Rating Rationale
July 03, 2020 | Mumbai
VIVRITI HOLLOWAY - 05 2020
(Originator: Muthoot Fincorp Limited)
'Provisional CRISIL A1+ (SO)' assigned to Series A1 PTCs
 
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
VIVRITI HOLLOWAY - 05 2020 Series A1 PTCs 99.97 106.35 11 7.44 Provisional CRISIL A1+ (SO) Provisional Rating Assigned
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, Securities and Exchange Board of India (SEBI) directive, 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in-principle ratings assigned by CRAs'.
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL A1+ (SO)' rating to Series A1 pass-through certificates (PTCs), issued by VIVRITI HOLLOWAY 05 2020. The pool is backed by gold loan receivables originated by Muthoot Fincorp Limited (MFL; 'CRISIL A/CRISIL BBB+/Stable/CRISIL A1'). The ratings are based on the credit support available to the PTCs, the credit quality of the underlying pool receivables, MFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has 'par with turbo amortisation' structure i.e. Excess Interest Spread (EIS) will be utilised to prepay principal on a monthly basis. Series A1 PTC holders are promised interest on a monthly basis and principal is promised on an ultimate basis (TIUP) i.e. by the legal final maturity. Catalyst Trusteeship Ltd (CTL) has been appointed to monitor the transaction on behalf of the PTC holders, the trust will issue Series A1 PTCs in exchange of a purchase consideration equal to 94.00%, 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 10.62 crore (10.0% of pool principal) crore for Series A1 PTCs
  • External credit-cum-liquidity collateral of Rs 7.44 crore (7.0% of pool principal) also provides support to Series A1 PTCs

MFL will continue to service the pool contracts as the servicing agent.
 
This is a 'provisional' rating and will be converted into a 'final' rating on receipt of the following documents:

  • Trust deed
  • Assignment agreement
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee letter
  • Auditor's certificate
  • Representations and warranties letter
  • Account Agreement
  • Servicing Agreement

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

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 7.44 crore (7.0% of the pool principal) provides credit support to Series A1 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating to Rs 10.62 crore for Series A1 PTCs.
  • Current nature of all contracts in the pool
    • All the contracts in the pool are current as of the cut-off date (May 27th, 2020).
Constraining Factors
  • Moderate geographic concentration
    • 43.6% of the outstanding pool principal is from Karnataka, Tamil Nadu 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. The enhancement fully covers promised interest payouts for all the months even with no collections from underlying receivables. Furthermore, principal payouts are promised to the investors on an ultimate basis only.
 
Rating Sensitivity Factors  
 
Downward 
  • Credit collateral (internal and external combined) falling below 1.75 times the estimated base case loss
  • Material deviation of recovery from delinquent contracts as observed from the portfolio 
  • Material deviation in auction process followed by the originator
  • 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 MFL. The pool has a weighted average net seasoning of 3.4 months, with Karnataka, Tamil Nadu and Delhi accounting for 43.6% of the pool principal outstanding. Average ticket size of the pool is Rs 32,516. All contracts in the pool were current as on the cut-off date (May 27th, 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 MFL for originations in the period April 2017 to Dec 2019 (with performance data till December 2019). The 90+ dpd for the gold loan portfolio of MFL is 0.6% as of March 2020.

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 4.0% to 6.0% of pool principal.
  • Based on its assessment of MFL'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 MFL Rated 'CRISIL A/CRISIL BBB+/Stable/CRISIL A1' No effect.
Servicer
 		 MFL Rated 'CRISIL A/CRISIL BBB+/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 Limited Rated 'CRISIL AAA/CRISIL AA+/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit DCB Bank Limited Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee CTL Adequate past track record Negligible effect. Can be replaced at minimal cost.

About the Originator
MFL, set up in 1997, is a non-deposit-taking, systemically-important NBFC, engaged in lending against gold jewellery. It is the flagship company of the Muthoot Pappachan group (MPG), which has diverse business interests such as hospitality, real estate, and power generation. The company also distributes mutual funds, and general and life insurance products, and operates in the money-transfer segment.
 
MFL (on standalone basis) had AUM of Rs 14,359 crore, reported net worth of Rs 3,006 crore as on December 31, 2019. MML had AUM of Rs 4,599 crore, MCSL (Rs 2,480 crore), and Muthoot Housing (Rs 1,139 crore) as on December 31, 2019.
 
The gold loan assets under management (AUM) for MFL grew by around 11% (YTD) and stood at Rs 12,834 crore December 31, 2019 (Rs 11,571 crore as on March 31, 2019). As on September 30, 2019, the total gold holding stood at 50.1 tonnes (49.4 tonnes as on December 31, 2019). AUM per branch has increased to around Rs 3.0 crore as on December 31, 2019, from Rs 2.5 crore as on March 31, 2017. The company maintained its pace of growth with an average of around Rs 2500 crore of disbursements on monthly basis till December 2019.

Past rated pools
This is the 15th PTC transaction originated by MFL to be rated by CRISIL.
Key Financial Indicators MFL - Standalone (as per Ind-AS reporting)
As on/for the period ended March 31   9M/Dec 2019 2019 2018
Total managed assets# Rs crore 18,919 17,267 15,645
Total income Rs crore 2,020 2,485 2,187
Profit after tax Rs crore 162 155 126
Gross NPA % 2.5 2.6 1.7
Gearing# Times 4.9 4.8 4.6
Return on managed assets# % 1.2* 1.0 1.0
#Including off balance sheet assets
*Annualised
 
Key Financial Indicators (For MFG)
As on/ for the period ended March 31   9M/Dec 2019 2019 2018
Total managed assets# Rs crore 22,848 21,569 17,618
Total income Rs crore 3,164 3,915 3,206
Profit after tax Rs crore 222 464 175
Gross NPA % 3.4 2.9 2.6
Gearing# Times 7.2** 6.7 7.5
Return on managed assets# % 1.1* 2.0 1.9
#including off balance sheet assets and adjustment for real estate exposure,**6.8 times and 6.6 as of March 31, 2020 post adjusting real estate
assets which were monetised to avail borrowings
*Annualised

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
Type of Instrument Rated Amount
(Rs Cr.)		 Date of
Allotment		 Maturity Date* Coupon
Rate (%)		 Outstanding
Rating#		 Complexity Level Credit cum liquidity Enhancement (Rs Cr.)
Series A1 PTCs 99.97 19-Jun-20 16-May-21 9.75% Provisional CRISIL A1+ (SO) Highly Complex 7.44&
*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 10.62 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 A1 PTCs   ST 99.97 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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