TRIS Rating has affirmed the rating of the three-year amortizing guaranteed debentures of SPV-SMC (5) Co., Ltd. (the Issuer or the SPV) at “AA-(sf)”. The guaranteed debentures are unconditionally and irrevocably guaranteed by the Secondary Mortgage Corporation (SMC or the Guarantor). The rating reflects the rating of SMC, rated “AA-” with a “stable” outlook, by TRIS Rating. The issue rating is also supported by the subordination of the subordinated debentures issued by SPV to SMC, the liquidity facility provided by SMC, and the obligation of SMC to buy back the Assets, which is the right to receive payments from a pool of mortgage loans, when the bonds mature. Thus, the rating addresses the full and timely payments of interest and principal on the guaranteed debentures. This is the first rated issue of residential mortgage-backed securities (RMBS) originated by the Secondary Mortgage Corporation.
SMC was established in 1997 under the Emergency Decree on Secondary Mortgage Finance Corporation B.E. 2540 (the SMC Act). SMC’s initial capital was Bt1,000 million. As a state enterprise financial institution under the supervision of the Ministry of Finance (MOF), SMC’s role is to develop the secondary market for housing mortgage loans. SMC will use asset securitization as a tool to raise funds. Under the SMC Act, the Thai government can guarantee the debt issued by SMC but only up to a maximum of 4 times SMC’s capital. At the end of June 2015, SMC’s capital funds totaled Bt959.06 million. Thus, the government can guarantee up to Bt3,836.24 million of SMC’s debts. SMC is the servicer and liquidity provider for this transaction.
SPV or the Issuer is a limited liability company, established under the laws of Thailand, which was granted special purpose vehicle status by the Securities and Exchange Commission (SEC). Its shareholders are SMC (49.5%), Good Service Co., Ltd., (48.99%), and individuals (1.51%). At the beginning of the transaction, the issuer issued Bt900.07 million debentures, comprising Bt660 million of amortizing guaranteed debentures and Bt240.07 million of subordinated debentures. The guaranteed debentures were sold to investors, while the subordinated debentures were held by SMC. The subordinated debentures are ranked lower than the guaranteed debentures and served as a credit enhancement for the guaranteed debentureholders. The proceeds from the sale of the debentures were used to purchase from SMC the right to receive payments from a pool of mortgage loans, or the Assets, that SMC purchased from six commercial banks. The principal on the pool of mortgage loans was Bt886.25 million.
At the end of September 2015, the value of the outstanding principal of the guaranteed bonds was Bt537.72 million while the remaining principal on the Assets was Bt521.89 million. From December 2012 to September 2015, the SPV received Bt488.66 million in monthly payment from the borrowers, comprising Bt157.71 million in scheduled principal payments, Bt124.30 million in interest payments, and Bt206.65 million as prepaid principal. The prepayment amount was around 23.32% of the original principal value of Bt886.25 million. The amount of net non-performing loans (NPLs), net of recoveries, was Bt25.86 million or 2.92% of the original portfolio value.
In each month, cash payments received from the Assets will be used to repay the guaranteed debentureholders first. Any cash remaining after making the payment to the rated debentureholders will be used to pay down the subordinated debentures. Due to the relatively high prepayment rate, the subordinated debentures have been paid down faster than projected. The outstanding amount of the subordinated debentures at the end of September 2015 was Bt24.01 million or 4.3% of the total outstanding debentures value. Because of the faster repayment, the subordination level declined to 4.3% compared with 26.7% of the original total value of the debentures at the beginning of transaction.
However, 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.
In this transaction, around 20% of the guaranteed debentures will be amortized during the term of the debentures. The ability of the guarantor, SMC, to buy back the remaining Assets at the maturity date determines the ultimate repayment of the principal of the guaranteed debentures. In addition, any shortfalls during the life of the rated debentures will be covered by financial supports from SMC. Thus, in this transaction, the rating of the guaranteed debentures will change if the rating of the guarantor changes.
MBSB15DA: Bt529.87 million amortizing guaranteed debentures due 2015 AA-(sf)
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