Fitch ratings for Peoples Leasing Trust 32

Fitch Ratings Lanka has affirmed the National rating on the lease backed trust certificates (LBTCs) issued by Peoples Leasing Co. Ltd. Trust 32 (PLC32), as follows:

LKR188.4m, LBTC affirmed at 'A-(lka)' (A minus(lka)); Outlook Stable.

The affirmation is based on the uninterrupted payouts made to LBTC investors during the period under review (December 2007 to August 2008) and the debt service cover being maintained above the trigger of 1.15. The affirmation also takes into account the high level of credit enhancement to investors in the form of excess collateralisation. The rating of the LBTCs is credit linked to that of the originator, as the trust enjoys full recourse to the originator in the event that cash flows from the underlying assets fall short of meeting investor payouts. However, such recourse has not been utilised to date.

Fitch notes that despite credit enhancement being sufficient to support a higher rating, structural constraints in the form of unhedged interest rate risk on the floating rate notes and the absence of a higher rated pre-defined alternative servicer restricts the rating of PLC32 to that of the originator.

The absence of minimum quality criteria when replacing assets, lack of a minimum excess collateralisation trigger to trap excess cash and the untested nature of bankruptcy proceedings for the mortgaged leases (as a liquidity facility is not incorporated into the transaction) are further constraining factors of the rating.

While the transaction documents require the replacement of assets every quarter, only two such replacements have occurred to date. Nevertheless, the agency does not view this as a serious concern given the high level of credit enhancement in the form of excess collateralisation.

Around 54 percent of the outstanding principal on the notes had been paid off as at August 2008, reducing the balance of the LBTC principal to LKR188m.

Excess collateralisation averaged 93 percent for the review period compared to 32 percent in the previous review period, mainly due to asset replacements in January 2008, which carried a higher principal outstanding than the assets removed.

Around 92% of total dues since inception have been collected as at August 2008.