CREDIT ANALYSIS REPORT

Class Auto Receivables Bhd - 2009

Report ID 3523 Popularity 1479 views 25 downloads 
Report Date Jan 2010 Product  
Company / Issuer Class Auto Receivables Bhd Sector Hire Purchase Receivables
Price (RM)
Normal: RM500.00        
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Rationale

MARC has affirmed the long-term ratings of Class Auto Receivables Berhad’s (Class Auto) RM395.0 million Class A, RM20.0 million Class B and RM20.0 million Class C notes at AAA, AA and A+ respectively. The ratings carry a stable outlook for Class A and a positive outlook for Class B and Class C notes. The positive outlook has been assigned taking into account the better-than-expected performance of the pool through challenging economic times. A sustained performance at these levels is likely to result in upward movement of ratings assigned to Class B and Class C notes. As stated, since issuance through September 2009, the transaction has experienced better-than-expected delinquencies and cumulative defaults and lower-than-expected prepayments. Consequently, credit enhancements for Class A, Class B and Class C notes have risen to 53.3%, 40.6% and 29.8% respectively.

Class Auto is a special purpose vehicle incorporated for the purpose of purchasing hire purchase receivables from the originator, CIMB Bank Berhad (CIMB Bank) from time to time. The beneficial owner of the hire purchase receivables is Proton Commerce Sdn Bhd (PCSB) pursuant to the joint venture agreement entered into between the originator and Proton Edar Sdn Bhd (PESB). PCSB was established with the objective of offering competitive financing products to new Proton car purchasers, leveraging on PESB’s extensive distribution network throughout Malaysia and the infrastructure facilities offered by CIMB Bank. The loan processing and approval process is carried out at CIMB Bank’s Credit Assessment and Loan Approval Department.

At transaction close, Class Auto purchased from the originator an eligible pool of hire purchase receivables with principal outstanding amounting to RM500.0 million (Portfolio 2007-A), by way of equitable assignment with Class Auto having beneficial interest over Portfolio 2007-A. The purchase was funded by proceeds raised from the issuance of RM395.0 million Class A, RM20.0 million Class B, RM20.0 million Class C and RM70.0 million Owners’ Notes (Notes Series 2007-A). Notes Series 2007-A represents the first issuance by Class Auto under a RM10.0 billion nominal value asset backed medium term notes programme. Under the transaction, the originator has also assumed the role of servicer for the securitised hire purchase receivables.

Portfolio 2007-A comprises hire purchase receivables of new Proton cars, with minimum seasoning of three months, good payment records and loan-to-value of less or equal to 90%. Monthly collections with respect  to  Portfolio  2007-A  fund coupon  and principal payments  for the notes. Under the transaction, collections from Portfolio 2007-A are held back with the servicer for one day before being remitted to the series collection account. Nevertheless, MARC is of the opinion that the one-day commingling risk is mitigated by CIMB Bank’s strong credit standing (rated AA+/MARC-1).

As of September 2009, the active hire purchase receivables of Portfolio 2007-A stood at RM333.8 million (excluding defaulted principal balance of RM2.6 million) and cash balance of RM3.6 million, translating to increased credit enhancements for Class A, B and C of 53.3%, 40.6% and 29.8% respectively (initial rating: 26.6%; 20.5%; 15.0%). Projected credit support after taking into account interest collections and projected interest payments on the notes are approximately 36.14% for Class A, 24.86% for Class B and 15.2% for Class C (initial rating: 25.5%; 19.4%; 14.0% respectively).

Since transaction close through September 2009, portfolio default occurrences were significantly lower than the stress scenario, charting a cumulative 0.51% against our original base case assumption of 1.92%. Cumulative prepayment rate of 6.04% over the same period is also significantly lower than MARC’s base case assumption of 14.4%. Based on the foregoing analysis, MARC concludes that available credit enhancement will adequately support the existing ratings on the three classes of notes. 

As of December 2009, approximately RM198.0 million of Class A has been fully redeemed.

Major Rating Factors

Strengths

  • Better-than-expected performance of the securitised portfolio with lower-than-expected cumulative default rate registered to date in spite of adverse economic conditions; and
  • Availability of credit enhancement levels for the notes.

Challenges/Risks

  • Default rate could increase given the weakening economic conditions.
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