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MERIS affirms ratings on Contact Securitisation Company's securitisation bond.

MERIS (Middle East Rating & Investors Service) has reviewed the performance of the 6th multiple-tranche asset-backed securitisation bond (tranche B & C) issued by Contact Securitization Company and has affirmed the following national scale ratings: "" to Tranche (B), Mezzanine Subordinated Fixed-Rate Notes due in July 2013, in the amount of EGP 7.2million as of 30/06/2013, and representing 3.3 per cent of the original tranche balance, with a coupon of 10.25 per cent p.a. payable monthly; "A" to Tranche (C), Junior Subordinated Fixed-Rate Notes due in June 2015 in the amount of EGP 75.2 million, representing 100 per cent of the original tranche balance, with a coupon of 10.75 per cent p.a. payable monthly.

"It is worth mentioning that given the senior-subordinated structure of the bond, Tranche (A), the senior fixed-rate notes in the initial amount of EGP 178.6 million, was fully redeemed as of July 31, 2011 in line with the notes' predetermined amortization schedule," said MERIS. "An "" rating denotes that the issuer or issue on a National Scale Rating is considered an investment grade. This grade represents a Very Strong Creditworthiness relative to other domestic issuers; while, An "A" rated issuer or issue is considered Above Average Creditworthiness relative to other domestic issuers or issues.

"The ratings are a relative ranking of risk and address the expected loss posed to investors by the bond maturity. In MERIS's opinion, the transaction's structure allows for timely payment of interest and ultimate repayment of principal with delinquencies, defaults, repossessions, recoveries and prepayments.

"Contact Securitization Company S.A.E. - a special purpose entity - was incorporated in Egypt in November 2005 in accordance with the CMA Law 95/1992. The notes follow a pre-determined amortization schedule. Backing the notes are fixed rate receivables arising from car sales contracts to customers domiciled in Egypt. The contracts have been jointly originated by Contact Auto Credit (CAC) (49 per cent of the principal outstanding balance), Bavarian - Contact Car Trading (BCCT) (8 per cent), Star Auto Credit (22 per cent), and Contact Egyptian International Motor Auto Credit (21 per cent).

"As of the date of this press release, the coupon and principal of the bond have been paid according to schedule. As of 30/06/2013 the aggregate principal outstanding of the notes stood at EGP 82,406,668, which translates into 82 per cent redemption of the original balance. 85 per cent of the asset pool backing the issue has been amortized. The pool's delinquencies above 30 days have been on the rise and currently overdue installments above 30 days stand at 2.9 per cent of the pool outstanding balance. Cumulative defaults to date measure 0.76 per cent of the initial principal pool balance (0.38 per cent due to total loss, 0.07 per cent due to borrower's death, and 0.31 per cent due to credit default). Losses due to total loss of the vehicle or obligor's death are covered by insurance. It is worth noting that thus far there have been 53 cases of repossession, which have resulted in almost full recovery of the amounts due, thus resulting in only 0.014 per cent losses for the pool.

"The issue benefits from external credit support (bank guarantee) in the amount of EGP 7 million. The cash surplus account (due to the initial overcollateralization of the transaction), along with the cash reserve from the bank guarantee collectively stand at 18.3 per cent of the outstanding bond. In view of the amortization of the bond and the reasonable performance of the receivables, there has been a build-up of credit enhancement that is currently above the requirements for this rating category. To maintain the existing ratings of the notes, the external credit enhancement in the form of a bank letter of guarantee can be adjusted downwards from the current amount of EGP 7 million to EGP 5 million effective immediately.

"The ratings of the notes are based on: (1) a credit assessment of the initial portfolio of underlying auto receivables, which reflects the Originators' strict underwriting, collection and monitoring guidelines and procedures; (2) the level of protection provided to investors by the overcollateralization currently in the amount of 11.1 per cent of the bond size net of expenses in addition to an external credit enhancement by means of a bank letter of guarantee for another 8.5 per cent of the outstanding bond size; (3) the granularity of the pool as well as the pool's relative diversification in terms of car make and geographic distribution; (4) the relatively low weighted average loan-to-value ratio at origination (68.2 per cent), which accelerates the build-up of owner's equity into the assets and hence increases the recovery potential in case of defaults; (5) the overall historical performance of auto receivables originated by Contact Auto Credit, Bavarian-Contact Car Trading, Star Auto Credit and Contact Egyptian International Motor Auto Credit; (6) the significant experience of the Servicer and efficiency of its operating systems; and (7) the availability of a contractually appointed back-up servicer.

"The assigned ratings also take into consideration the following weaknesses of the transaction: (1) the relatively low weighted average seasoning of the pool of 4.1 months at issuance; (2) the lack of sufficient data available regarding historical arrears, default and recovery, given the relatively short operating history of the Originators; (3) the generally greater uncertainty associated with unrated Originators, and the use of securitization proceeds to fund the Originator's growing phase, mitigated, however, by the Originator's experienced management team and strict adherence to its underwriting policies and procedures, which assure a high quality receivables pool; (4) no excess spread is available to the investors given the purchase price of the receivables (receivables discounted at the bond weighted average coupon rate, and not the actual interest rate applied on the car sales contracts), mitigated by the credit enhancements, as well as the minimum required down payment of 25 per cent, which increases the recovery potential in case of any defaults; (5) the existence of legal uncertainties, given that the key legal concepts underpinning securitization remain largely untested in judicial proceedings or in practice in Egypt, mitigated by the legal opinions provided by the transaction's legal advisor on issues such as true sale, separateness of accounts, commingling and consolidation risk. MERIS will monitor the transaction on an on-going basis and will issue regular performance reports."

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Publication:CPI Financial
Date:Oct 27, 2013
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