Atreides 2W 2024

(Originator: Muthoot Capital Services Limited)

'Provisional CRISIL AA (SO)’ assigned to Series A1 PTCs and 'Provisional CRISIL A+ (SO)' assigned to Equity Tranche

 

Rating Action

Trust Name	Details	Amount Rated (Rs.Crore)	Pool Principal (Rs.Crore)	Original Tenure (Months)#	Credit Collateral (Rs.Crore)	Ratings/ Credit Opinion	Rating Action
Atreides 2W 2024	Series A1 PTCs	58.14	66.07	38	2.64*	Provisional CRISIL AA (SO)@	Provisional Rating Assigned
	Equity Tranche	3.30			2.64^	Provisional CRISIL A+ (SO)@

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million

Refer to annexure for Details of Instruments & Bank Facilities

#Indicates door-to-door tenure; actual tenure will depend on the level of prepayments in the pool, exercise of clean-up call option and the extent of shortfalls

*Additional credit support includes Rs. 19.15 crore in form of scheduled cash flow subordination (assuming zero prepayments) – including Equity Tranche of Rs. 3.30 crore (5.0% of pool principal) and overcollateralization of Rs. 4.63 crore (7.00% of pool principal)

^Additional credit support includes Rs. 15.85 crore in form of scheduled cash flow subordination (assuming zero prepayments) – including overcollateralization of Rs. 4.63 crore (7.00% of pool principal)

@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ‘Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ‘Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments’ by SEBI.

 

Detailed Rationale

CRISIL Ratings has assigned its ‘Provisional CRISIL AA (SO)’ rating to Series A1 pass-through certificates and ‘Provisional CRISIL A+ (SO)’ rating to Equity Tranche issued by ‘Atreides 2W 2024’. The pool is backed by two-wheeler loan receivables originated by Muthoot Capital Services Limited (MCSL; ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’). The ratings are based on the credit support available to the PTCs, the credit quality of the underlying pool receivables, MCSL’s origination and servicing capabilities, and soundness of the transaction’s legal structure.

 

The transaction has a ‘par with monthly subordinated excess interest spread (EIS)’ structure, wherein the trust settled by a trustee will issue Series A1 PTCs and Equity Tranche in exchange for a purchase consideration equal to 93.00% of the pool principal at the time of securitisation.

 

Total credit support available in the transaction is as follows:

• Internal credit support in the form of scheduled cash flow subordination, aggregating 19.15 crore (29.0% of pool principal or 23.4% of pool cashflows) for Series A1 PTCs and Rs 15.85 crore for Equity Tranche (24.0% of pool principal or 19.4% of pool cashflows)
• External credit-cum-liquidity collateral of Rs 2.64 crore (4.0% of the pool principal or 3.2% of pool cashflows) for Series A1 PTCs and Equity Tranche.

 

Series A1 PTC holders are entitled to receive timely interest on a monthly basis while the principal payment is promised on an ultimate basis. Equity Tranche is completely subordinated to Series A1 PTCs and Equity Tranche principal payments are not promised at every payout. Principal payments to Equity Tranche will happen after Series A1 PTCs are paid in full.

Key Rating Drivers & Detailed Description

Supporting Factors

• Credit support available in the structure
  • Credit collateral of Rs 2.64 crore (4.0% of the pool principal or 3.2% of pool cashflows) provides credit support to Series A1 PTCs and Equity Tranche. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 19.15 crore for Series A1 PTCs and Rs. 15.85 crore for Equity Tranche.
• High seasoning of contracts in the pool 
  • The contracts in the pool have a weighted average seasoning (Number of installment paid) of 13.2 months, and consequently, the pool has amortised by 32.9% as of the cut-off date of 29th February, 2024.

 

Constraining Factors

• High risk profile of underlying asset class
  • The pool is backed by two-wheeler loans, an asset class which has historically exhibited higher delinquency
• Geographical Concentration
  • The pool is concentrated in terms of geography. Top 3 states- Kerala (62.0%), Karnataka (15.9%), and Uttar Pradesh (5.0%), account for 82.9% of the pool

Liquidity: Strong

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls.

Rating Sensitivity factors

Upward

• For Series A1 PTCs:
  • Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 2.3 times the estimated base case shortfalls on the residual cash flows of the pool
• For Equity Tranche:
  • Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 1.9 times the estimated base case shortfalls on the residual cash flows of the pool

 

Downward

• A sharp downgrade in the rating of the servicer/originator
• Non-adherence to the key transaction terms envisaged at the time of the rating
• For Series A1 PTCs:
  • Credit enhancement (based on both internal and external credit enhancements) available in the structure falling below 2.1 times the estimated base case shortfalls on the residual cash flows of the pool
• For Equity Tranche:
  • Credit enhancement (based on both internal and external credit enhancements) available in the structure falling below 1.7 times the estimated base case shortfalls on the residual cash flows of the pool

 

CRISIL Ratings has adequately factored these aspects into its rating analysis.

