The ratings of RCE Premier Sdn Bhd’s (RCEP) RM45.0 million Fixed Rate Serial Bonds and up to RM50.0 million CP programme has been reaffirmed at A / MARC-2 with stable outlook. The rating is supported by, amongst others, the collateral, comprising identified eligible receivables (IER) and cash balances in the designated accounts backing the bonds and CPs, of not less than 1.3 times the total outstanding facility amount; the required substitution of defaulted, delinquent and prepaid IER by RCE Marketing Sdn Bhd (RCEM); adequate cashflow protection during the tenure of the programme; as well as low job transfers and resignations in the public sector. Nonetheless, RCEM’s high debt leverage position resulting from the rapid expansion of its financing business through external funding and the ensuing pressure on profit margins, continue to be moderating factors.

RCEP is a special purpose company wholly owned by RCEM, incorporated for the purpose of purchasing selected portfolios of IER from RCEM. The IER consist of scheduled repayments (principal plus interest) of consumer and personal loans financing disbursed to government servant members of Koperasi Belia Nasional Berhad (KOBENA) and Koperasi Sejati Berhad (KSB). The sale of the various portfolios of IER from time to time is by way of an absolute legal assignment of all of RCEM’s rights, title and interest in, to and under the IER.

RCEM, as the servicer under the transaction; administers and monitors collections from ANGKASA. Monies in the cooperatives’ accounts are directly remitted to RCEP’s master collection account. As at 31st October 2006, the outstanding bonds and CPs of RM35 million and RM16 million, respectively, were backed by outstanding IER of RM45.0 million and balances in the designated accounts totalling RM16.4 million, thus satisfying the collateral cover requirement of 1.3 times. During the period under review (October 2005 to September 2006), actual collections exceeded scheduled collections on average, mainly due to prepayments and timing differences in payments received; the latter arising from double deductions in some months. MARC notes that the delinquent IER were mainly technical in nature brought about by the time lag between the date the loan is disbursed and the first instalment payment, which could extend up to four months. The average monthly prepayment, default and delinquency rates during the period were relatively low but demonstrated a rising trend compared to the previous corresponding period. Higher prepayments were attributed to intensifying competition in the personal loan financing market as refinancing activity grew among borrowers who were in search of better terms of interest and longer loan tenures.

Credit risk under the transaction partly hinges on the financial standing of RCEM, as credit support is provided for defaults and prepayments by way of substitution with performing IER. Therefore, RCEM’s ability to generate new receivables to be made available for substitution is critical to this transaction. Nevertheless, the noteholders benefit from the undertaking by RCEM to top up any shortfall in the sinking fund account as well as a corporate guarantee from RCE Capital Berhad (RCEB).

RCEM is principally involved in the provision of personal loans to cooperative members and trading of electrical home appliances and other consumer durable products mainly on hire purchase terms. RCEM’s debt leverage as at 31st October 2006 stood at 2.8 times and is expected to remain high following further issuances under the programme and under its other subsidiary, RCE Advance Sdn Bhd’s RM420 million Fixed Rate Medium Term Notes Facility. Barring any deterioration in asset quality of the various portfolios of IER beyond MARC’s expectation and unfavourable conditions in the personal loan financing market which may restrict RCEM’s ability to generate new receivables for substitution, the rating outlook remains stable.