Detailed Rationale

Crisil Ratings has placed its credit rating of ‘Provisional Crisil A2 (SO)’ on Series A1 pass-through certificates (PTCs) issued by 'InvoiceX 6’ on ‘Rating Watch with Developing Implications’ and has extended the validity period for conversion of the provisional rating to final rating by 90 (ninety) days. Please see section on Additional disclosures for provisional ratings for more details. The securitisation transaction is backed by a replenishing pool of invoice financing receivables originated by Loantap Credit Products Private Limited (Loantap rated: ‘Crisil BBB-/Crisil PPMLD BBB-/Negative/Crisil A3’).

 

The rating action follows non-receipt of critical information regarding the performance of the pool including the collection efficiency and overdues. Clarity on the replenished pool amount and the structural adherence of the same is also awaited. The rating watch shall be resolved on timely receipt of information. 

 

Payment Structure: The transaction has a ‘par with EIS’ structure, wherein the trust settled by Catalyst Trusteeship Limited (CTL) has issued Series A1 PTCs in exchange of a purchase consideration equal to 84.0%, of the pool principal at the time of securitisation and the 16.0% of the initial pool principal will act as overcollateralization. The pools shall continue to be serviced by Loantap in its capacity as servicer. The PTCs are issued under a replenishment structure with a door-to-door tenure of 12 months, i.e final maturity of PTC is 22nd December 2025. Of this, the first 6 months serve as the replenishment period followed by the amortisation period of 2 months. The transaction has a tail period of 4 months and only in case of any trigger event the tail period be reduced to 3 months.

 

During the replenishment period, monthly interest payments are promised to PTC investors. Cash flows will be first utilised to make interest payout to the investor. Post that the cashflow available will be utilised to purchase additional loans, that meet pre-defined eligibility criteria, such that the outstanding pool principal is equal to the initial pool principal. Residual cash flows after replenishment will flow out to the originator. During the replenishment period, overcollateralization of 1.25 times (by loans which are not overdue beyond 30 days) of the principal value of the PTCs is to be maintained. Overcollateralization falling below 1.25 times of the PTC principal will be a replenishment trigger event. In case of a replenishment termination event (defined at the time of issuance of PTCs), the replenishment period shall end immediately, and amortisation period will come in effect.

 

During the amortisation period, interest payments are promised to the investors on a monthly basis while principal payments to investors are expected on monthly basis based on the amortisation schedule of the final crystallised pool. Principal is promised to the PTC holders on legal final maturity date, any shortfall would be paid using available cash collateral. Excess interest spread shall flow back to the originator during the amortisation and the replenishment period until there is no overdues in the pool beyond 30 dpd.

 

Adequacy of credit enhancement:

The PTC payouts are supported by internal credit enhancement through principal subordination in the form of principal over-collateralization of 16.0% of pool principal and subordination of excess interest spread (EIS), as well as external credit enhancement through cash collateral amounting to 5.0% of pool principal (which can be drawn down to meet promised investor payouts).

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement available in the transaction structure to support PTC payouts:

-                      Cash collateral of Rs 0.29 crore (5.0% of pool principal)

-                      Scheduled principal subordination in the form of over collateral aggregating to Rs 0.91 crore (16.0% of pool principal) fully subordinated to Series A1 PTCs, and subordination of excess interest spread (EIS).

• Borrower credit profile and repayment track record of pool loans:

-                      All borrowers in the pool are current as of the pool cut-off date.

-                      Any follow-on receivables to be added to the pool shall belong to the borrower where the minimum vintage with LoanTap has been 3 months

• Legal soundness of the transaction structure:

-                      The structure envisaged for the transaction entails bankruptcy-remoteness of the pool of receivables and credit enhancement from the originator, and adherence to prevailing regulations on securitisations.

-                      These shall be certified through an independent legal opinion from an external legal counsel.

 

Weaknesses:

• Borrower concentration

-                      As per the eligibility criteria, the pool shall have top 10 borrowers being restricted to 25% and top borrower to 5.5% basis Bureau eligibility exposing the transaction to idiosyncratic risks associated with high borrower concentration.

• Exposure to dealer / retailer financing

-                      Given the SME nature of such retailers, their delinquency performance could be volatile, depending on the business environment.

• Potential changes in pool characteristics during replenishment period

-                      There are risks of a dynamic pool that could undergo changes (within the boundary conditions defined by the eligibility criteria) during the replenishment period of six months, by the end of which the initial receivables in the pool would be replaced with follow-on receivables.

-                      Delinquencies could build up in the underlying pool during the replenishment period; such build-up is controlled through early amortization trigger event of over 5% receivables becoming overdue for more than 15 days at an invoice level and trigger event of over 10% receivables becoming overdue for more than 15 days at a borrower level.

