KUALA LUMPUR (May 21): RAM Ratings has given a top AAA rating to Malaysia's first gold-backed pawn bond issuance by TY Consolidated Capital Bhd, a trust-owned special-purpose company  incorporated to facilitate the securitisation of pawn loans originated by the subsidiaries of pawnbroker Ta Yoong Sdn Bhd.

In a statement on Wednesday, RAM Ratings said the first issuance by TY Consolidated includes RM200 million in senior bonds and RM31 million in junior bonds under its RM500 million bond programme. The junior bonds will be taken up by Ta Yoong.

The money raised will be used to buy RM231 million in eligible pawn loans, set up liquidity reserves and cover issuance costs.

RAM Ratings’ preliminary rating applies to the RM200 million senior bond which involves pawn loans backed by gold from nine of Ta Yoong's pawnshops.

RAM Ratings supports the AAA rating with a 15.50% overcollateralisation ratio, meaning there is extra collateral to help cover any potential losses.

It said its cash flow analysis includes a 5% base case default rate with a 4.5 times stress factor, a 90% loan-to-value ratio for pawn loans and a 40% drop in gold prices.

These assumptions are based on Ta Yoong’s historical data from 104 loan groups between January 2016 and August 2024, covering delinquency, early repayments and recoveries.

RAM Ratings considers Ta Yoong's expertise in collateral assessment when assigning the rating. The quality of pawn loans depends on this expertise but recovery is influenced by gold price volatility. RAM Ratings will monitor and adjust its assumptions, especially during times of high volatility or significant drops in gold prices.

To manage short-term pawn loans (up to six months), the transaction includes a revolving feature. This lets TY Consolidated use monthly collections to buy more loans if certain conditions are met. For the first four years, it can keep buying new loans, and in the fifth year, it focuses on repaying debts while maintaining enough collateral to protect investors.

To protect senior bondholders, the bond includes a rapid amortisation period which is triggered if the portfolio shows signs of underperformance. It is based on the three-month default rate, two-month collection rate or overcollateralisation level. If triggered, the issuer stops buying new loans and uses extra cash to pay off senior bonds each month.

A final rating on the senior bonds will be given after RAM Ratings reviews the final documents and legal and tax opinions.

Ta Yoong, founded in 1947, is a second-generation family business with over 70 years of experience in pawnbroking.

It currently operates 15 pawnshops in Klang Valley and has consistently shown strong performance despite competition from both conventional and Ar-Rahnu pawnbrokers, according to RAM Ratings. It is also working to professionalise its operations for long-term success.

In 2024, Ta Yoong issued around 410,000 pawn loans totalling RM854 million.

NewParadigm Securities Sdn Bhd is the sole financial adviser, principal adviser, lead arranger, and lead manager for the proposed bond programme.