TRIS Rating has upgraded the preliminary rating of the Bt1,500 million guaranteed debentures (guaranteed debentures) issued by SPV-SMC (6) 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 originator), from ?A+? with ?stable? outlook to ?AA-? with ?stable? outlook. The Bt1,500 million in proceeds from the guaranteed debentures, in conjunction with up to Bt550 million of subordinated debentures issued by the SPV to the originator, 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 second rated issue of residential mortgage backed securities (RMBS) originated by SMC. The guaranteed debentures are unconditionally and irrevocably guaranteed by SMC. SMC is a state enterprise financial institution under the supervision of the Ministry of Finance (MOF).
The preliminary rating reflects the creditworthiness of the guarantor, the [25%-27%] subordination of subordinated 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.
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 (48%), Good Service Co., Ltd., (48.99%), and individuals (3.01%). In the beginning of the transaction, the issuer will issue up to Bt2,050 million in debentures, comprising up to Bt1,500 million of amortizing guaranteed debentures and up to Bt550 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 from SMC to receive payments from a pool of mortgage loans, or the Assets, under the terms of the Assignment Agreement.
At the cut-off date on 9 October 2013, the mortgage loan pool comprised 2,130 mortgage loans that SMC purchased from Kasikorn Bank PLC (KBANK or the seller). The remaining principal on the loans equaled Bt1,994.09 million. The book value of the Assets purchased from KBANK was Bt2,038.24 million, 2.21% higher than the outstanding principal balance of the mortgage loans. Assuming no prepayment and no default, the monthly installment received from the Assets is expected to be around Bt16.39 million. The SPV commits to pay the guaranteed debentureholders Bt14.84 million per month, covering both the interest and principal components. Currently, the average interest rate across the loan pool is 4.29%. The average remaining term of the mortgage loans is 21.51 years. In addition, the mortgage rights on properties and any insurance policies attached with the Assets will be transferred to the SPV at 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 five 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 will be 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 of 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.
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