Rating Rationale
June 04, 2020 | Mumbai
Secure Trust April 2020
(Originator: IIFL Finance Limited)
'CRISIL A1+ (SO)' for Series A PTCs converted from Provisional Rating to Final Rating 
 
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
Secure Trust April 2020 Series A PTCs 150 166.66 12 8.34 CRISIL A1+ (SO) Converted from Provisional Rating to Final Rating
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A pass-through certificates (PTCs), issued by Secure Trust April 2020 to final rating of 'CRISIL A1+ (SO)'.
 
CRISIL has received the final legal documents executed for this transaction. These executed documents are in line with terms of the transaction when provisional rating/credit opinion was assigned. Hence, CRISIL has converted the provisional rating/credit opinion to a final rating/credit opinion.
 
Please click on the following link for detailed information on CRISIL's policy on provisional rating:
Revision in CRISIL policy for assigning 'provisional' ratings
 
As required, CRISIL has received the following final executed legal documents and other documents relevant to the transaction:

Legal documnets

  • Trust deed
  • Deed of assignment
  • Power of attorney1
  • Cash collateral agreement

Other documents 

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's representations and warranties letter

The pool is backed by gold loan receivables originated by IIFL Finance Limited (IIFL Finance; 'CRISIL AA/CRISIL PP-MLD AAr/Stable/CRISIL A1+'). The ratings are based on the credit support available to the PTCs, the credit quality of the underlying pool receivables, IIFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'par with turbo amortisation' structure, wherein the trust settled by Catalyst Trusteeship Limited (CTL), issued Series A PTCs in exchange of a purchase consideration equal to 90.00%, 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 Rs 26.59 (15.9% of pool principal) crore for Series A PTCs
  • External credit-cum-liquidity collateral of Rs 8.34 crore (5.0% of pool principal) also provides support to Series A PTCs

Series A PTC holders are promised interest and principal on an ultimate basis (UIUP) i.e. by the legal final maturity. There is a monthly expected payout schedule for principal and interest. However, non-payment of the expected, monthly principal and interest payments does NOT constitute a default on the PTCs.

1The power of attorney has not been executed given the current lockdown. However, the investor has provided their consent to accept the transaction and asked the originator to execute the power of attorney within one month of the lockdown being lifted. 

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 8.34 crore (5.0% of the pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating to Rs 26.59 Cr for Series A PTCs.
  • Current nature of all contracts in the pool
    • All the contracts in the pool are current as of the cut-off date (March 31st, 2020).
 Constraining Factors
  • Moderate geographic concentration
    • 45.2% of the outstanding pool principal is from Gujarat, Rajasthan and Delhi.
  • Impact of Covid-19 pandemic
    • Uncertainty regarding the economic impact of the Covid-19 pandemic and the magnitude of resultant asset quality implications on retail asset classes such as Gold loans.
Liquidity Position - Strong
Liquidity is strong given the level of credit enhancement available in the structure. Furthermore, principal and interest payouts are promised to the investors on an ultimate basis only. The absence of monthly promise in terms of interest and principal payouts enables the structure to withstand any temporary liquidity challenge.
 
Rating Sensitivity Factors  
 
Downward 
  • Credit collateral (internal and external combined) falling below 1.8 times the estimated base case loss
  • Weaker than expected performance of the pool in terms of scheduled collections
  • Material deviation of recovery from delinquent contracts as observed from the portfolio 
  • Material deviation in auction process followed by the originator (notices are sent to borrowers who cross ~70 dpd communicating the date, time and place of auction and the recovery process is completed by 120 dpd for most borrowers)
  • A sharp downgrade in the rating of the servicer/originator 
  • Non-adherence to the key transaction terms envisaged at the time of the rating
CRISIL has adequately factored these aspects in its rating analysis.

About the Pool
The pool cash flow is securitised and comprises receivables from gold loans originated by IIFL Finance. The pool has a weighted average net seasoning of 4.4 months, with Gujarat, Rajasthan and Delhi accounting for 45.2% of the pool principal outstanding. Average ticket size of the pool is Rs 69,436. All contracts in the pool were current as on the cut-off date (March 31st, 2020).

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL has analysed moving portfolio delinquency and static pool information (with information on 0+ overdues) for gold loan portfolio provided by IIFL Finance for originations in the period FY 2017 to Sep 2019 (with performance data till December 2019). The 90+ dpd for the gold loan portfolio of IIFL Finance is 0.82% as of December 2019.

CRISIL has also factored in pool specific characteristics and estimated the base case shortfalls in the pool by the maturity of the transaction in the range of 3.0 to 5.0 % of pool principal. 

