Detailed Rationale

Crisil Ratings has assigned its ‘Provisional Crisil AAA (SO)’ rating to Series A1 pass-through certificates (PTCs) and ‘Provisional Crisil A+ (SO)’ rating to Equity tranche PTCs issued by ‘Alvaro Agri CV Trust Feb 2025’ under a securitisation transaction backed by Agri loan receivables originated by IndoStar Capital Finance Limited (IndoStar; rated ‘Crisil AA-/Stable/Crisil A1+’).

 

The ratings are based on credit enhancement available to the PTCs, the expected credit quality of underlying receivables, IndoStar’s origination and servicing capabilities, the transaction’s payment mechanism, and soundness of the transaction’s legal structure.

 

Payment structure: The transaction has a ‘par with monthly subordinated excess interest spread (EIS)’ structure. The trust settled by the transaction’s Trustee, i.e. IDBI Trusteeship Services Ltd will issue Series A1 PTC and Equity Tranche to investors in exchange for a purchase consideration equal to 95.0% and 5.0% of the pool principal at the time of securitisation, respectively. Series A1 PTC holders are promised timely interest payments on a monthly basis. Principal repayment, while expected on a monthly basis, is promised only on an ultimate basis by the instrument’s final maturity date.

 

Equity Trannche PTC investors are also expected to receive residual EIS amounts if any on a monthly basis, however, the rating on Equity tranche PTCs only addresses the likelihood of principal repayment, and not the payment of residual EIS amounts.  

Adequacy of credit enhancement: The investor payouts for Series A1 PTCs are supported by cash collateral and subordination of excess interest spread (EIS). On a monthly basis, the cash collateral can be used to make the promised interest payments to Series A1 PTCs in case of a shortfall in collections from the pool. On the Series A1 PTC’s final maturity date, the cash collateral can also be used to make the promised principal repayment in case of a shortfall in collections from the pool.  All prepayment collections will be utilised for accelerated redemption of the Series A1 PTCs.

 

Credit enhancement available in the transaction structure to support promised PTC payouts is as below:

 

• External credit enhancement from a cash collateral amounting to Rs. 2.90 crore (6.7% of securitised pool principal) which is expected to be maintained as fixed deposits with a bank and lien-marked in favour of the Trustee.
• Internal credit enhancement from subordination of scheduled EIS amounting to Rs8.21 crore (18.9% of pool principal securitised, as of the pool cut-off date, assuming zero prepayments).

 

Based on Crisil Ratings assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, commensurate with the rating assigned to the PTCs.

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement available in the structure:

─       Cash collateral of INR 2.90 crore (6.7% of the initial pool principal) for Series A1 PTCs investor payouts and Equity tranche PTCs principal repayment

─       Scheduled cashflow subordination aggregating to Rs 10.39 crore (23.9% of pool principal, assuming zero prepayments) for Series A1 PTCs – including subordination of Equity Tranche PTC principal of Rs 2.18 crore (5.0% of pool principal)

─       Subordination of scheduled excess interest spread of Rs 8.21 crore (18.9% of pool principal, assuming zero prepayments) for the principal repayment of Equity tranche PTCs

 

• Payment track record of contracts in the pool

• Loans in the pool have a weighted average seasoning of 9.5 months, during which 23.0% of the disbursed principal has been amortised prior to securitisation. All loans were current on repayment as of the pool cut-off date (28-Feb-2025) and had no instances of delinquency prior to securitisation.

Weaknesses:

• Potential effect of macro-economic headwinds:

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Moderation in demand on account of inflation and geo-political uncertainties can lead to volatilities in cashflow generation capability of the borrowers. These factors may hamper pool collection ratios.

Liquidity: Strong

Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls.

Rating Sensitivity factors

Upward factors:

• For Series A1 PTCs: None.
• For Equity tranche PTCs: Credit enhancement (based on both internal and external credit enhancements) exceeding 1.7 times the estimated base case shortfalls.