About the Pool

The pool securitised comprises 2-wheeler loan receivables. The pool has weighted average net seasoning of 13.2 (Number of instalments paid ). The pool is geographically concentrated with top three states accounting for 82.9% of pool principal. Average ticket size is Rs 88,183 with weighted average interest rate of 23.9%. All the contracts in the pool were current as on pool cut-off date (February 29, 2024). CRISIL Ratings has adequately factored all these aspects in its rating analysis.

 

Additional disclosures for Provisional ratings:

The provisional rating is contingent upon execution of the following documents, as applicable:

 

Executed documents:

• Trust Deed
• Assignment Agreement
• Servicing Agreement
• Accounts Agreement
• Power of Attorney

Other documents:

• Information Memorandum
• Legal opinion
• Auditor’s certificate(s)
• Trustee letter
• Originator’s Representations and Warranties letter

 

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 deviates significantly from the expectations, CRISIL Ratings may take an appropriate action including placing the rating on watch or a rating change on a case-to-case basis. In the absence of the pending documentation, the rating on the instrument would either have been different or not assigned ab initio.

 

Rating Assumptions To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed moving portfolio delinquency and static pool information (with information on 90+ delinquencies) for two-wheeler portfolio provided by MCSL for originations in the period FY14 to Q2FY24. The 90+ dpd for the 2-wheeler loan portfolio of MCSL is 9.6% as of December 2023 (the company has adhered to PCA regulations)   CRISIL Ratings has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 9.0 to 11.0% of pool cash flows.   CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.1 to 0.7% in its analysis. Based on its assessment of MCSL’s short-term credit risk profile, CRISIL Ratings has factored in the risk arising out of commingling of cash flows. CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details below) CRISIL Ratings has run sensitivities based on various shortfall curves (front-ended, back-ended and normal) and has adequately factored the same in its analysis.

 

Counterparty details

Capacity	Counterparty Name	Counterparty Rating/ Track record	Effect on credit ratings in case of non-performance
Originator	MCSL	Rated ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’	No effect.
Servicer	MCSL	Rated ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’	Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL Ratings does not envisage the need for replacement. Under certain circumstances, the trust or investor has the right to change the servicer by providing an intimation to CRISIL Ratings.
Collection and Payout Account Bank	ICICI Bank Limited	Rated ‘CRISIL AAA/CRISIL AA+ /Stable’	Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit	DCB	Rated ‘CRISIL AA-/CRISIL A1+ /Stable’	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee	CTL	Adequate track record	Negligible effect. Can be replaced at minimal cost.

 

About the Originator

Incorporated in 1994, MCSL is a deposit-taking, systemically important non-banking financial company (NBFC). Though the company started operations in 1995, it commenced lending activities in 1998 after acquiring an NBFC license. Initially, it provided gold loans, but subsequently, as the group scaled up its gold financing business in MFL, MCSL entered the two-wheeler financing segment in fiscal 1998 and gradually exited the gold loan business. MCSL is listed on the Bombay Stock Exchange and the National Stock Exchange and is one of the listed companies of MPG. As on December 31, 2023, its AUM was Rs 1,944 crore. Around 88% of the total portfolio was two-wheeler loans.

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Key Financial Indicators

Particulars	Unit	Dec-23	Mar-23	Mar-22
Total assets	Rs crore	2,399	2,435	2,075
Total income	Rs crore	304	445	398
Profit after tax	Rs crore	111	79	-172
Gross NPA (90+ dpd)	%	9.4	16.4	18.6
Adjusted gearing	Times	2.9	3.9	4.2
Return on managed assets	%	6.1*	3.5	-7.4

 

Past rated pools

CRISIL Ratings has outstanding ratings on eight transactions originated by MCSL. CRISIL Ratings has received the legal documents for the transactions, and receives monthly performance reports pertaining to all CRISIL Ratings-rated MCSL originated securitisation transactions.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN*	Name of Security	Date of Issuance	Coupon Rate	Maturity Date#	Size of Issue (Rs.Crore)	Complexity level	Ratings Assigned	Cash Collateral (Rs.Crore)
NA	Series A1 PTCs	21-Mar-2024	9.45%	15-May-2027	58.14	Highly Complex	Provisional CRISIL AA (SO)	2.64^
NA	Equity Tranche	21-Mar-2024	0.0%	15-May-2027	3.30	Highly Complex	Provisional CRISIL A+ (SO)	2.64&

*ISIN not received as of date

#Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option

^Additional credit support includes Rs. 19.15 crore in form of scheduled cash flow subordination (assuming zero prepayments) – including Equity Tranche of Rs. 3.30 crore (5.0% of pool principal) and overcollateralization of Rs. 4.63 crore (7.00% of pool principal)

&Additional credit support includes Rs. 15.85 crore in form of scheduled cash flow subordination (assuming zero prepayments) – including overcollateralization of Rs. 4.63 crore (7.00% of pool principal)