ABS Samudera Receivables Bhd - 2012 Credit Commentary Report

MARC has affirmed its AA+ rating on ABS Samudera Receivables Berhad's (ASRB) Series A notes issued under its RM250.0 million Medium Term Notes Programme (MTN Programme). The outlook is maintained at negative. The rating action continues to reflect adequate credit support for the programme’s outstanding notes of RM1.3 million after taking account what the rating agency considers to be a reasonable estimate of potential tax liabilities and penalties at the special purpose vehicle (SPV) level under the circumstances. The principal outstanding of the receivables portfolio backing the MTNs plus cash balances in designated accounts as a percentage of the principal outstanding of the MTN stands at 361.3% as at June 30, 2012. The negative outlook reflects the continued uncertainty posed by ASRB’s potential tax liabilities which are of uncertain timing and amount; ASRB’s tax returns have yet to be filed since 2007 and no provision has been made for the aforementioned tax liabilities.
 
ASRB, a bankruptcy remote special purpose vehicle, was incorporated for the purpose of issuing up to RM250.0 million in MTNs to finance the purchase of eligible consumer financing receivables from Koperasi Shamelin Berhad (KSB). 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. The collections of the receivables are executed via monthly salary deductions overseen by Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa). At transaction close, the receivables principal was RM25.0 million, securitising RM25.0 million of Notes Series-A under the MTN Programme. The quality of KSB’s loan portfolio has been relatively stable with low levels of default observed so far.

The credit performance of the receivables portfolio as at May 31, 2012 remained satisfactory. The portfolio’s outstanding principal has declined to RM1.2 million, representing 308 accounts with an average size of RM3,751 each. The actual cumulative default rate of the portfolio is 2.66% or RM0.66 million, which is well below the projected cumulative default rate of 3.05%. However, the actual cumulative prepayment rate remains high as a result of refinancing activity at 50.76%, albeit below the projected cumulative prepayment rate of 57%. Nonetheless, the high prepayment scenario is moderated by prepayment penalties via Rule 78 and at the same time can be mitigated by an early redemption of the notes at the issuer’s option. Notes Series-A has almost fully amortised, and the cash balances in designated accounts plus principal outstanding of the receivables portfolio are higher than the outstanding principal of the MTNs, limiting the transaction’s exposure to changes in the credit performance of the receivables pool and cash flow timing mismatches.

The rating has also taken into consideration the adequate credit quality and stable performance of consumer finance receivables in the portfolio. Meanwhile, the negative outlook underscores the uncertainty raised by issues with tax authorities in relation to tax liabilities and potential loss of principal to noteholders. The primary source of uncertainty in the performance of this transaction is ASRB’s ultimate tax liabilities. MARC will continue to monitor the developments with respect to ASRB’s potential tax liabilities in order to ensure that the rating assigned to the MTNs remains consistent with available credit support.

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