MARC is in the midst of reviewing its ratings on ABS Samudera Receivables Berhad’s (ASRB) RM15.0 million outstanding Notes Series-A under its RM250.0 million Medium Term Notes (MTN) Programme and will likely affirm the ratings if outstanding performance information and verification from accounting and tax specialist subsequently validates MARC’s assessment of the transaction’s performance.

From the inception date through August 2009, Portfolio-A experienced higher-than-expected cumulative default and prepayment rates of 2.35% and 45.54%, respectively. Although the default rates remain within MARC’s AAA-rating stress scenarios, MARC believes that continued high prepayments may impact the size of the excess spread. Currently mitigating the impact of reduced excess spread are the adequate prepayment penalties. The receivables portfolio comprises consumer loans to public sector employees originated by Koperasi Shamelin Berhad (KSB), serviced through salary deductions at source administered by Angkatan Koperasi Kebangsaan Malaysia Berhad (Angkasa).

Credit enhancement under Notes Series-A is provided by the sizable excess spread and a liquidity reserve balance which has been built up to 111% of the nominal amount of bonds outstanding or RM16.67 million as at August 31, 2009. The transaction is insulated from basis risk as both the interest rates on the collateral and the notes are fixed. Salary deductions are electronically tagged before they are deposited into KSB’s trust account for onward remittance into ASRB’s collection account. Additionally, the designated accounts at KSB and ASRB are held at financial institutions with AA/MARC-1 or equivalent ratings. The segregation of collections and accounts reduces commingling risk.

Given the high prepayment and default rates, MARC performed further stress tests, assuming a 5% default on the outstanding loan pool. For the remaining tenure of the transaction, MARC has assumed that interest income received will be 20% of projected interest income and ABS Samudera is only able to collect 60% of the prepayment penalties due to it. MARC has also assumed no re-investment income for prepayment of principal to incorporate negative costs. The stressed performance of the transaction indicates that SPV would be able to pay the outstanding bonds even under these conditions. MARC is awaiting verification of key transaction performance information from accounting and tax specialist and expects to receive the same in the next 90 days.

ASRB is a bankruptcy remote special purpose vehicle incorporated for the sole purpose of issuing up to RM250 million MTN to purchase eligible consumer financing receivables from time to time from KSB. The purchase of receivables is initially funded via a revolving credit facility from Deutsche Bank (Malaysia) Berhad (Deutsche Bank). ASRB refinances the liquidity facility by issuing a series of notes under the MTN programme, with each series secured by a corresponding portfolio of Receivables. The sale of the Receivables is by way of true sale via equitable absolute assignment.

At closing, ASRB issued RM25.0 million Notes Series-A backed by a pool of receivables with an outstanding loan amount of RM25.0 million (Portfolio-A). Notes Series-A comprised five tranches of RM5 million, each with tenures of one to eight years. The first tranche was redeemed on April 25, 2008. As at August 31, 2009, Portfolio-A comprised receivables with a weighted average term to maturity of approximately 54 months.

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. KSB’s good historical asset quality is supported by low delinquency and default rates on public sector employee loans. MARC will continue to monitor the performance of the collateral pool and take necessary rating actions as warranted.

Contacts:
Sandeep Bhattacharya, 03-2090 2247/ sandeep@marc.com.my;
Abbul Abbas Arrabe Mohamad, 03-2090 2256/ abbulabbas@marc.com.my;