 

These aspects have been adequately factored in its rating analysis by Crisil Ratings.

Liquidity: Adequate

Liquidity is adequate given that the credit enhancement in the structure (internal and external combined) in the structure is sufficient to cover losses exceeding 1.1 times the expected losses from the pool.

Rating Sensitivity factors

Upward factors:

• Materially lower build-up of overdues in the pool during the replenishment period vis-à-vis trigger event for early amortization of over 10% of pool being overdue for more than 15 days past due.
• Healthy pool amortization leading to credit enhancement build-up.

 

Downward factors:

• Non-adherence to the key transaction terms envisaged at the time of the rating.
• Weaker than expected performance of the pool due to deterioration in credit quality of the borrowers
• A sharp downgrade in the rating of the servicer/originator.

Quality of the asset pool and strength of cashflows

Initial pool characteristics

The salient features of the initial pool as on the cut-off date (December 18, 2024) based on the loan-level information submitted to Crisil Ratings are as follows:

-          The contracts in the pool pertain to invoice finance loans originated by Loantap.

-          All contracts in the pool have seen at least 2 repayment cycles.

-          All contracts in the pool have bullet principal repayment and interest is monthly (as per the invoice cycle)

 

Furthermore, the originator has represented the following:

None of the loans in the pool has been restructured or rescheduled.

The loans are not hypothecated to any lender and do not have any encumbrances on the date of securitisation.

 

Key parameters of the initial pool as on the cut-off date of December 18, 2024 are as follows:

Parameter	Values
Number of borrowers	1067
Pool principal outstanding (as on December 18, 2024)	Rs. 5.71 Crore
Pool cash flows receivable (from December 19, 2024)	Rs. 5.77 Crore
Weighted average interest rate (p.a.p.m)	20.8%
Weighted average invoice original tenure	17.4 days
Top 10 borrower exposure (% of pool principal)	20.9%
Overdue status	All contracts are current as of the cut-off date

 

Eligibility criteria for follow-on receivables in the pool

Parameter	Eligibility criteria
Nature of receivables	All invoices forming part of the pool are accepted invoices of the Obligors. The Identified Receivables should be unencumbered Each invoice has been financed by the seller only once None of the Loans have been rescheduled as on Pool Cut Off Date None of the Loans are in the nature of revolving credit facilities (e.g. cash credit accounts, credit card receivables etc.); The minimum vintage between the Seller and the Obligor of the Seller, is atleast 3 (Three) months
Concentration	Top 10 borrower shall not contribute more than 25% of the POS STRCL product with BigBasket and under 'L&T Sufin' product, NTC borrowers shall not have POS of more than INR 50,000 per borrower Under 'Common-STRCL' product, NTC borrowers shall not have POS of more than INR 30,000 per borrower Non-NTC Borrowers under any financing product shall not have POS of more than INR 10,00,000 per borrower For NTC customers under Common STRCL product POS cannot exceed Rs 30,000. For NTC customers, with Big Basket as anchor, POS cannot exceed Rs 1 lakh State wise concentration shall not exceed 30% for any state
Bureau	Bureau score of all borrowers is >650. For Borrowers with Bureau Score >650 & <725, maximum exposure is 2% of receivables. For Borrowers with Bureau score >725, maximum exposure is capped at 5.5% of receivables
Anchor	Invoices shall pertain to only the following product types: Short-term Rotational Credit Line (“STRCL”) with BigBasket as Anchor; ‘Common-STRCL’ product with Anchor other than BigBasket; and, invoices financed through the L&T Sufin platform; STRCL with BigBasket as Anchor” shall constitute at least 80% of the underlying pool
Delinquency track record/MHP	The Obligors should meet the MHP criteria as prescribed by the Securitisation Directions. (Fully paid 2 trade receivables) None of the Obligors are delinquent on (or have defaulted on) any other financial obligations with the Seller. Zero DPD as of cut off date.
ROI	Rate of Interest being charged by the seller from the obligors shall not exceed 24% and at any point, the minimum WA IRR of the pool shall not be below 18.0% through-out the tenure of the instrument
Balance tenure	The balance tenor of the identified receivables should not be more than 60 days. The balance tenure for the Follow – on Receivables to end atleast 120 days before Series A1 Final Maturity Date.