 

Downward factors:

• For Series A1 PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.0 times the estimated base case shortfalls.
• For Equity tranche PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 1.5 times the estimated base case shortfalls.
• A sharp downgrade in the rating of the servicer/originator.
• Non-adherence to the key transaction terms envisaged at the time of the rating.

Quality of the asset pool and strength of cashflows

The securitisation transaction is backed by a pool of receivables from Agri loans originated by IndoStar Capital. As of the pool cut-off date (28-Feb-2025),

 

The pool loans had a weighted average seasoning of 9.5 months, a weighted average interest rate of 18.9%, a weighted average LTV ratio of 77.3%, a weighted average original tenure of 42.9 months, and an average original loan amount of Rs 4.71 lakh. The top 3 states (Tamil Nadu, Madhya Pradesh, and Telangana) contributed 60.9% of the pool cashflows. All the underlying pool loans were current on repayment as on the cut-off date.

 

Assuming no prepayments, cashflow schedule results in subordination in the form of EIS amounting to Rs 8.20 crore (18.8% of pool principal securitised). Asset class wise performance portfolio performance of Indostar Capital  has been highlighted in the Rating assumptions section below. Based on Crisil Ratings assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, commensurate with the rating assigned to the PTCs.
 

Rating assumptions   Background: PTC investors are taking a direct exposure on the repayment ability of the underlying borrowers in the pool. Credit risk in the transaction is factored through the base case shortfalls expected on the portfolio, which are further adjusted for pool specific characteristics.   To assess the base case shortfalls for the portfolio, Crisil Ratings has analysed the Agri loan asset class static pool performance (with information on 90+ delinquencies) of loans originated by IndoStar Capital during the period Q1FY2023 to Q2FY2025 (with performance data till December 2024). Crisil Ratings has also analysed the dynamic portfolio delinquencies of IndoStar Capital’s Agri loan book. As of December 2024, the 90+ delinquency for Agri portfolio was 2.2%. Base case shortfalls on the portfolio are adjusted based on pool characteristics – which includes seasoning profile and repayment track record, parameters such as original tenure, interest rate, loan-to-value, etc. Crisil Ratings has additionally factored risk arising from borrower & geographic concentration in the pool.   Prepayment is a form of market risk which will result in the reduction of excess interest spread in the transaction. Prepayment risk has been assessed based on historically observed levels of prepayments for similar pools.   Assumptions: After making the adjustments on the above factors, the base case shortfalls in the pool by maturity of the transaction is in the range of 6.0% to 8.0% of pool cashflows. Monthly prepayment rate of 0.5% to 1.0% has also been applied to the pool cashflows.

 

 

Additional disclosures for Provisional ratings:

The provisional rating is contingent upon execution and receipt of the following documents:

 

Executed documents:

• Trust Deed
• Amended and Restated trust deed
• Assignment agreement
• Servicing Agreement
• Accounts agreement
• Power of Attorney

 

Other documents:

• Information Memorandum
• Legal Opinion
• Auditor’s Certificate(s)
• Trustee’s Letter
• Originator’s Representations and Warranties Letter

 

Additional documents, if any, executed for the transaction should also be provided along with the above documents. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument. The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of Crisil Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.

 

Rating that would have been assigned in absence of the pending documentation:

In the absence of documentation considered while assigning provisional rating as mentioned above, Crisil Ratings would not have assigned any rating.

 

Risks associated with provisional nature of credit rating:

A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon execution of certain documents by the issuer, as applicable. In case the documents received deviate significantly from the expectations, Crisil Ratings may take appropriate action including placing the rating on watch or a rating change, depending on status of progress on a case-to-case basis. In the absence of the pending documentation, the rating on the instrument would not have been assigned ab initio.

