Structured Finance

CRISIL Ratings assigns ratings to:

• Securitisation transactions through the pass through certificate (PTC) route
• Structured obligation transactions

Securitisation transactions through PTC route

Our ratings on PTCs indicate the relative degree of risk associated with timely servicing of financial obligations on the PTCs, as per the terms of the securitisation transaction. The ratings reflect the sufficiency or not of credit enhancement to cover shortfalls in pool collections compared with scheduled investor payouts for a specific credit rating.

We rate PTCs originated by a wide range of entities such as:

• Banks
• NBFCs
• Infrastructure entities
  
• Microfinance institutions
• Urban local bodies

Our criteria and framework seek to ensure that the ratings assigned factor in all the key risks that investors are exposed to in these transactions, and specifically capture the nuances of the underlying asset class.
 

CRISIL has been a pioneer in the Indian securitisation market and was the first rating agency in India to assign ratings on asset-backed securities in 1991 and mortgage-backed securities in 2000.

CRISIL Ratings has a strong market presence in the segment and has evaluated over 150 originators, with a solid understanding of over 15 asset classes across economic cycles. This is supported by a strong track record of having a high one-year stability rate of 98.46% for transactions rated 'CRISIL AAA (SO)' for the period FY1993 to FY2022¹.

CRISIL Ratings uses the '(SO)' suffix to ratings of securitisation transactions to indicate 'structured obligation', where the credit rating on an instrument can be enhanced over and above the issuer rating by means of a structure or mechanism. 'SO' ratings apply only to instruments, and not to the companies issuing them.

Instruments backed by credit enhancements

CRISIL Ratings uses the 'CE' suffix for instruments having credit enhancement that is external (or from third party) like guarantees or partial guarantees. However, the ‘CE’ suffix will be applied only if the credit enhancement mechanism results in a credit uplift for the instrument, over and above the unsupported rating of the issuer.

These innovative instruments play a critical role in the Indian bond market by creating a bridge between the issuer's credit quality and investor expectations, through the mechanism of credit enhancement in one or more ways like:

• Commercial mortgage backed securities (CMBS) like structures
  
• Guaranteed bond/loans
  
• Partially guaranteed bonds
  
• Covered bonds with primary recourse to issuer
  

CRISIL Ratings has developed detailed rating criteria and methodology to evaluate the risks associated with these innovative instruments. It has been at the forefront of innovation, by being the first rating agency globally to assign a rating based on the partial guarantee in 2001.

CRISIL Ratings is credited with rating India’s first commercial mortgage backed security issue (or CMBS, issued in the form of NCDs) by DLF Emporio Ltd and DLF Promenade Ltd (part of DLF Group), and India’s largest future flow securitisation transaction by IOT Utkal Energy Services in 2014. We were also the first to rate a credit-enhanced discom bond issued by U.P. Power Corporation in 2017. In 2019, CRISIL Ratings also rated India’s first PCE covered bond transaction under the RBI’s PCE scheme. We also rated the first retail operating lease rental securitisation as well as the first dealer receivables securitisation transaction. In another first, we assigned a credit rating to a wholesale real estate sector securitisation transaction.

¹ Please refer to CRISIL Ratings Default Study for fiscal 2022 available at:
https://www.crisil.com/content/dam/crisil/our-analysis/publications/default-study/crisil-ratings-annual-default-and-ratings-transition-study-fy-2022.pdf