RCE Premier Sdn Bhd - 2007

The ratings of RCE Premier Sdn Bhd’s (RCEP) RM45.0 million Fixed Rate Serial Bonds and up to RM50.0 million CP programme have been reaffirmed at A and MARC-2, respectively. The reaffirmed ratings reflect the low average monthly delinquency and default rates of the consumer receivables and loans portfolios backing the bonds and CPs; and ample cash balances in the designated accounts to meet near-term bond maturities. RCE Marketing Sdn Bhd’s (RCEM) obligation to maintain a collateral cover of 1.3 times throughout the tenure of the transaction provides additional credit support for the rated bonds and notes. Where defaults and prepayments occur resulting in the collateral cover to dip below 1.3 times, RCEM is required to either substitute the defaulted or prepaid receivable with a performing receivable or provide funds to restore the collateral cover to the required minimum. The rating of the bonds, which remains a notch above the A- corporate credit rating of RCEM that has been maintained since issuance, primarily reflects the quality of the collateral securing the rated facilities and the ring-fencing of cash flows generated by the collateral.

RCEP is a special purpose company wholly owned by RCEM, incorporated for the purpose of purchasing selected portfolios of identified eligible receivables (IER) from RCEM. The collateral comprises IER which 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 has assumed the role of servicer under the transaction, administering and monitoring collections from ANGKASA. Monies in the cooperatives’ accounts are directly remitted to RCEP’s master collection account with funds earmarked for coupon payment and principal redemption transferred to the sinking fund account on a monthly basis. As at  October 31st, 2007, the total nominal value of outstanding bonds and CPs under the facility stood at RM25.0 million and RM10.0 million, respectively.

During the period under review (October 2005 to September 2007), actual collections exceeded scheduled collections due to prepayments and timing differences in payments received; the latter arising from double deductions in some months. Average monthly prepayment rates were within expectations whilst the average monthly delinquency and default rates continued to be low, at below 0.2% and 2.0%, respectively. As at October 31st, 2007, the balances in the designated accounts amounting to RM14.3 million is more than sufficient to meet the next principal redemption of the  bonds in October 2008.

RCEM’s creditworthiness remains a key rating driver for the rated bonds and notes on account of its contractual obligation to substitute prepaid, delinquent and defaulted IER with performing IER. The transaction relies on RCEM’s ability to generate new receivables for the purpose of substitution, and to a lesser extent, on its undertaking to top up any shortfall in the sinking fund account. In addition, the bonds and notes are secured by a corporate guarantee from RCE Capital Berhad (RCEB).

RCEM is principally involved in the provision of personal loans to cooperative members and the hire purchase of electrical home appliances and other consumer durable products. In FY07, RCEM recorded a significant 75.0% (FY06: 58.5%) revenue growth on the back of a growing portfolio of consumer receivables and improvement in its operating margin to 56.6% (FY06: 38.9%). Although gearing improved to 2.7 times in 1Q08, RCEM’s gearing is likely to rise again on account of credit facilities assumed for the purposes of securitization. RCEM’s proforma debt equity ratio will rise to 3.85x assuming full drawdown of the facilities, based on its shareholders’ funds as at March 31st, 2007.