Rating Rationale
May 27, 2019 | Mumbai
Platinum Trust December 2018
(Originator: Cholamandalam Investment and Finance Company Limited)
CRISIL AAA (SO)' for Series A PTCs and 'CRISIL BBB+ (SO)' for Second loss facility converted from Provisional Ratings to Final Ratings   
 
Rating Action
Trust Name Instrument
Details
Amount Rated
(Rs Cr)
Outstanding Principal*
(Rs Cr)
Original Tenure (Months) Balance Tenure (Months)* Credit Collateral (Rs Cr) Ratings / Credit Opinions Rating Action
Platinum Trust December 2018 Series A PTCs 617.67 558.22 56 53 50.65 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Second Loss Facility 32.12 32.12 18.53 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*After March 2019 payouts
Detailed Rationale

CRISIL has converted the provisional rating assigned to Series A Pass-Through Certificates (PTCs) issued by 'Platinum Trust December 2018' under a securitisation transaction originated by Cholamandalam Investment and Finance Company Limited (CIFCL; rated 'CRISIL AA+/Stable/CRISIL A1+') to final rating of 'CRISIL AAA (SO)'. The provisional credit opinion assigned to Second Loss Facility under this transaction converted to a final credit opinion of 'CRISIL BBB+ (SO) Equivalent'.
 
This transaction is backed by receivables from a pool of heavy commercial vehicle, light commercial vehicle, small commercial vehicle, multi-utility vehicle, and tractor loans originated by CIFCL. The rating / credit opinion is based on the credit support available to the PTCs, credit quality of the underlying receivables, CIFCL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread' structure. In exchange for a purchase consideration amounting to future principal outstanding as on the pool cut-off date, CIFCL assigned the loan pool to 'Platinum Trust December 2018', which issued instruments to investors. This trust is settled by IDBI Trusteeship Services Limited (ITSL). Investor payouts for Series A PTCs are supported by credit collateral in the form of Fixed Deposits and Excess Interest Spread (EIS).
 
The total credit support available in the transaction is as below:

  • Internal credit support in the form of scheduled EIS assuming zero prepayments, at the time of securitisation aggregating Rs 49.24 crore (8.0% of pool principal).
  • External credit enhancement of Rs 50.65 crore (8.2% of pool principal at the time of securitisation), of which First Loss Facility of Rs 18.53 crore (3.0% of pool principal at the time of securitisation) is in the form of a Fixed Deposit and Second Loss Facility of Rs 32.12 crore (5.2% of pool principal at the time of securitisation) is in the form of a Bank Guarantee.

Series A PTC holders are entitled to receive timely interest and timely principal on a monthly basis.
 
For detailed information on CRISIL's policy on provisional ratings, click here: Revision in CRISIL policy for assigning 'provisional' ratings
 
As required, CRISIL has received the following final executed documents:
 
Legal Documents:

  • Trust deed
  • Deed of assignment
  • SLCF Guarantee
  • Power of attorney

Other Documents:

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's representations and warranties letter
Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 50.65 crore (8.20% of the pool principal at the time of securitisation), split into First Loss facility of Rs 18.53 crore (3.0% of the pool principal) and Second Loss Facility of Rs 32.12 crore (5.2% of the pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS at the time of securitisation aggregating Rs 49.24 Cr (8.0% of pool principal at the time of securitisation
       
  • Diversification and seasoning
    • There are over 13,000 contracts in the pool, and the principal for these contracts has been amortised by 23.7% prior to securitisation
Constraining Factors
  • Proportion of tractor contracts
    • 19.5% of the pool principal at the time of securitisation is from contracts for tractor loans, an asset class that has exhibited higher delinquencies historically and might be susceptible to socio-political events
Liquidity Position
  • The external credit enhancement available in the transaction is Rs.50.65 crore (8.2% of initial pool principal), of which the First Loss Facility of Rs.18.53 crore (3% of initial pool principal) is in the form of Fixed Deposit placed with FirstRand Bank (Rated 'CRISIL A1+') and Second Loss Facility of Rs.32.12 crore (5.2% of initial pool principal) is in the form of Bank Guarantee from Axis Bank (Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+'). At the time of securitisation, the enhancement fully covered two months of promised principal and interest payouts even with no collections from underlying receivables.
About the Pool
The transaction is backed by receivables from a pool of heavy commercial vehicle, light commercial vehicle, small commercial vehicle, multi-utility vehicle, and tractor loan contracts. Contracts in the pool had a good seasoning profile as evidenced by a weighted average net seasoning of 11.4 months at the time of securitisation. Contracts in the pool are also geographically diversified with the top 3 states accounting for 35.7% of pool principal at the time of securitisation. The average ticket size for contracts in the pool is Rs 6.2 lakh, with a weighted average loan-to-value ratio at disbursement of 81.9% at the time of securitisation. The weighted average interest rate for contracts in the pool was 13.6% at the time of securitisation. No contracts in the pool had outstanding payment dues as of the pool 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 static pool information (with data on 90+ delinquencies) on new and used vehicles and new tractors provided by CIFCL for originations in the period FY 2005 to Q2 FY 2018 (with performance data till September 2018). CRISIL has also analysed performance of past rated securitisation transactions and the performance of CIFCL's vehicle finance portfolio. 90+ delinquency (as % of managed assets) for CIFCL's vehicle finance portfolio was 2.03% as of September 2018.
 
