The ratings assigned to RCE Advance Sdn Bhd’s (RCEA) (formerly known as Perfect Aspirations Sdn Bhd) proposed RM420.0 million Fixed Rate Medium Term Notes programme (referred to as the Facility) is a reflection of the three month collateral ratio to be maintained at all times whereby the uncollected value of the receivables purchased by RCEA shall be at1.66 times ofthe principal outstanding of Class A and Class B Notes; provision for substitution of defaulted receivables with performing receivables by RCE Marketing Sdn Bhd (RCEM); adequate cashflow protection during the tenure of the Facility; and low job transfers and resignations in the public sector. These positives are moderated by the historically high debt leverage position and average profitability of RCEM Group.

RCEA is a special purpose company and a wholly owned subsidiary of RCEM, incorporated for the purpose of purchasing eligible receivables from RCEM. The receivables comprise of scheduled repayments of personal loan financing disbursed to government servants who are members of Koperasi Wawasan Pekerja-Perkerja Berhad (KOWAJA). The proposed Facility will comprise of Class A, B and C Notes which will be issued over six tranches of RM70.0 million each. In terms of priority, holders of Class B and C Notes will rank second and last respectively against Class A Notes. It is noted that RCEM will need to secure receivables worth RM100.0 million prior to the drawdown of each tranche. The sale of the receivables will be by way of an absolute legal assignment of all of RCEM’s rights, title and interest in, to and under the receivables. The source of repayment of the Facility is the monthly salary deductions of government servants under the personal loans scheme.

The principal activities of RCEM are provision of personal loans to members of cooperatives and that of trading in electrical home appliances and other consumer durable products mainly on hire purchase terms. RCEM is a subsidiary of RCE Capital Berhad (RCEB) via a 87.5%
shareholding in the former. In April 2004, RCEM entered

into a credit scheme with KOWAJA via a Revolving Loan
Facility Agreement. As at 31 March 2005, the delinquent accounts amounted to only 0.3% of total financing to KOWAJA. In addition, there have not been any defaults registered. Nevertheless, the fairly young loan pool with less than two years historical data, may not reflect the true pattern of delinquency and default rates. It is however noted that based on RCEM’s historical data, it has experienced a default rate of 2.7% on total loans disbursed to cooperatives from 1995 to September 2005.

Under the proposed transaction, the servicer function will be undertaken by RCEM or a wholly owned subsidiary, with the primary responsibility of administering and monitoring collections from Angkatan Koperasi Kebangsaan Malaysia. Monies in the cooperatives’ account relating to receivables originated by RCEM will be directly remitted to RCEA’s Master Collection Account.

Credit risk is sufficiently mitigated as financing is extended to government servants subject to meeting a specified set of criteria. Liquidity risk is sufficiently mitigated with the requirement to maintain at all times for Class A and B Notes at least 1.66 times security cover and maintenance of the next six months coupon in the DSRA. Furthermore, there is an undertaking by RCEM and RCEB to top up the shortfall in SFA and a corporate guarantee from RCEB.

Following the issuance of the proposed first tranche and its recent additional borrowings, the proforma debt leverage is expected to increase to 2.2 times. The group’s debt leverage position is likely to remain high due to further drawdown of the Facility on the back of growth in RCEM’s financing business. Accumulation of retained earnings and paring down of existing RM95 million facility beginning 2006 will to a certain extent reduce the quantum of increase in the debt leverage level of the group. RCEA’s projections are fairly robust throughout the tenure of the Facility whereby both Class A and B Notes are able to withstand incremental defaults of up to 1% per annum with cumulative default of up to 10% at Year 10 of the Facility.