CRISIL has assigned its 'Provisional CRISIL AA+ (SO)' rating to Series A Pass-Through Certificates (PTCs) issued by 'MASTER TRUST 2019 SERIES I' under a securitisation transaction originated by Piramal Capital and Housing Finance Ltd (PCHFL; rated 'CRISIL A1+') and PHL Fininvest Pvt Ltd (PHLFPL; not rated by CRISIL).
 
This transaction is backed by a pool of construction finance, loan against property (LAP), loan against shares (LAS), project finance, lease rental discounting (LRD), senior debt and structured debt loan receivables. The rating is based on the credit support available to the PTCs, soundness of the transaction's legal structure, and PCHFL's and PHLFPL's origination and servicing capabilities as evidenced by the strong asset monitoring mechanisms and their demonstrated ability for resolution of stressed cases in their portfolios.
 
The transaction has a 'par with turbo amortisation' structure wherein the seller will assign the loan receivables to 'MASTER TRUST 2019 SERIES I' in exchange for a purchase consideration which is equal to the 70% of the pool principal. The trust will issue Series A PTCs for 70% of the pool principal. Catalyst Trusteeship Limited (CTL) has been appointed as the trustee to monitor the transaction on behalf of the PTC investors. PCHFL and PHLFPL will continue to service the pool contracts as servicing agents.
 
Investor payouts for Series A PTCs are supported by credit collateral and scheduled cashflow subordination. The total credit support available in the transaction is as below:

• Internal credit support in the form of scheduled cashflow subordination assuming zero prepayments aggregating Rs 1,799.22 crore (39.9% of pool cashflows)
• External credit enhancement of Rs 474.45 crore (10.5% of pool cashflows) in the form of a Fixed Deposit

Series A PTC holders are promised interest and principal on an ultimate basis (UIUP) by the legal final maturity. There is a monthly, expected payout schedule for principal and interest, and credit enhancement, to the extent available, shall be utilised to meet the expected principal and interest payments. However, non-payment of the expected, monthly principal and interest payments does NOT constitute a default on the PTCs. Default on the PTCs is defined as non-payment of PTC interest (10.5% coupon rate) and principal in full by the legal final maturity date.
 
Post the redemption of PTCs, the residual cashflows from the pool (if any) will be passed to the investor such that the returns of the investor equals the pool yield. CRISIL's rating does NOT comment on the payment of residual cashflows i.e. non-payment of residual cashflows before the legal final maturity of the PTCs does NOT constitute a default on the PTCs.
 
This is a 'Provisional' rating and will be converted into a 'Final' rating on receipt of the following documents:

• Trust Deed
• Power of Attorney
• Information memorandum
• Assignment Agreement
• Collection and Servicing Agency Agreement
• Cash Collateral Agreement
• Legal opinion on true sale and creation and perfection of charge  and enforceability of underlying security
• Trustee letter
• Seller's Representations and Warranties letter

Additional documents executed for the transaction, if any, should also be provided. A rating rationale/report indicating the conversion of the 'Provisional' rating to 'Final' rating post receipt of all the required final legal documentation will be published on the CRISIL website.
 
Please click on the link below for detailed information on CRISIL's policy on provisional ratings/credit opinions:
Revision in CRISIL policy for assigning 'Provisional' rating.

Supporting Factors 

• Credit support available in the structure
  • The single tranche of Series A PTC in the transaction is backed by robust overall credit enhancement with credit collateral of Rs 474.45 crore (10.5% of pool cashflows) and the scheduled cashflow subordination aggregating Rs 1,799.22 Cr (39.9% of pool cashflows) 
     
• Ultimate promise of principal and interest payouts
  • The indicative maturity of Series A PTCs is 30 months as per the scheduled pool cashflows whereas, the legal final maturity of the PTCs is 72 months. Moreover, the interest and principal are promised to the investor only on an ultimate basis. This structural feature provides a tail period (gap between the indicative and legal final maturities) of 42 months. Hence, in case of shortfalls in collections and non-payment of payouts to Series A PTC holders as per expected schedule, tail period is available to enable recoveries from defaulting assets through rollbacks, settlement, sale of assets, enforcement of security, etc. 
     
