The affirmation of RCE Premier Sdn Bhd’s (RCEP) proposed Bonds and CP programme (referred to as the Facilities) is premised on the overcollateralisation (OC) ratio of 1.3 times over the identified eligible receivables (IER) purchased by RCEP maintained at all times; provision for substitution of defaulted IER and/or early settlement with performing IER by RCE Marketing Sdn Bhd (RCEM); adequate cashflow protection during the tenure of the Facilities; and low job transfers and resignations in the public sector. These positives are, however, moderated by the historically high debt leverage position and moderate profitability of RCEM Group. Nevertheless, MARC notes that the Group demonstrated strong earnings growth over the last two financial years.

RCEP, a special purpose company, is wholly owned by RCEM, incorporated for the purpose of purchasing IER from RCEM. The IER comprise of scheduled repayments of consumer and personal loans financing disbursed to government servants who are members of Koperasi Belia Nasional Berhad (KOBENA) and Koperasi Sejati Berhad (KSB). At closing, ie 30 September 2004, RM45 million bonds and RM22 million CPs were drawndown for the purchase of RM58.5 million and RM28.6 million IER respectively. The sale of the IER was by way of an absolute legal assignment of all of RCEM’s rights, title and interest in, to and under the IER.

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 87.5% subsidiary of RCE Capital Berhad (RCEB).

Under the transaction, the servicer function is undertaken by RCEM with the primary responsibility of administering and monitoring collections from ANGKASA. Monies in the cooperatives’ accounts are directly remitted to RCEP’s Master Collection Account. As at 30 September 2005, being the first year anniversary from issuance, the outstanding bonds and CPs stood at RM45 million and RM29 million respectively. The outstanding IER represented by the bonds and CPs were RM43.8 million and RM32.7 million respectively and the balance in the designated accounts were RM11.6 million and RM4.4 million respectively.

Based on the repayment schedule during the first year, MARC found that on average, actual collections exceeded the scheduled collections mainly due to prepayments and timing difference in payments received, the latter arising from double deductions in some months. MARC noted that the prepayment rates recorded significant increase in the second half of the first year, averaging at 30% and 25% against total actual collections of the IER funded by the bonds and CPs respectively. This was primarily due to the competitive personal loan financing market in terms of interest rates on loans and longer loan tenures. The average monthly delinquent rate of the IER funded by the bonds and CPs was minimal at 0.07% and 0.06% respectively, whereas, the average monthly default rate was 1.6% and 1.7% respectively. Nevertheless, due to the time lag between the first instalment payment and the date the loan is disbursed, the IER would typically feature arrears of three to four months at the point of sale to RCEP. As such, it can be surmised that a fair proportion of the delinquent and defaulted IERs resulted from technical delinquencies and not an indication of the borrower’s weak repayment capability.

The requirement to substitute delinquent, defaulted and prepaid IERs on a monthly basis by RCEM, ensures that the minimum OC ratio is maintained thus sufficiently mitigating liquidity risk. Credit risk is mitigated, as financing is extended only to government servants subject to meeting a specified set of criteria.

RCEM group’s debt leverage stood at 0.9 times as at 31 March 2005 and is expected to remain high following further issuance of the present Facility under RCEP and RCE Advance Sdn Bhd’s RM420 million Fixed Rate Medium Term Notes. Nonetheless, MARC notes that this is in line with the growth of RCEM’s financing business. RCEP’s projections are fairly moderate throughout the tenure of the Facilities with average and minimum debt service coverage ratios (DSCR) at 3.38 times and 1.58 times respectively.