TRIS Rating has assigned the preliminary rating of “A+(sf)” to the three-year amortizing guaranteed debentures (guaranteed debentures) worth Bt660 million, issued by SPV-SMC (5) Co., Ltd. (the Issuer, the SPV). The proceeds of Bt660 million from the guaranteed debentures, in conjunction with the Bt268.97 million of subordinated debentures issued by the SPV to the originator, the Secondary Mortgage Corporation (SMC), will be used to acquire the right to receive payments from a pool of residential mortgage loans (the Assets) from the originator. This is the first rated issue of residential mortgage backed securities (RMBS) originated by SMC. The guaranteed debentures are unconditionally and irrevocably guaranteed by SMC, rated “A+/Stable” by TRIS Rating. SMC is a state enterprise financial institution under the Ministry of Finance.
The preliminary rating reflects the creditworthiness of the guarantor, the 28.95% subordination of debentures held by SMC, the liquidity facility provided by SMC, and the obligation of SMC to buy back the Assets when the bonds mature. The preliminary rating addresses the full and timely payments of interest and principal on the guaranteed debentures.
TRIS Rating reported that the Issuer is a special purpose company established under the Thai law. Its establishment is expected to comply with the Special Purpose Vehicle Act 1997 (the SPV Act 1997). Its shareholders are SMC (49.5%), Good Service Co., Ltd., (48.99%), and individuals (1.6%). At the start of the transaction, the issuer will issue Bt928.97 million of debentures, comprising Bt660 million of amortizing guaranteed debentures and Bt268.97 million of subordinated debentures. The guaranteed debentures will be sold to investors, while the subordinated debentures will be held by SMC. The subordinated debentures are ranked lower than the guaranteed debentures and serve as a credit enhancement for the guaranteed debentureholders. The proceeds from the sale of the debentures will be used to purchase the right to receive payments from a pool of mortgage loans or the Assets from SMC under the Assignment Agreement.
TRIS Rating said, at the cut-off date on 31 October 2012, the mortgage loan pool comprised 777 mortgage loans that SMC purchased from six financial institutions (sellers). The remaining principal on the loans equaled to Bt914.28 million. The book value of the Assets was Bt928.97 million, 1.6% higher than the outstanding principal balance of the mortgage loans. Most of the mortgage loans in the pool have floating interest rates, linked with sellers’ minimum lending rates. Assuming no prepayment and no default, the monthly installment received from the Assets is expected to be around Bt8.94 million. The SPV commits to pay the guaranteed debentureholders at Bt5.742 million per month, covering both the interest and principal components. Currently, the average interest rate across the loan pool is 6.81%, while the expected interest rate on both the guaranteed and subordinated debentures is [4.06%]. The average remaining term of the mortgage loans is 240 months. In addition, the mortgage right on properties and any insurance policies attached with the Assets will be transferred to the SPV in the beginning of the transaction.
SMC will also act as a servicer for the transaction. Based on SMC’s role as a servicer for its previous four securitization deals, TRIS Rating believes that SMC has the capacity to service this transaction. Monthly installments received from each mortgage borrower will be deposited into SMC’s account first, and transferred to the SPV’s bank account at the end of each month. However, commingling risk is not a major concern since SMC will also be the liquidity provider for this transaction. According to the financial support agreement between SMC and the SPV, SMC will provide loans to the SPV to cover any liquidity shortfalls during the life of the debentures. In addition, under the Assignment Agreement, SMC has to buy back the remaining loan receivables from the SPV on the legal maturity date at a price equal to: 1) the remaining book value of the mortgage loan receivables plus any accrued interest payments, or 2) the remaining principal plus accrued interest payments on both the guaranteed and subordinated debentures and other obligations of the SPV after deducting cash in the reserve account of the SPV, whichever is lower. The proceeds from selling the Assets back to SMC will be used to redeem the guaranteed debentures and subordinated debentures. Any further shortfall will be covered by SMC under the Guarantee Agreement, said TRIS Rating. — End
Bt660 million amortizing guaranteed debentures due 2015 A+(sf) Bt268.97 million subordinated debentures due 2015 non-rated
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