• Performance track record of the originators
  • The Piramal group entities through their performance history have shown low level of NPAs in their real estate books.  Moreover, the group has been agile in taking corrective steps in case of any deterioration in the asset quality by resorting to work-outs, taking over of the project management, sale of additional security provided for the project or enforcing the underlying security. As on 30 June 2019, the total loan book of Piramal Capital and Housing Finance Ltd (PCHFL) stood at Rs. 39,145 crore and the 90+ dpd was 0.36% of assets under management (AUM). The book size of PHL Fininvest Pvt Ltd (PHLFPL) stood at Rs. 12,140 crore with nil NPA. The company has a strong asset monitoring system in place that focuses on early warning signals of stress thereby enabling the management to take proactive corrective measures where required. Of the cases where proactive measures were initiated in the last one year, the corrective measures were successfully implemented in about 55% of the cases and the remaining 45% of the cases are in advanced stages of resolution. Typical corrective measures taken by the company include bringing in strong developer (to take over the project and loan), initiating legal action to monetise additional security to clear overdues, providing required cash for the project implementation and providing a composite workaround solution. Given the significant recoveries either through work-out or asset sales, the losses from defaulting or stressed assets have been minimal for the group so far. 
     
• Payment track record of the underlying contracts
  • Contracts in the pool have weighted average seasoning of 19.8 months from the first interest payment date and all the contracts are current as of the cut-off date (31^st July 2019). The total disbursements for the underlying contracts in the pool is Rs. 5,390.97 crore and as of the cut-off date the pool is amortised by 37.1%.

Constraining Factors

• Borrower concentration
  • The transaction is backed by a pool of 52 loans from 33 unique groups; top 10 groups account for 62.1% of the pool.
• Geographic and sector concentration
  • The pool is concentrated in terms of geography as well as sector exposure. The top 3 cities i.e. Mumbai, NCR and Chennai account for 75.4% of the pool principal and more than 80% of the pool is from the real estate sector
• Credit quality of the underlying contracts
  • Majority of the pool is from assets which are unrated and which in CRISIL's opinion would be in sub-investment grade
• Basis Risk
  • There is basis risk in the transaction as pool yield is floating and linked to originator's prime lending rate whereas the investor yield is fixed

These aspects have been factored by CRISIL in its rating analysis through simulations based cash flow modeling and by stressing the key assumption variables.
 
Rating Sensitivity factors
Upward factors:

• Performance of the pool
  • Substantially better than expected performance of the underlying contracts in the pool
  • Substantially better than currently anticipated recovery post default from the underlying pool both in terms of time to recovery and amount recovered 
     
• Build-up of credit enhancement
  • Cash collateral available in the structure covers 100% of the future investor payouts

Downward factors:

• Credit collateral (internal and external combined) falling below 2.0 times the estimated base case loss
• A sharp downgrade in the rating of the servicer/originator
• Non-adherence to the key transaction terms envisaged at the time of the rating
• Non-availability of legal opinion confirming true sale and bankruptcy remoteness of the pool from the originator
• Non-availability of legal opinion confirming enforceability of the security of the underlying projects
• Weaker than expected performance of the pool in terms of scheduled collections or post default recovery

Liquidity Position - Strong
Liquidity is strong given the high 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.
 
About the pool
This transaction is backed by a pool of construction finance, loan against property (LAP), loan against shares (LAS), project finance, lease rental discounting (LRD), senior debt and structured debt loan receivables. If tax is erroneously deducted at source by the borrowers while making loan repayments, the originators shall deposit the equivalent amount into collection and payout (C&P) account in lieu of taking benefit of the TDS certificates. 72.2% of the pool principal is from Mumbai, NCR and Chennai and top 10 groups account for 62.1% of the pool. Weighted average seasoning of the contracts is 19.8% from the first interest payment date. All contracts were current on payment as of the pool cut-off date (July 31, 2019). CRISIL has adequately factored all these aspects in its rating analysis.

Rating assumptions
To assess the total cashflows available for payouts to PTC investors, CRISIL has factored in the following in its analysis:

• Credit quality of the underlying assets: - The performance of the pool is dependent on the underlying obligors' capacity to repay the loans i.e. the credit quality of the underlying obligors. CRISIL has evaluated the Project Risk (demand risk, funding risk and implementation risk), Financial Risk and Management Risk of the underlying obligors to determine their credit quality. Based on CRISIL's assessment, the credit profile of bulk of the underlying assets would be in the sub-investment category. 
   
