KUALA LUMPUR: RAM Rating Services has assigned preliminary ratings to Premium Commerce Bhd’s RM203mil Class A Notes and RM5mil Class B Notes, which collectively are termed the 2016-A Notes.
“The ratings address the associated credit risks of the transaction and not the likelihood of early redemption,” said the rating agency on Tuesday.
While the 2016-A Notes represent the first issuance under the RM2bil asset-backed MTN programme this year, it will be Premium Commerce’s 10th issuance on the whole.
“As at end-October 2016, a total of RM356.25mil of notes remained outstanding, with each Notes Series backed by its own portfolio of hire-purchase (HP) receivables,” it said.
To recap, Premium Commerce 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 (TCCR or the Servicer/Originator).
TCCR is the HP financing arm of Tan Chong Motor Holdings Bhd
, and via TCSM, holds the sole rights for the assembly and distribution of Nissan, Infiniti, Renault and Ultimate Dependability (UD) vehicles in Malaysia.
RAM Ratings said the 2016-A Notes were backed by a provisional portfolio of RM266.34mil of HP loan receivables as at Sept 30, 2016, with an outstanding principal of RM217.79mil.
The portfolio comprises 3,737 contracts, with an average original principal amount of RM67,550 and an average remaining principal of RM58,279.
The underlying portfolio for this transaction has the longest WA original and remaining tenures – a respective 97 and 84 months – compared to the other Notes Series.
“Similar to Premium Commerce’s 2015-A, more than half of the underlying portfolio (by outstanding principal) comprises loans with a margin of financing in excess of 80%.
“These twin factors have resulted in a higher asset yield for Premium Commerce’s 2016-A, which has in turn contributed to a higher excess spread compared to the other Notes Series (except Premium Commerce’s 2005-A).
“The preliminary ratings of the Class A and Class B Notes are based on our cashflow assessment, which indicates that the underlying portfolio with an outstanding principal of RM217.79mil will provide a sufficient level of buffer against the net default and prepayment rates assumed under AAA and AA2 stress scenarios for the RM203.0mil Class A Notes and RM5mil Class B Notes, respectively. This translates into respective over-collateralisation ratios of 7.29% and 4.71% for the Class A and Class B Notes,” it said.
The ratings are further supported by the structural features of the transaction in the form of a pass-through mechanism, which reduces potential negative carry, as well as a liquidity facility reserve that provides a buffer against any liquidity shortfall in senior expenses and coupon payments on the Class A Notes.
“We observe that the HP receivables pool has a fairly large exposure to the Almera model, which is typically targeted at the mass-income segment and accounts for 46% of the portfolio’s outstanding principal.
“While this exposes the Notes to a greater risk of deterioration in asset quality given that the borrowers could be more severely affected by adverse macroeconomic conditions (e.g. rising living costs, forex-led inflation, government subsidy rationalisation), the risk is moderated by TCCR’s more concerted efforts and focus on collection procedures.
“Additionally, the Almera factor has not differentiated the default performance of the various Notes Series to date,” said RAM Ratings.
The additional eligibility criteria (AEC) for the 2016-A Notes allows for motorcycle loans, although these constitute a negligible portion of the portfolio’s outstanding HP receivables and consist of medium-to-high-end models.
The AEC also extends the maximum remaining tenure of receivables for this transaction to 108 months, compared to 84 months for the other Notes Series. The maximum remaining tenure of the receivables is 102 months.
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