 

Trigger events for early amortisation

Parameter	Trigger
Rating	Downgrade in the rating of the PTCs by the Rating Agency if the Rating assigned to the Seller falls below BBB- by the Rating Agency or any other rating agency
Pool related	If cumulative collection efficiency is less than 95%. More than 5% of the receivables are in overdue status for more than 15 days (invoice level) More than 10% of the receivables are in overdue status for more than 15 days (borrower level) Failure of the Seller to provide sufficient eligible receivables (such that principal portion of the follow on receivables) is less than 80% of the collected principal CC is utilized during the Replenishment Period, to meet any shortfall in the Series A1 Yield
Originator / servicer related	GNPA as % of AUM of the Seller exceeds 5.0%. Capital Adeq Ratio of the Seller at previous quarter end has fallen below 20% Debt to a financial creditor is not paid on due date. Occurrence of a Servicer's Event of Default as specified in the Servicing Agreement; Any reps/warranties by the Seller / Servicer is found to be false or the Seller/ Servicer’s inability to perform its obligations and undertakings under the Transaction Documents failure of the Seller to provide sufficient receivables (equivalent to the Accumulated Amounts) arising out of Loans on its books (which meet the Selection Criteria) for sale to the Trust during the Replenishment Period, such that the principal portion of the additional receivables being provided are less than 80% (Eighty Percent) of the Accumulated Amounts (in the Collection and Payout Account);

 

Key Rating Assumptions and Sensitivity To assess the potential losses from the pool receivables, Crisil Ratings has factored the following in its analysis: To assess the potential losses from the pool receivables, Crisil Ratings has factored the following in its analysis:   Portfolio Performance: Crisil Ratings has analysed the 0+ overdues and recoveries of Loantap originations. Crisil Ratings has, in its base case, estimated the peak shortfalls in the pool during the tenure of the transaction in the range of 5.0% to 7.0% of pool principal. These have been further stressed, commensurate with the rating level of the SNs.   Changes in pool characteristics due to replenishment: Crisil Ratings has modelled a potential pool based on the boundary conditions defined by the eligibility criteria and early amortization triggers.   Additionally, Crisil Ratings has also considered the following: Prepayment risks: Crisil Ratings have assumed prepayments in line with the historical repayment track record of the borrowers in the pool. Commingling risks: Crisil Ratings has adequately factored in commingling risks, linked to its view on the credit quality of the servicer.  Counterparty risks: Crisil Ratings has adequately factored the risks arising out of counterparties (refer Counterparty details).

 

Additional disclosures for provisional ratings:

The team has received the executed transaction documents (Amended and restated Trust Deed, Deed of Assignment, Accounts Agreement, Servicing Agreement and General Power of attorney) and other documents (Information Memorandum, Legal opinion, Trustee letter, Originator’s representation & warranties letter and Auditor’s certificates).

 

However, Crisil Ratings is yet to receive critical information regarding the collection’s efficiency, replenished pool amount, structural adherence of the same and understands from the originator that the same are in the process of being shared shortly.

 

In due consideration of the above, Crisil Ratings has extended the validity period for conversion of the provisional rating to final rating by 90 days.

 

The provisional rating shall be converted into final rating following receipt of transaction documents duly executed and/or confirmations on completion of pending steps within the 90 days extended validity period.

 

The final rating assigned after end of 90 days shall be consistent with the available documents or completed steps, as applicable.

 

Rating that would have been assigned in absence of pending steps/documentation:

SEBI’s circular dated April 27, 2021 prescribes the requirement of specifying the rating that would have been assigned in absence of the pending steps/ documentation considered while assigning provisional rating. However, Crisil Ratings believes that in this case, the absence of the pending steps/ documentation would not result in any rating being assigned.

 

Risks associated with provisional nature of the credit rating

A prefix of ‘Provisional’ to the rating symbol indicates that the rating is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable. In case partial / complete documentation received and/or completion of steps deviates significantly from the expectations, the rating may be subject to rating actions, including placing the rating on watch or a rating/outlook change, depending on status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio.

About the Company- Originator/Servicer profile
LCPPL, formerly known as Lotus Sree Filco Pvt Ltd (LSFPL) is a wholly owned subsidiary of LFTL.  LFTL started as an online marketplace in May 2016, with focus on lending customised personal loan products to salaried customers. LCPPL was a registered company since 1996 but was dormant from 2010 until 2016. In 2016, LFTL acquired LSFPL with around 24% stake, which was later increased to 100% and started originating unsecured personal loans for salaried customers from July 2016 on its book. From April 2017, it started providing MSME financing to self-employed customers as well. As on June 30, 2024, 54% comprised personal loans, 28% comprised STRCL, 11% was MSME loans and Electric two wheeler constituted the rest.

The group had AUM of Rs 388 crore as on March 31, 2024 as against Rs. 357 crore as on March 31, 2023. The group reported losses of Rs. 12.4 crore on total income of Rs 67.5 crore in fiscal 2024, as against losses of Rs. 21 crore on total income of Rs 69 crore in fiscal 2023.