TRIS Rating has upgraded the rating of the three-year amortizing guaranteed debentures of SPV-SMC (5) Co., Ltd. (the Issuer or the SPV) to ?AA-(sf)? from ?A+(sf)?. The upgrade reflects the change in the rating of guarantor, the Secondary Mortgage Corporation (SMC or the Guarantor), from ?A+? with ?stable? outlook to ?AA-? with ?stable? outlook, assigned by TRIS Rating. 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. The issue rating is also supported by the subordinated debentures held by SMC, the liquidity facility provided by SMC, and the obligation of SMC to buy back the Assets, a pool of mortgage loans, when the bonds mature.
SMC, the Guarantor, 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 four times SMC?s capital. At the end of June 2013, SMC?s capital funds totaled Bt742.57 million. Thus, the government can guarantee up to Bt2,970.28 million of SMC?s debts. SMC is the servicer and liquidity provider for this transaction.
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 (1.6%). At the beginning of the transaction, the issuer issued Bt900.08 million worth of debentures, comprising Bt660 million of amortizing guaranteed debentures and Bt240.08 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 serve as a credit enhancement for the guaranteed debentureholders. The proceeds from the sale of the debentures were used to purchase the right to receive payments from a pool of mortgage loans, or the Assets, from SMC under the Assignment Agreement.
At the end of October 2013, the value of the outstanding guaranteed bonds was Bt620.77 million while the remaining principal on the loans was Bt745.67 million. The weighted average remaining term of loans in the portfolio was 19.97 years. From December 2012 to October 2013, the SPV received Bt189.58 million in monthly payment from the borrowers, comprising Bt55.68 million in scheduled principal payments, Bt49 million in interest payments, and Bt84.90 million as prepaid principal. The prepayment amount was around 9.6% of the original principal value of Bt886.22 million. The amount of non-performing loans (NPL), net of recoveries, was Bt29.51 million or 3.32% of the original portfolio value. In each month, cash payments received from the mortgage loan borrowers 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 October 2013 was Bt136 million or 18% of the total outstanding debentures value. Because of the faster repayment, the subordination level declined to 18% compared with 26.67% of the original total value of the debentures at the beginning of transaction.
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