Rating Rationale
December 01, 2017 | Mumbai
Platinum Trust June 2017 - Tranche III
(Originator: Cholamandalam Investment and Finance Company Limited)
'CRISIL AAA (SO)' for Series A PTCs, and 'CRISIL BBB+ (SO) Equivalent' for Second Loss Facility converted from Provisional Rating to Final Rating 
 
Rating Action
Trust Name Details Amount Rated
(Rs Crore)		 Outstanding Principal
(Rs Crore)*		 Original Tenure (Months) Balance Tenure
(Months)		 Credit Collateral (Rs Crore) Ratings/ Credit Opinion Rating Action
Platinum Trust June 2017 - Tranche III Series A PTCs 489.84 429.05 54 50 39.36 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Second Loss Facility 14.87 54 50 24.49 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Data as of October 2017 payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A PTCs and provisional credit opinion assigned to second loss facility to final ratings of 'CRISIL AAA (SO)' and final credit opinion of 'CRISIL BBB+ (SO) Equivalent' respectively issued by 'Platinum Trust June 2017 - Tranche III'. CRISIL had earlier assigned its provisional ratings/credit opinion under the transaction on August 04, 2017. The pool is backed by CV receivables originated by Cholamandalam Investment and Finance Company limited (CIFCL; rated 'CRISIL AA/Stable'). The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, CIFCL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
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' ratings
 
Series A PTC holders are entitled to receive timely interest and timely principal on amonthly basis. SEFL will continue to service the pool contracts as the servicing agent.
 
The total credit support available in the transaction at the time of securitisation is as below:

  • Internal credit support in the form of scheduled Excess Interest Spread (EIS), aggregating Rs 57.56 crore (11.8% of pool principal) (excluding servicing fee, Rs.55.19 Cr after servicing fee payment)
  • External credit-cum-liquidity collateral of Rs. 39.36 crore (8% of pool principal)

As required, CRISIL has received the following final documents:
 
Legal Documents

  • Trust Deed
  • Deed of Assignment
  • Power of Attorney
  • SLF Guarantee

We have also received the other documents as per CRISIL requirements

  • Legal opinion
  • Information memorandum
  • Trustee awareness letter
  • Auditor's / CA certificate
  • 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 39.36 crore (8.0% of the pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS aggregating Rs 57.56 crore (11.8% of pool principal) (excluding servicing fee, Rs.55.19 Cr after servicing fee payment)
  • Moderate seasoning of contracts in the pool
    • The contracts in the pool have a weighted average seasoning of 10.2 months and pool amortisation of 23.4%
Constraining Factors
  • Moderate presence of 1 month overdue contracts
    • At the time of securitisation, proportion of 1 month overdue contracts in the pool was ~7% of principal
  • Continuously evolving political and regulatory environment
    • The collection efficiency fell marginally post demonetization for CIFCL. The collections have since picked up.
About the pool
The pool cash flow is securitised and comprises receivables from HCV, MUV, Mini LCV and LCV loans originated by CIFCL. At the time of securitisation, the pool had a weighted average net seasoning of 10.2 months. The pool was geographically diversified with top 3 states accounting for 33.5% of the pool principal. Average ticket size of the pool is Rs 7.6 lakh with loan to value ratio of 80.3% and weighted average IRR of 13.9%. As on the cut-off date (May 31, 2017), proportion of 1 month overdue contracts in the pool was ~7% of principal. 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+ days past due) on new and used vehicles provided by CIFCL for originations in the period FY 2005-06 to 2016-17 (with performance data till December 2016). CRISIL has also analysed performance of past rated securitisation transactions and the performance of CIFCL's portfolio.
 
Based on these, CRISIL has estimated base case shortfalls in the pool at 4.0-6.0 per cent of cash flows. CRISIL has also assumed a monthly prepayment of 0.1% - 1% in its credit enhancement calculation. 
  • CRISIL has assumed a stressed monthly prepayment rate of 0.5 to 1.0 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'  
No effect.
 
Servicer CIFCL Rated 'CRISIL AA//Stable' 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 Citibank N.A Rated CRISIL AAA/ Stable/CRISIL A1+ Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Bank Guarantee Axis Bank Ltd. Rated 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+ Significant effect, Rating on PTCs will be directly linked to the credit rating on long-term debt obligations of Axis bank ltd.
First loss facility in the form of Fixed Deposit Citibank N.A Rated 'CRISIL AAA/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
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 provides vehicle financing and LAP. It also provides housing loans and SME loans. Chola Finance had 703 branches across India, primarily in Tier-II and Tier-III cities, as on June 30, 2017

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, 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 2017, Chola Finance reported a PAT of Rs 718.7 crore on a total income (net of interest expense) of Rs 2251.1 crore, against a PAT of Rs 568.5 crore on a total income (net of interest expense) of Rs 1917.1 crore for fiscal 2016.

For the first quarter of fiscal 2018, Chola Finance reported a profit after tax (PAT) of Rs 206.6 crore on a total income (net of interest expense) of Rs 642.5 crore, against a PAT of Rs 165.7 crore on a total income (net of interest expense) of Rs 503.2 crore for the same period last year.
 
Past rated pools
CRISIL has ratings outstanding on three (including Platinum Trust June 2017 - Tranche III) CIFCL-originated PTC transactions. The performance of the pools is in line with CRISIL's expectations.
Key Financial Indicators
As on/for the period ended March 31   2017 2016
Total Assets Rs crore 30,721 27,888
Total income Rs crore 4,482 3,968
Profit after tax Rs crore 719 569
Gross NPA % 4.7 3.5
Adjusted gearing Times 7.1 7.2
Return on managed assets % 2.1 1.9

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 (%) (Annualised) Outstanding
Ratings/credit opinions		 Credit collateral (Rs Cr)^
Series A PTCs 489.84 30-Jun-17 21-Dec-21 6.1% CRISIL AAA (SO)$ 39.36*
Second loss facility 14.87 - CRISIL BBB+ (SO) Equivalent 24.49

#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

^Scheduled excess interest spread (EIS) amounting to Rs. 57.56 Cr (assuming zero prepayments) also provides credit support to PTCs (excluding servicing fee, Rs.55.19 Cr after servicing fee payment)at the time of securitisation

*Includes a second loss facility of Rs.14.87 Cr

$Series A PTC holders are entitled to receive timely interest and timely principal.
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs  LT  489.84 CRISIL AAA (SO)  04-08-17 Provisional CRISIL AAA (SO)   -   -   - -
Second Loss Facility LT  14.87 CRISIL BBB+ (SO) Equivalent 04-08-17  Provisional CRISIL BBB+ (SO) Equivalent   -   -   - -
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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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