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 ‘Arizona MSME CV Trust Feb 2025’ under a securitisation transaction backed by vehicle 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 PTC to investors in exchange for a purchase consideration equal to 90.0% and 10.0% 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 tranche 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 PTCs are supported by cash collateral, subordination of equity tranche principal, and subordination of excess interest spread (EIS). On a monthly basis, the cash collateral can be used to make the promised interest payments in case of a shortfall in collections from the pool to Series A1 PTC. On the Series A1 PTC 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.
Credit enhancement available in the transaction structure is as below:
Based on Crisil Ratings assessment, the total credit enhancement available in the transaction (internal – in the form of EIS and principal subordination; 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:
− Cash collateral of INR 3.32 crore (4.2% of the initial pool principal) for Series A1 PTCs investor payouts and Equity tranche PTCs principal repayment − Scheduled cashflow subordination aggregating to Rs 20.53 crore (25.7% of pool principal, assuming zero prepayments) for Series A1 PTCs – including subordination of Equity tranche PTC principal of Rs 7.98 crore (10.0% of pool principal) − Subordination of scheduled excess interest spread of Rs 12.55 crore (15.7% of pool principal, assuming zero prepayments) for the principal repayment of Equity tranche PTCs
Weaknesses:
|
Liquidity: Strong for Series A1 PTCs and Equity tranche PTCs Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is above 1.5 times the estimated base shortfalls on the residual pool cash flows |
Rating Sensitivity factors Upward factors:
Downward factors:
|
About the Pool Quality of the asset pool and strength of cashflows The transaction is backed by receivables from a pool of vehicle loans originated by IndoStar Capital. The pool’s key characteristics as of the cut-off date (28-Feburuary-2025) are outlined below:
Assuming no prepayments, scheduled cash flow subordination amounting to INR 20.53 crore – for Series A1 PTC, INR 12.55 crore for Equity tranche PTC. The 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 principal subordination; 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.
Additional disclosures for Provisional ratings: The provisional rating is contingent upon execution and receipt of the following documents:
Executed documents:
Other documents:
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 |
About the company- Originator/Servicer profile The company started the business as a wholesale financier in fiscal 2011 and entered the SME finance (loans against property) segment in fiscal 2015. In fiscal 2018, it started offering vehicle finance and housing finance (through wholly owned subsidiary, IndoStar Home Finance Pvt Ltd). In fiscal 2019, IndoStar Capital acquired the CV finance business of IIFL Finance Ltd. The company plans to focus on used CV financing and affordable housing finance. |
Key Financial Indicators
Quality and experience of servicer: Indostar Capital Finance Limited (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 The table below lists parties to the transaction, the capacities in which they are involved, and the impact of their non-performance on the ratings on the PTCs.
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:
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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^ISIN details for instruments were not available as of date. #Indicates legal final maturity date for the instrument. Actual maturity date will depend on the level of collection shortfalls in the pool, the level of prepayments in the pool, and exercise of the clean-up call option. @The rating on Equity tranche PTCs only addresses the likelihood of principal repayment by the legal final maturity date, and not the payment of residual EIS amounts |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
|