Fitch Ratings Lanka yesterday affirmed the National rating on the Lease Backed Trust Certificates (LBTCs) issued by Peoples Leasing Company Trust Thirty Two (PLC32) at ‘A-(lka)’ (A minus(lka)). The rating addresses the timely payment of interest and capital on the LBTCs, which are backed by a pool of leases that were originated by Peoples Leasing Company Ltd (PLC, ‘the originator’, ‘A-(lka)’ (A minus(lka))/Stable).

The affirmation of the current rating is based on the un-interrupted payouts made to LBTC investors during the period under review (March 2007-November 2007), the availability of credit enhancement to investors in the form of principal overcollateralisation (defined as excess principal of the underlying pool of leases/outstanding principal on the LBTCs), the meeting of the debt service cover (defined as total monthly cash inflow to the trust/scheduled monthly investor payout) trigger, and the replacement of delinquent and pre-terminated lease contracts in January 2008. In addition to the aforementioned features, 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 during the period under review.

Around 27% of the outstanding principal on the notes were paid off as at November 2007, reducing the balance LBTC principal to LKR296 million. Monthly collections of current dues and overdues averaged 53% and 52%, respectively, for the period reviewed. Around 90% of total dues since inception have been collected as at November 2007. Pre-terminations of leases averaged 0.45% of the months opening pool principal, while a total of 3.5% of the initial pool principal was pre-terminated during the review period.

As per the transaction’s trust deed, the originator is required to replace lease contracts that have been pre-terminated or those which are overdue for over two months, with performing assets that generate a similar cash flow, on a quarterly frequency. However such replacements did not take place during the period March 2007-November 2007. Consequently, although collections of current dues were adequate to meet investor payouts, the trust had to rely on additional cash flows from pre-terminations during September 2007 in order to meet the scheduled investor payout. Subsequent to Fitch highlighting the issue, delinquent and pre-terminated assets were replaced in January 2008.

Principal overcollateralisation (defined as excess principal of the underlying leases over the outstanding principal of the LBTCs at any given time) averaged 31.5% for the seven months from May 2007 to November 2007. The transaction’s debt service cover averaged 1.23 during the review period.