CRISIL has also factored in pool-specific characteristics and estimated base-case peak shortfalls for this transaction to be in the range of 4 to 6 per cent of pool cash flows.

  • CRISIL has assumed a stressed monthly prepayment rate of 0.3 to 0.8 per cent in its analysis.
  • CRISIL does not envisage any risk arising on account of commingling of cash flows since CRISIL's short term rating on the servicer is 'CRISIL A1+'.
  • 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 and seller CIFCL Rated 'CRISIL AA+/Stable/CRISIL A1+'  
No effect.
 
Servicer CIFCL Rated 'CRISIL AA+/Stable/CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL given CRISIL's rating on the servicer). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank HSBC Bank Not Rated Negligible effect. Account bank can be changed without impacting the rating.
First Loss Facility in the form of Fixed Deposit FirstRand Bank Rated 'CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Second Loss Facility in the form of Bank Guarantee Axis Bank Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' Significant effect. Ratings on Series A PTCs is directly linked to the long-term credit risk profile of the guarantee provider.
Trustee ITSL Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
Part of Chennai-based Murugappa group, Chola Finance was incorporated in 1978. The company mainly provides vehicle financing and LAP, along with home loans, MSME (micro, small and medium enterprises) and agri loans. Chola Finance had 873 branches across 27 states in India, with 79% presence across tier III and tier IV cities, as on March 31, 2018.
 
Between April 2005 and March 2010, the company operated as a joint venture between DBS Bank and the Murugappa group. In March 2010, DBS Bank sold its 37.48% equity stake in Chola Finance to the Murugappa group. Chola Finance exited the unsecured personal loan segment in October 2008. It also exited its asset management business through a complete stake sale in DBS Chola Asset Management to L&T Finance Ltd in September 2009. The Murugappa group currently holds 53.1% equity stake in Chola Finance, of which 46.2% is held by TI Financial Holdings Limited, a group company. Chola Finance  currently has three subsidiaries: Cholamandalam Securities Ltd (for stock broking and depository services), Cholamandalam Distribution Services Ltd (for fixed-income and insurance products) and White Data Systems India P Ltd. (freight aggregating business).
 
For fiscal 2018, Chola Finance reported a PAT of Rs 974 crore on a total income (net of interest expense) of Rs 3,118 crore, against a PAT of Rs 719 crore on a total income (net of interest expense) of Rs 2,429 crore for fiscal 2017.

Previously rated transactions
CRISIL has ratings outstanding on 6 ABS transactions originated by CIFCL. CRISIL is receiving monthly performance reports pertaining to these transactions.

Key Financial Indicators
As on/for the period ended March 31 Unit 2018# 2017#
Total Assets Rs crore 39,505 30,595
Total income Rs crore 5,426 4,660
Profit after tax Rs crore 974 719
Gross NPA % 2.9 4.7
Adjusted gearing Times 7.4 7.1
Return on managed assets % 2.4 2.1
#Per IGAAP

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 opinions
Credit collateral (Rs Cr)^
Series A PTCs 617.67 28-Dec-18 18-Aug-23 8.25% CRISIL AAA (SO)$ 50.65*
Second loss facility 32.12 - CRISIL BBB+ (SO) Equivalent 18.53
#Indicates door to door tenure of 56 months from allotment date. Actual tenure of instruments will depend on the level of prepayments in the loan pool, and possible exercise of the clean-up call option.
^In addition, scheduled Excess Interest Spread (EIS) amounting to Rs 49.24 Cr (at the time of securitisation, assuming zero prepayments) also provides credit support to PTCs.
*Includes a second loss facility of Rs 32.12 Cr.
$Series A PTC investors are entitled to receive timely interest and timely 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 A PTCs LT  558.22 CRISIL
AAA (SO)
11-01-19 Provisional CRISIL AAA (SO)              
Second Loss Facility LT  32.12 CRISIL
BBB+ (SO)
11-01-19 Provisional CRISIL BBB+ (SO) Equivalent              
All amounts are in Rs.Cr.
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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