Fitch affirms 'A(lka)' Rating on Senkadagala Finance Securitised Notes

Fitch Ratings Lanka last month affirmed the National rating on the Lease Backed Trust Certificates (LBTCs) issued by Senkadagala Finance Trust Three (SFT3) at 'A(lka)'. The rating addresses the timely payment of interest and capital on the LBTCs, which are backed by a pool of vehicle leases that were originated by Senkadagala Finance Company Ltd (SFC, rated 'BBB+(lka)'/Stable).

The affirmation of the current rating is based on the high level of credit enhancement available to the LBTCs in the form of principal over collateralisation (OC, defined as excess principal of the underlying pool of loans/the outstanding principal of the LBTCs), which is adequate to absorb the stressed losses of the underlying pool of assets. The rating also reflects the uninterrupted payouts made to LBTC investors from cash flows derived from the underlying pool (without recourse to the originator) during the current review period (January 2007 to June 2007), according to a Fitch statement.

Six monthly payouts were made in the review period, reducing the outstanding principal on the notes to Rs 9.6 million. The transaction's performance improved during the current review period with the Net Debt Service Cover (net DSC, defined as defined as monthly collections net of prepayments/monthly investor payouts) improving to 1.52, compared to 1.01 for the six months ending December 2006. This is primarily due to SFC infusing a substantial number of lease contracts, consequent to the OC level falling below the stipulated minimum of 20 percent and the weak DSC seen in the previous review period. At end-June 2007, the OC level stood at 172.8 percent.

“While Fitch observes that SFC has not carried out replacements of delinquent/prepaid assets (as stipulated in the legal documentation of the transaction) during the current review period, it is not viewed as a serious concern at present given the high level of credit enhancement available in the form of OC. Consequent to the last rating review Fitch insisted on a minimum OC of 30 percent to maintain the current rating of A(lka),” the statement added.

SFT3 is a special purpose vehicle created for the sole purpose of the transaction, and is managed by Deutsche Bank AG (Colombo Branch). The trust issued 48 LBTCs amounting to a total face value of Rs 51.3 million in July 2004, each of which is redeemed by way of a predefined bullet payment on a scheduled date each month.

The final maturity of the notes is scheduled for 28 July 2008. Any excess cash flows subsequent to servicing the monthly LBTC payouts are returned to SFC.