Published on 19 Jan 2023.
RAM Ratings has assigned a preliminary rating of AA2/Stable to the RM218.0 mil First Tranche Senior Class A Medium-Term Notes (Senior MTN) to be issued by Poseidon ABS Berhad (Poseidon or Issuer) under a RM3.5 bil asset-backed MTN programme. The Issuer is a trust-owned special purpose vehicle incorporated to facilitate the securitisation of receivables originated by SeaMoney Capital Malaysia Sdn Bhd (SCM).
SCM is ultimately owned by Sea Limited (Group), a NYSE-listed technology conglomerate. The Group operates three core businesses across digital entertainment, e-commerce, as well as digital payments and financial services, known as Garena, Shopee and SeaMoney, respectively. SCM offers Buy Now Pay Later (BNPL) financing under SPayLater on the Shopee platform.
The initial issuance is expected to comprise up to RM218.0 mil of Senior MTN and RM100.9 mil of Junior MTN (collectively, the First Tranche MTN), proceeds of which will be used to purchase RM300.0 mil of eligible BNPL receivables from SCM, defray upfront programme expenses and prefund liquidity reserves. The Junior MTN will be fully subscribed by an entity within the Group and are subordinated to the Senior MTN in terms of payment priority and claims at all times.
The preliminary rating for the Senior MTN is supported by the initial overcollateralisation (OC) rate of 37.61%, which provides adequate credit support that commensurate with a AA2 rating. RAM’s assessment modelled transaction cashflow performance under various stress scenarios where rapid amortisation is triggered by a breach of the thresholds for minimum collection rates, maximum cumulative default rates and/or minimum OC rate requirements.
The transaction structure includes a revolving period of up to 24-months which allows the Issuer to purchase further receivables, using proceeds from collections and/or additional issuances of Junior MTN or redeemable preference shares, subject to meeting the minimum required OC rate and other portfolio performance parameters. If the portfolio performs within the trigger levels, the transaction will enter a 12-month controlled amortisation period where no further purchase of receivables can be made and collections will be used to pay coupons and to redeem the Senior MTN on its maturity date. During this period, the Issuer may also opt to early redeem the Senior MTN in whole, subject to sufficiency of cash.
While the transaction allows for payment of Junior MTN coupon at the option of the Issuer, this is conditional upon meeting a post-payment minimum OC rate of 45% for the First Tranche MTN and reserve account balance requirements. During the rapid and controlled amortisation period, coupon payments on the Junior MTN will be prohibited until all Senior MTNs are fully redeemed.
Nonetheless, given SCM’s short operating history of two years and the increasingly competitive operating landscape in the BNPL field, SCM’s quest to scale up its origination may come at the expense of credit quality. Its alternative credit scoring methods are generally untested and are being constantly reviewed and revised. As SCM operates in a nascent industry, the transaction is also exposed to potential new regulations such as caps on processing fee/interest rates, stricter underwriting criteria and additional capital requirements which could change its business strategies. While these could alter the performance and profile of the securitised receivables going forward, this risk is moderated by the predetermined eligibility criteria for new receivables to be purchased during the revolving period as well as the rapid amortisation triggers.
To moderate risks of a servicer default, the transaction includes a backup servicer which will step in if a Servicer Trigger event occurs. The backup servicer will have parallel access to the portfolio data to ensure swift migration to minimise disruption to collections.
As the rating is preliminary, any material changes in the underlying assumptions may result in a change in the rating. A final rating will be assigned after RAM’s satisfactory review of the final transaction documents and relevant legal and tax opinions.
L Nurisya Abdullah
(603) 3385 2492
Lim Chern Yit
(603) 3385 2528
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2023 by RAM Rating Services Berhad
Ratings on Poseidon ABS Berhad