TRIS Rating has assigned the preliminary rating of “AA-(sf)” to the five-year amortizing guaranteed debentures (guaranteed debentures) worth up to Bt3,200 million, issued by SPV-SMC (7) Co., Ltd. (the Issuer or the SPV). The preliminary rating addresses the full and timely payments of interest and principal on the guaranteed debentures. The guaranteed debentures are unconditionally and irrevocably guaranteed by the Secondary Mortgage Corporation (SMC, the guarantor and the originator). Thus, the preliminary rating reflects the creditworthiness of SMC. SMC is a state enterprise financial institution under the supervision of the Ministry of Finance (MOF). Currently, SMC is rated at “AA-”, with a “stable” outlook by TRIS Rating.
The proceeds of Bt3,200 million from the guaranteed debentures, in conjunction with subordinated debentures issued by the SPV to SMC, will be used to acquire the right to receive payments from a pool of residential mortgage loans (the Assets) from SMC. The size of the subordinated debentures will be around 25% of the size of the guaranteed debentures. The subordinated debentures are ranked lower than the guaranteed debentures and are served as a credit enhancement for the guaranteed debentures. The mortgage rights on the properties and insurance policies attached with the Assets will also be transferred to the SPV at the beginning of the transaction. The guaranteed debentures are also supported by the liquidity facility provided by SMC, and SMC’s obligation to buy back the remaining Assets at the bond’s maturity date.
The Issuer is a special purpose company established under Thai law. Its establishment is expected to comply with the Special Purpose Vehicle Act 1997 (the SPV Act 1997). The Issuer’s shareholders are SMC (48%), Good Service Co., Ltd., (48.99%), and individuals (3.01%).
At the cut-off date on 31 May 2014, the mortgage loan pool comprised 4,059 loans that SMC purchased from Kasikorn Bank PLC (KBANK or the seller). The outstanding principal of the loans was Bt4,045.48 million. The book value of the mortgage loan pool was Bt4,104.11 million. The average expected yield on the loan portfolio over the next five years was around 5.42% per annum. The average remaining term of the mortgage loans was 24.02 years. Assuming no prepayment and no default, the monthly installment received from the Assets is expected to be around Bt29.96 million, which is sufficient to cover the monthly installment made to the guaranteed debentureholders of around Bt26 million. This is based on the assumption that the SPV will amortize around 30% of the guaranteed debentures over the next five years. Therefore, the monthly installment made to the guaranteed debentureholders will be around Bt26 million (including both principal and interest components).
SMC will act as the servicer for the transaction. Monthly installments received from each mortgage borrower will be deposited into SMC’s account first, and will then be transferred to the SPV’s bank account at the end of each month. Based on SMC’s experience as a servicer for its previous securitization deals, TRIS Rating believes that SMC has the capability to service 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 guaranteed debentures. In addition, under the terms of the Assignment Agreement, SMC must buy back the remaining loan receivables from the SPV on the legal maturity date at a price equal to the remaining principal plus the accrued interest payments of both the guaranteed and subordinated debentures and any other remaining obligations of the SPV at the end of the period before the maturity date, or at a price agreed by SMC and the SPV. SPV will use the proceeds from the sale of the Assets back to SMC to redeem the guaranteed and subordinated debentures. Any further shortfalls will be covered by SMC under the terms of the Guarantee Agreement.
In this transaction, around 30% 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.
Up to Bt3,200 million amortizing guaranteed debentures due 2019 AA-(sf)
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