MARC has assigned a rating of AAA to ABS Samudera Receivables Bhd’s (ASRB) RM25.0 million Notes Series-A under the RM250.0 million Medium Term Notes (MTN) Programme. The rating of the first issuance of Notes by ASRB is premised on the credit enhancement provided by the sizeable excess spread and a liquidity reserve balance equivalent to approximately RM1.5 million, to be built up progressively to RM3.1 million which allows the transaction to withstand AAA default and prepayment stresses to the base case levels of expected losses and prepayments.

ASRB is a bankruptcy remote special purpose vehicle, incorporated for the sole purpose of issuing up to RM250 million medium term notes (MTN) to purchase eligible consumer financing receivables (Receivables) from time to time from the Originator, Koperasi Shamelin Berhad (KSB). The purchase of the Receivables will be initally funded via a liquidity facility in the form of a revolving credit facility from Deutsche Bank (Malaysia) Berhad (Deutsche Bank). On a periodic basis, ASRB will refinance the liquidity facility by issuing series of notes under the MTN programme whereby each series notes will be secured by the corresponding portfolio of Receivables. The sale of the Receivables will be by way of true sale via equitable absolute assignment.

At closing, ASRB will issue Notes Series-A of RM25 million MTN being the first series of note issuance to refinance the liquidity facility utilised to fund the purchase of a pool of receivables with outstanding loan amount of RM25 million (Portfolio-A). Notes Series-A comprises five tranches of RM5 million each; with tenure of 1 year; 2 years; 3 years; 4 years and 8 years respectively. Portfolio-A comprise Receivables with a weighted average term to maturity of approximately 53 months. The consumer financing under Portfolio-A were originated by KSB which were disbursed to public sector employees who are also members of KSB as well as other cooperatives in Malaysia. The source of repayment for Notes Series-A will be via the direct monthly salary deductions of the obligors under Portfolio-A administered by Angkatan Koperasi Kebangsaan Malaysia Berhad (ANGKASA).

As the servicer under the transaction, collections will firstly be deposited into KSB’s trust account, prior to being remitted to ASRB’s collection account. Nevertheless, commingling risk is sufficiently mitigated as the salary deductions are electronically tagged for identification purposes and immediately remmited to ASRB’s collection account. Commingling risk is further mitigated given that KSB’s trust account is with a financial institution rated AA/MARC-1 and that ASRB’s collection account must be with a financial institution rated at minimum AA/MARC-1.

Credit enhancement under Notes Series-A is provided by the sizable excess spread and a liquidity reserve balance equivalent to 6% or RM1.5 million of the liquidity facility proceeds which will be built up progressively up to 12.5% of the nominal amount of Portfolio-A. MARC notes that there are more than sufficient excess spread to fund the required reserve amount for Notes Series-A. The transaction is not exposed to basis risk. The interest rates on the collateral and the Notes are fixed, eliminating the risk of reduced excess spread that could otherwise arise from a widening in interest rate mismatch.

For the AAA stress scenario, MARC applied a multiple of 5.0x to the base case expected annual default rate of 0.6% with no benefit given to recoveries. In the absence of static data on prepayments, MARC has applied a multiple of 10.0x to the base case prepayment rate of 1.0%. The high multiple applied is premised on dynamic data provided as well as MARC’s expectation that refinancing activity may increase in view of the availability of consumer financing in the market carrying more attractive terms.

KSB is established under the Co-operative Societies Act 1993 and its main source of revenue is derived from consumer financing offered to eligible members comprising mainly civil servants. Repayment of consumer financing is effected via monthly deductions of the consumers’ salaries; the collection of which is arranged through ANGKASA. The quality of KSB’s loan portfolio has been relatively good historically, based upon the low level of delinquency in the public sector accounts, arising mainly from job transfers and resignations.