Rating Rationale
February 11, 2020 | Mumbai
MFL SECURITISATION TRUST XCIV
(Originator: Magma Fincorp Limited)
'CRISIL AAA (SO)' for Series A1 PTCs and Series A2 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 Cr) Outstanding Principal*
(Rs Cr)		 Original Tenure (Months) Credit Collateral
(Rs Cr)		 Ratings/Credit Opinions Rating Action
MFL Securitisation Trust XCIV Series A1 PTCs 94.74 83.70 41 10.835 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Series A2 PTCs 1.93 1.71 CRISIL AAA (SO)
Second loss facility 3.095 3.095 7.74 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*After January 2020 payouts
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A1 and A2 pass-through certificates (PTCs) issued by 'MFL Securitisation Trust XCIV' under a securitisation transaction originated by Magma Fincorp Limited (MFL; rated 'CRISIL A1+') to final rating of 'CRISIL AAA (SO)'. The provisional credit opinion for second loss credit facility of this transaction is converted to final credit opinion of 'CRISIL BBB+ (SO) Equivalent'.
 
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 documents:-
Deed of Assignment           
Trust Deed
FLCF Agreement     
SLCF Guarantee
Power of Attorney 

Other documents: -
Legal Opinion
Information Memorandum
Auditor's Certificate
Trustee Awareness Letter
Representations and Warranties
 
This transaction is backed by a pool of receivables from new and used car, commercial vehicle (CV), construction equipment (CE) loans originated by MFL. The ratings/credit opinions are based on credit support available to instruments, credit quality of the underlying pool of receivables, MFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread (EIS)' structure. In exchange for a purchase consideration equal to future pool principal outstanding as on the cut-off date, MFL assigned the loan pool to 'MFL Securitisation Trust XCIV', a trust settled by Catalyst Trusteeship Limited (CTL), which issued instruments to investors. Investor payouts for Series A1 and Series A2 PTCs are supported by credit collateral and subordination of excess interest spread (EIS).
 
Total credit support available in the transaction structure is as below:

  • Internal credit enhancement in the form of scheduled EIS aggregating Rs 9.00 crore (9.3% of pool principal outstanding as of the cut-off date)
  • External credit enhancement of Rs 10.835 crore (11.2% of pool principal outstanding as of the cut-off date) of which First Loss Facility of Rs 7.74 crore (8.0% of pool principal outstanding as of the cut-off date) is in form of Fixed Deposit, and Second Loss Facility of Rs 3.095 crore (3.2% of pool principal oustanding as of the cut-off date) also is in the form of Fixed Deposit.

Series A1 PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis, while Series A2 PTC holders are promised timely principal payments on a monthly basis. Series A2 PTC holders are entitled to receive a residual yield. MFL will continue to service loan contracts in the pool as the servicing agent.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Internal and external credit enhancement
    • A credit collateral of Rs 10.835 Cr (11.2% of the pool principal outstanding as of the cut-off date) provides credit support to Series A1 & Series A2 PTC investor payouts. PTC holders also benefit from scheduled EIS aggregating Rs 9.00 crore (9.3% of pool principal outstanding as of the cut-off date)
  • Seasoning of contracts
    • Loan contracts in the pool supporting this transaction have seen a weighted average seasoning of 9.7 months prior to securitisation, during which 25.2% of disbursed principal has amortised
Constraining Factors
  • Moderate Geographic concentration
    • Contracts originated in the top 3 states account for 58.9% of pool principal outstanding
Liquidity: Strong 
Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls
 
Rating Sensitivity factors
Upward
  • For Series A1 & Series A2 PTCs - Credit enhancement (both internal and external credit enhancement) available in the structure exceeding 3.0 times the estimated base case shortfalls on the residual cash flows of the pool.
Downward
  • For Series A1 & Series A2 PTCs - Credit enhancement (both internal and external credit enhancements) available in the structure falling below 2.0 times the estimated base case shortfalls
  • A sharp downgrade in the rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating

About the Pool
The transaction is backed by receivables from pool of car, commercial vehicle, and construction equipment loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 9.7 months. Contracts in the pool are also geographically concentrated with the top 3 states accounting for 58.9% of pool principal. The average ticket size for contracts in the pool is Rs 3.8 lakh, with a weighted average loan-to-value ratio of 78.6% at disbursement. The weighted average interest rate for contracts in the pool is 15.2%. All contracts were current on payment as of the pool cut-off date (September 30, 2019). CRISIL has adequately factored all these aspects in its rating analysis.