Key Financial Indicators

For the period ended March 31 (consolidated)	Unit	2024	2023
Total assets	Rs crore	11,121	9,122
Total income (net of interest)	Rs crore	710	599
PAT	Rs crore	116	225
GS3 assets	%	4.1	6.8
Gearing	%	2.3	1.8
Return on average assets	%	1.1	2.4
For the period ended June 30 (consolidated)	Unit	2024	2023
Total assets	Rs crore	11,524	9,259
Total income (net of interest)	Rs crore	191	145
PAT	Rs crore	25	39
GS3 assets	%	4.2	6.6
Gearing	%	2.3	1.9
Return on average assets	%	0.9	1.7

 

Quality and experience of servicer

IndoStar Capital (rated ‘Crisil AA-/Stable/Crisil A1+’) will continue to service loans assigned to this trust. Indostar Capital has originated several securitisation transactions. Servicing has been done, and reports have been shared across all these transactions in a timely manner.

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) together can mitigate against shortfalls in collection from the pool even after stressing them commensurate with the rating assigned to the PTCs. Crisil Ratings has adequately factored key risks  in the transaction including Credit & Market (as highlighted in rating assumptions section), Counterparty and Legal risks. Legal risks are assessed based on detailed analysis of transaction documentation. Risk factored from counterparties are mentioned in the table below:

 

Counterparty details

Capacity	Counterparty	Rating	Effect on transaction rating in case of non-performance and Provision for appointment of back-up, if any
Originator	IndoStar Capital	'Crisil AA-/Stable/Crisil A1+'	No effect.
Servicer	IndoStar Capital	'Crisil AA-/Stable/Crisil A1+'	Significant effect, because of change in servicing quality and replacement cost of the Servicer. However, Crisil Ratings does not currently envisage the need for replacement. The Trustee, on behalf of the investors, shall retain the right to appoint a replacement Servicer in the occurrence of a ‘Servicer Event of Default’ as per the terms of the transaction. Since there is time lag between pool collections and investor payouts. In the interim, the money collected lies with the servicer and may commingle with its own cash flow. As monthly pool collections are commingled only for a short period of time, the short-term credit quality of the servicer determines the commingling risk.
Collection and Payout Account (CPA) Bank	IDBI Bank	‘Crisil AA+/Crisil AA/Stable/Crisil A1+’	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the CPA Bank.
Cash Collateral Bank	IDBI Bank	‘Crisil AA+/Crisil AA/Stable/Crisil A1+’	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the Bank with which the Cash Collateral fixed deposits are maintained.
Trustee	IDBI Trusteeship Limited	Not rated by Crisil Ratings	Negligible effect. As per the terms of the transaction, the Trustee can be replaced by the investors holding majority interest.

 

 

A summary of key terms of servicer contract

As per indicative transaction terms, the key points on the role of the servicer to be covered as part of the transaction documents are as below:

 

• The Trustee acting for and on behalf of the investors shall appoint, the servicer for the purpose of collecting, receiving and managing payment of the Receivables into the Collection and Payment Account for the purpose of managing, collecting and receiving the receivables, holding the underlying security and carry out other roles and roles and responsibilities as specified under the transaction documents
• The servicer shall receive servicing fees which shall be paid by the trustee in accordance with the Waterfall Mechanism as per the transaction documents.
• The servicer shall collect the receivables from the underlying borrowers and deposit the collected amounts in the collection and payment account in a timely manner as per the terms of the transaction documents.
• The servicer shall submit to the trustee all the data and reports in the manner and as per the timelines as specified under the transaction documents.
• The occurrence of certain events as per the terms of the transaction documents shall be construed as a Servicer Event of Default.

 

Provision for appointment of back-up servicer: The Trustee (acting on the instructions of the investors) as per the terms of the Servicer Agreement and upon the occurrence of Servicer’s Event of default, shall retain the right to appoint an alternate servicer

 

Performance of outstanding rated transactions

Crisil Ratings has ratings outstanding on instruments issued under 6 securitisation transactions backed by IndoStar Capital -originated loans. The cumulative collection efficiency in the underlying pools for these transactions range of 95.0%-97.0% as of January-2025 payouts, with 90+ delinquency ranging between 1%-3% of the initial pool principal.