  • Based on its assessment of IIFL Finance'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 IIFL Finance Rated 'CRISIL AA/CRISIL PP-MLD AAr/Stable/CRISIL A1+' No effect.
Servicer
 		 IIFL Finance Rated 'CRISIL AA/CRISIL PP-MLD AAr/Stable/CRISIL A1+' 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 ICICI Bank Rated 'CRISIL AAA/CRISIL AA+/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Corporate Guarantee IIFL Finance Rated 'CRISIL AA/CRISIL PP-MLD AAr/Stable/CRISIL A1+' Significant effect. Rating on PTCs will be directly linked to the credit rating on long term debt obligation of IIFL Finance.
Trustee CTL Adequate past track record Negligible effect. Can be replaced at minimal cost.

About the Originator
IIFL Finance is the listed holding company of the IIFL Finance group and is registered as a systemically important non-deposit taking non-banking finance company (NBFC). The group offers various retail lending products, including gold loans, home loans, LAP, business loans, micro finance and capital market based lending (margin funding and loan against shares).  It also offers construction and developer finance.
 
In fiscal 2008, IIFL Finance (erstwhile IIFL Holding Ltd) had launched its retail finance business through the NBFC, Moneyline Credit Ltd, which was later merged with IIFL Finance, with effect from April 2011. In fiscal 2009, India Infoline Housing Finance Ltd received a registration as a housing finance company from the National Housing Bank and was subsequently renamed as IIFL Home Finance. In fiscal 2017, IIFL Finance ventured into microfinance segment after acquisition of micro lender Samasta Microfinance. As of December 31, 2019, promoters hold 29.4% stake in IIFL Finance and 35.4% is held by Prem Watsa controlled Fairfax Holdings.
 
CRISIL has also analysed the standalone financials of IIFL Finance (now merged with IIFL Finance). The company reported a total income (net of interest expenses) and profit after tax (PAT) of Rs 1,518 crore and Rs 384 crore, respectively, in fiscal 2019, against Rs 1,238 crore and Rs 227 crore, respectively, in the previous fiscal. The company had networth and total assets of Rs 3,501 crore and Rs 17,719 crore, respectively, as on March 31, 2019.  For the nine months ended December 31, 2019, the company reported a total income (net of interest expenses) and PAT stood of Rs 140 crore and Rs 946 crore as against a total income (net of interest) and PAT of Rs 234 crore and Rs 1,047 crore in the corresponding period of the previous fiscal. The company had net worth and total assets of Rs 3639 crore and Rs 16,775 crore, respectively, as on December 31, 2019.
 
IIFL Finance (consolidated) had total income (net of interest expenses) and PAT of Rs 2,500 crore and Rs 804 crore, respectively, in fiscal 2019. For the nine months ended December 31, 2019, the total income (net of interest expenses) was Rs 1703 crore and PAT of Rs 444 crore, against Rs 1687 crore and Rs 490 crore, respectively, for the corresponding period of the previous fiscal. Excluding the one-time expense on account of reversal of deferred tax, PAT stood at Rs 543 crore for the period ended December 31, 2019.

Past Rated Pools
CRISIL has rating outstanding on two gold loan PTC transaction originated by IIFL.
Key Financial Indicators - (Consolidated; CRISIL adjusted numbers)
As on/for the period ended Unit Dec-19 Dec-18
Total Assets Rs crore 31,259 32,158
Total income (net of interest expenses) Rs crore 1,703 1,687
Profit after tax^ Rs crore 444 490
Gross NPA % 2.27% 3.74%
Return on managed assets (annualized) % 1.40% 1.50%
Gearing Times 4.5 5.9
Adjusted gearing Times 7.3 8.2
^Excluding the one-time expense, PAT and RoMA stood at Rs 543 crore and 1.8%, for the period ended December 2019.

IIFL Finance (Standalone; CRISIL adjusted numbers)
As on/for the period ended   Dec-19 Dec-18
Total income (net of interest expenses) Rs crore 946 1,047
Profit after tax Rs crore 140 234
Gross NPA % 3.30% 6.60%
Gearing Times 3.2 3.8
Adjusted gearing Times 4.0 4.8

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 (%) Outstanding
Rating		 Credit cum liquidity Enhancement (Rs Cr.)
Series A PTCs 150.00 30-Apr-20 18-Apr-21 10.00% CRISIL A1+ (SO) 8.34&
*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 26.59 crore in form of scheduled cash flows subordination (assuming zero prepayments)
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs  ST  150  CRISIL A1+ (SO)  29-04-20  Provisional CRISIL A1+ (SO)               
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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