• Post default recovery from the underlying assets: The indicative maturity of Series A PTCs is 30 months as per the scheduled pool cashflows compared to the legal final maturity of 72 months. Hence, in case of shortfalls in collections, about three and half years or a longer period of time is available to enable reasonable recovery from non-performing assets. CRISIL has evaluated the project implementation status to determine the post default recovery. For projects where the cost incurred is less than 25% of the project cost, the assumed recoveries are based on potential distressed sale value of land. For the remaining projects, recoveries have been determined by stressing the future expected cash flows (sold and unsold inventory) net of project implementation cost. CRISIL has only considered recovery from the project against which the debt has been raised. No additional cash flows, in form of cross- collateralization with other debts and projects outside of the securitised pool, additional land securities given as collateral and personal guarantees of the promoter, has been considered in estimation of recoveries. Based on the evaluation, the following assumptions have been used:
  • The post default recovery in the range of 0% - 70% of the outstanding principal at the time of default
  • Time lag of 24-48 months from the date of default for recoveries  
     
• Correlation between assets: CRISIL has assumed higher level correlation in following situations over and above the base level of correlation:
  • Assets located in the same micro market.
  • Assets from the same sector
  • Assets from the same group

CRISIL's assumption of the correlation for inter group projects is 0.3 - 0.5 (based on geography and sector), for intra group projects is 0.6 - 1 and 0.1 - 0.3 in all other cases.
 
Asset side cashflows were assessed using Monte Carlo simulations incorporating default probabilities, correlations and recovery rate assumptions. With sufficiently large number of trials, cashflow distribution was generated and these were evaluated to arrive at the final rating on the PTCs.
 
Counterparty details

Capacity	Counterparty Name	Counterparty Rating / Track record	Effect on credit ratings in case of non-performance
Originator and seller	PCHFL	Rated 'CRISIL A1+'	No effect.
	PHLFPL	Not rated by CRISIL
Servicer	PCHFL	Rated 'CRISIL A1+'	Significant effect; however, CRISIL does not envisage the requirement for replacement of the servicer given CRISIL's view on servicer's rating.
	PHLFPL	Not rated by 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.
First Loss Facility in the form of Fixed Deposit	HDFC Bank	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
Piramal Capital and Housing Finance Ltd
PCHFL was incorporated in February 2017. The entity was formed as a 100% subsidiary of Piramal Finance Ltd (PFL). PFL, itself, was a wholly-owned subsidiary of Piramal Enterprises Ltd. (PEL). Till 2016, the financing portfolio was booked in PEL with limited operations in PFL. In fiscal 2017, following a business restructuring, Rs 13,706 crore of assets and Rs 12,575 crores of liabilities were transferred to PFL from PEL.
 
In August 2017, PCHFL received a certificate for commencement of housing finance business from National Housing Bank (NHB). Subsequently, the Board of PEL, the parent of PFL, approved a scheme of amalgamation of PFL and Piramal Capital Ltd (PCL) into PCHFL. PCL was a subsidiary of PEL and had limited operations. The merger process was completed in July 2018 with effect from 31^st March 2018. Consequently, all outstanding assets and liabilities of PFL were transferred to PCHFL. Post the merger, PCHFL has become a wholly owned subsidiary of PEL.

PCHFL has 4 business verticals: (i) real estate financing which lends to real estate developers with established track record with increasing focus on providing loans for construction finance and lease rental discounting, (ii) Corporate Finance Group which lends to corporate clients across sectors (including infrastructure, cement, renewables, auto, logistics, services and entertainment) with loan size greater than Rs 100 crore; (iii) Emerging Corporate Group which provides finance to mid-tier companies with loan size of upto Rs 100 crores and (iv) Housing Finance which focuses on providing home loans.

PHL Fininvest Private Limited
PHL Fininvest Private Limited, a wholly owned subsidiary of PEL, is registered as Non-Banking Financial Company with the Reserve Bank of India (RBI) and engaged in various financial services businesses. It provides funding opportunities within real estate and non-real estate sectors such as infrastructure, hospitality, automotive, financial services, transport, renewable energy, entertainment, etc.
 
Historically, the company was incorporated in June 1994 in the name of NPIL Fininvest Private Limited. In June 2000, NPIL Fininvest Private Limited received a certificate for commencing business of non-banking financial institution without accepting public deposit from the RBI. Later the name of the company was changed to PHL Fininvest Private Limited w.e.f. 26^th December, 2008.

PHL Fininvest Private Limited has 3 business verticals: Real estate financing, Corporate Finance Group and
Emerging Corporate Group.
 
Previously rated transactions
CRISIL does not have ratings outstanding on any securitisation transaction originated by PCHFL or PHLFPL.

Any other information: Not applicable