Rating Rationale
April 23, 2019 | Mumbai
Vivriti Uxie 12 2018
(Originator: Avanse Financial Services Limited)
'CRISIL AA- (SO)' and 'CRISIL A+ (SO)' converted form Provisional Ratings to Final Ratings for Series A1 PTCs and Series A2 PTCs
 
Rating Action
Transaction Details Amount Rated
(Rs. Cr.)

 
PTC Principal Outstanding
(Rs. Cr.)*
Original Tenure (Months)# Balance Tenure (Months)# Credit Collateral
(Rs. Cr.)

 
Ratings Rating Action
Vivriti Uxie 12 2018 Series A1 PTCs 54.99 48.96 102 99 2.37 CRISIL AA- (SO) Converted from Provisional Rating to Final Rating
Series A2 PTCs 0.59 0.59 CRISIL A+ (SO)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
# Indicates door to door tenure from pool cut-off date. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option
*Data as of March 2018 payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A1 pass-through certificates (PTCs) and Series A2 PTCs to final rating of 'CRISIL AA- (SO)' and 'CRISIL A+ (SO)', respectively.
 
CRISIL had assigned its 'Provisional CRISIL AA- (SO)' and 'Provisional CRISIL A+ (SO)' ratings to Series A1 PTCs and Series A2 PTCs, respectively, issued by 'Vivriti Uxie 12 2018' on January 10, 2019, a trust settled by Catalyst Trusteeship Limited (CTL). The pool is backed by education loan receivables originated by Avanse Financial Services Limited (AFSL). AFSL will continue to service the pool contracts as the servicing agent. The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, AFSL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
Total credit support available in the transaction at the time of secuitisation is as follows:

  • Internal credit support in the form of scheduled cash flow subordination, aggregating Rs 17.27 crore (29.2% of pool principal) and Rs 16.18 crore (27.3% of pool principal)  for Series A1 PTCs and Series A2 PTCs, respectively
  • External credit-cum-liquidity collateral of Rs 2,36,96,943 (4.0% of pool principal) in the form of fixed deposit.

Series A1 PTCs are entitled to monthly interest, while the principal payment is promised on an ultimate basis. Upon redemption of Series A1 PTCs, interest payouts to Series A2 PTCs are promised on a monthly basis. The transaction envisages ultimate payment structure for principal payouts for Series A2 PTCs

CRISIL has received the final legal documents executed for the transaction. The executed documents are in line with the transaction terms at the time of provisional rating. Hence, CRISIL has converted the provisional rating to final rating.
 
Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' rating.
 
Legal Documents

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

Other Documents

  • Legal Opinion
  • Information Memorandum
  • Auditor's Certificate
  • Trustee Awareness
  • Reps & Warranties from the Originator
Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 2.37 crore (4.0% of the pool principal) provides credit support to Series A1 and Series A2 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 17.27 crore for Series A1 PTCs and Rs 16.18 crore for Series A2 PTCs.
  • Seasoning of contracts in the pool
    • Moderately high seasoning as indicated by weighted average seasoning of 23.1 months and amortisation of 27.1% at the time of securitisation
  • Robust repayment track record of contracts in the pool
    • This is indicated by ever-current nature of all the contracts as of the cut-off date (November 30, 2018)
  • Existence of co-obligors and/or security
    • All the contracts in the pool has a co-obligor who is typically a parent. In addition 46.2% of the pool is partially or fully secured with property, fixed deposit or LIC policy cover.
Constraining Factors
  • Unseasoned education loan portfolio of AFSL
    • Typical tenure of AFSL-originated education loans is 9-10 years, whereas most of the growth in the AFSL's portfolio was in the last 3 years.
  • Basis risk in the transaction
    • There is basis risk in the transaction as pool yield is floating and investor yield is fixed.
  • Uncertainty about the repaying ability of students
    • Continuously evolving political and regulatory environment in the overseas countries and India could have impact on future earnings and repaying ability of borrowers
Liquidity Position
The credit cum liquidity enhancement available in the transaction is 2.37 crore (4.0% of pool principal) which is in the form of fixed deposit placed with DCB bank (Rated 'CRISIL AA-/Stable/CRISIL A1+'). The enhancement is sufficient to cover 5 months of interest payout promised to the Series A1 PTC holders even with no collections from underlying loan receivables. Interest to Series A2 PTC holders is promised on a monthly basis only after Series A1 PTCs are redemed. The principal is promised to Series A1 PTC holders and Series A2 PTC holders only at maturity

About the Pool
The pool cash flow securitised comprises of receivables from education loan receivables originated by AFSL. At the time of securitisation, the pool had a weighted average net seasoning of 23.1 months. Average ticket size of the contracts in the pool is Rs 12.97 lakh. Majority of the loans in the pool were availed for post-graduate courses. Top 3 geographies for which contracts in the pool have availed education loan are USA, India, New Zealand and it contributes to 73.4% of pool principal. The weighted average Fixed Obligation to Income Ratio (FOIR) of co-obligors / borrowers in the pool is 47.6%. The maximum FOIR in the pool is 75%. All contracts in the pool were current as on the cut-off date (November 30, 2018). CRISIL has adequately factored all these aspects in its rating analysis.
 

Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed delinquencies observed in education loan segment and portfolio information of AFSL as well as the industry and the performance of past rated pool. Pool characteristics were also analysed. Based on these, CRISIL has estimated adjusted base case shortfalls in the pool at 6.0-8.0% of pool principal

  • The pool consists of loans at a floating rate of interest linked to base rate of Avanse Financial Services Limited whereas the investor yield is fixed. At present, there is a comfortable gap between the pool yield and the yield promised to the investor. However, during the tenure of the transaction, adverse movement in base rate of the originator may compress the asset side cash flows in relation to the liability side cash flows, thus leading to basis risk. CRISIL has assumed various interest rate scenarios to adequately factor in the basis risk of the transaction.
  • CRISIL has assumed a stressed monthly prepayment rate of 2.0 to 3.0% in its analysis.
  • Based on its assessment of AFSL's short-term credit risk profile, CRISIL has factored in the risk arising out of commingling of cash flows.
  • CRISIL has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)
  • CRISIL 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 AFSL Not Rated by CRISIL No effect.
Servicer
 
AFSL Not Rated by CRISIL Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. Under certain circumstances, the trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank DCB Bank Limited Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit DCB Bank Limited Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee Catalyst Trusteeship Limited Adequate past track record Negligible effect. Can be replaced at minimal cost.
    
About the Originator
AFSL provides education loans to students pursuing higher studies in India and abroad, and to educational institutes in India. Incorporated in August 1992 as Abhivruddhi Holdings Pvt Ltd, the company was acquired by DHFL and its promoter group companies in July 2012. Subsequently, the name was changed to the current one in December 2012. Avanse is registered as a non-deposit-taking NBFC with the Reserve Bank of India. As on March 31, 2018, it had presence in 16 locations in India. Apart from the educational loans that are retail in nature, the company lends to educational institutions such as schools and colleges, which accounted for about 26% of the loan book as on March 31, 2018. To further diversify the loan book, it began lending to financial sector entities from the third quarter of fiscal 2018.

Profit after tax (PAT) was Rs 10.25 crore and total income (net of interest expenses) Rs 94 crore in fiscal 2018, against PAT of Rs 5.6 crore and total income (net of interest expenses) of Rs 46 crore in fiscal 2017. In the nine months ended December 2018, PAT was Rs 20.8 crore and total income (net of interest expense) Rs 140 crore, against Rs 8.6 crore and Rs 63 crore, respectively, in the corresponding period of the previous fiscal. Cost to income ratio decreased materially to 74% during the first-half of fiscal 2019 from 84% during fiscal 2017.
 
Past rated Pools
This is the second securitisation transaction of AFSL to be rated by CRISIL. CRISIL is receiving performance reports for the outstanding transaction of AFSL on a regular basis.
Key Financial Indicators
As on / for the period ended March 31 / December 31 Unit 31- Dec-2018 31-Mar-2018 31-Mar-2017
Reported total assets Rs crore 3,019 2,390 1,059
Total income Rs crore 311 215 112
Profit after tax Rs crore 20.8 10.25 5.6
Gross NPA % 0.55 0.09 0.29
Overall capital adequacy ratio % 21.31 25.7 16.5
Return on assets % 1.0 0.6 0.7

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
Type of Instrument Rated Amount
(Rs Cr.)
Date of Allotment Maturity Date* Coupon Rate (%)
p.a.p.m.
Outstanding
Ratings
Credit cum liquidity Enhancement (Rs Cr.)
Series A1 PTCs 54.99 27-Dec-18 26-Jun-27 10.25% CRISIL AA- (SO) 2.37&
Series A2 PTCs 0.59 27-Dec-18 26-Jun-27 12.00% CRISIL A+ (SO) 2.37^
*Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool
& At the time of securitisation, additional credit support includes Rs.17.27 crore in the form of scheduled cash flow subordination (assuming zero prepayments) ' Includes principal subordination of Rs 4.25 crore (7.17% of pool principal)
^ At the time of securitisation, additional credit support includes Rs.16.18 crore in the form of scheduled cash flow subordination (assuming zero prepayments) ' Includes overcollateralization of Rs 3.66 crore (6.17% of pool principal)
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs   LT 48.96 CRISIL AA- (SO) 10-01-19 Provisional CRISIL AA- (SO)              
Series A2 PTCs  LT  0.59 CRISIL A+ (SO) 10-01-19 Provisional CRISIL A+ (SO)              
All amounts are in Rs.Cr.
Table reflects instances where rating is changed or freshly assigned.
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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