan products. The deterioration in default performance may, however, have also been compounded by operational hiccups in executing collections via standing instructions (which we understand have been resolved), as well as a more challenging consumer market after the implementation of the GST in April 2015.
The 2016-A pool also exhibits a clear divergence in its monthly prepayment trends against the rest of the securitised portfolios. While the performance of the 2013-A, 2014-A and 2015-A pools have remained within RAM’s prepayment assumptions, the 2016-A pool has experienced significantly lower-than-assumed prepayment rates.
Taking all these factors into consideration, we have maintained the loss assumptions for the 2013-A and 2014-A portfolios, and revised the base default assumptions for the 2015-A and 2016-A Notes Series. Specifically, we have adopted a higher monthly net default rate of 0.07% (from 0.0625%) over a longer ramp-up period of 36 months (from 20 months); our assumed incremental net monthly default rate of 0.02% thereafter remains unchanged. Concurrently, we have also applied a lower prepayment stress on the 2016-A Notes Series, from 0.3% to 0.1% per month. These adjustments are, we believe, more reflective of the recent trends observed and consistent with the risk profiles of the newer securitised pools.
The rating reaffirmation for the 2013-A, 2014-A and 2015-A Notes Series reflects the available credit enhancement for the rated notes. At the present levels, it continues to provide ample support to their ratings, even after factoring in our revised loss assumptions. The ratings do not, however, address the risk of early redemption associated with these debt facilities. Meanwhile, we expect to lift the Rating Watch on the 2016-A Notes Series within the next month, once and if the bondholders approve the said proposed resolution.
This transaction involves the securitisation of automobile hire-purchase (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, which in turn holds the sole rights for the assembly and distribution of Nissan, Infiniti, Renault and Ultimate Dependability (UD) vehicles in Malaysia.
Analytical contact
Tan Han Nee
(603) 7628 1023
hannee@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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