Rating Assumptions 
To assess the base case collection shortfalls1 for the transaction, CRISIL has analysed the performance of static pool for Car, CV and CE loans originated by MFL originated from FY2013 onwards and their performance till September 2018. CRISIL has also factored in the observed trends in the delinquencies and collection in the recent quarters. As of June 2019, the 90+ delinquency (net of write-offs and NPA sales) on MFL's Car portfolio is 5.3%, New CV portfolio is 3.8%, Used CV portfolio is 3.6%, and CE portfolio is 4.6%.

CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 4-6% of future cash flows from the pool.

  • CRISIL has assumed a stressed monthly prepayment rate of 0.5 to 1.5 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 of servicer is '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 MFL Rated 'CRISIL A1+' No effect.
Servicer MFL Rated 'CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank HDFC Bank Ltd. Rated 'CRISIL AAA/CRISIL AA/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Fixed Deposit HDFC Bank Ltd. Rated 'CRISIL AAA/CRISIL AA/Stable' Significant effect; however, the second loss facility agreement incorporates a rating trigger according to which if CRISIL's rating of the guarantor or bank guarantee provider falls below 'CRISIL AA', the Originator (at its own cost) must arrange for another guarantor or bank guarantee (from an eligible Bank) or substitute the credit enhancement in the form of a fixed deposit as per CRISIL's criteria
First loss facility in the form of Fixed Deposit HDFC Bank Ltd. Rated 'CRISIL AAA/CRISIL AA/Stable' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee CTL Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
Incorporated as Magma Leasing Ltd, Magma Fincorp commenced operations in 1989. The company is a significant player in the asset-finance business with loan AUM of Rs 15,555 crore as on March 31, 2018. It has a significant presence in the passenger car and utility vehicle finance segment. It also provides construction equipment and commercial vehicle loans to small entrepreneurs and small road transport operators. The company has diversified its product offerings by financing tractors, pre-owned vehicles, providing mortgage finance, and lending to the SME sector.

In February 2013, Magma Fincorp acquired GE Money Housing Finance. Post-acquisition, the company was renamed Magma Housing Finance Ltd. Additionally, the Magma group acquired the home equity loan portfolio of GE Money Financial Services Pvt Ltd. Magma ITL, incorporated in 2007 as an NBFC, which was set up in joint venture with International Tractors Ltd (the manufacturer of Sonalika tractors), has been merged with Magma Fincorp.

Past Rated Pools
CRISIL has ratings outstanding on fourteen transactions originated by MFL. CRISIL is receiving monthly performance reports pertaining to these transactions in a timely manner.

1Collection shortfalls are defined as difference between scheduled receivables and collections made for the month.
Key Financial Indicators
Particulars as on March 31 Unit 2019 2018
Total assets Rs Cr 16789 14894
Total income Rs Cr 2513 2328
Profit after tax Rs Cr 304 237
Gross NPA % 4.8 8.6
Adjusted gearing Times 5.6 7.7
Return on assets % 1.8 1.4

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 A1 PTCs 94.74 30-Oct-19 08-Mar-23 9.10% CRISIL AAA (SO)$ 10.835 *
Series A2 PTCs 1.93 - CRISIL AAA (SO)&
Second loss facility 3.095 Not applicable CRISIL BBB+ (SO) Equivalent 7.74
#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 9.00 Cr (assuming zero prepayments) also provides credit support to PTCs
*Includes a second loss facility of Rs 3.095 Cr
$Series A1 PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis
&Series A2 PTC holders are entitled to receive timely principal payments on a monthly basis. The rating on Series A2 PTCs covers only the principal payments and not the interest payments as Series A2 PTC holders are eligible to receive a residual yield only
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 A1 PTCs LT 83.70   CRISIL AAA (SO)     29-11-19  Provisional CRISIL AAA (SO)          
Series A2 PTCs LT   1.71    CRISIL AAA (SO)      29-11-19   Provisional CRISIL AAA (SO)          
Second loss facility LT 3.095 CRISIL BBB+ (SO) Equivalent     29-11-19  Provisional CRISIL BBB+ (SO) Equivalent          
All amounts are in Rs.Cr.
 
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions
Rating Criteria for Finance Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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