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 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.
The Issuer is a special purpose company established under the Thai law, which was granted special purpose vehicle status by The Securities and Exchange Commission (SEC). Its shareholders are SMC (48%), Good Service Co., Ltd., (48.99%), and individuals (3.01%). At the beginning of the transaction, the issuer issued Bt2,037.38 million in debentures, comprising Bt1,500 million of amortizing guaranteed debentures and Bt537.38 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 Kasikorn Bank PLC (KBANK or the seller). The principal value of the pool of mortgage loans was Bt1,982.96 million.
At the end of September 2015, the value of the outstanding guaranteed bonds was Bt1,303.04 million while the remaining principal value of the loans was Bt1,620.63 million. From December 2013 to September 2015, the SPV received Bt518.39 million in monthly payment from the borrowers, comprising Bt230.57 million in scheduled principal payments, Bt156.06 million in fees and interest payments, and Bt131.76 million as prepaid principal. The prepayment amount was around 6.64% of the original principal value of Bt1,982.96 million. The amount of net non-performing loans (NPLs), net of recoveries, was Bt37.98 million or 1.92% of the original portfolio value.
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. The principal component will be used to repay the principal portion of the guaranteed debentures, to repay the principal of loans from SMC to cover the principal repayment of the rated bonds, to deposit in the cash reserve account in the amount of 10% of the net monthly installments received (net of all expenses) or the remaining cash, whichever is lower, and lastly, the remaining cash will be used to repay the principal portion of the subordinated debentures. The interest component will be used mainly to pay interest of the rated debentures and to pay fee and service expenses. The outstanding amount of the subordinated debentures at the end of September 2015 was Bt394.68 million or 23.2% of the total outstanding debenture value, declining from 26.4% of the original total value of the debentures at the beginning of transaction.
However, under 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.
In this transaction, around 23% 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.
SPV-SMC (6) Co., Ltd. (SPV-SMC (6))
Issue Rating:
MBSC16DA: Bt1,283.53 amortizing guaranteed debentures due 2016 AA-(sf)