Rating Rationale
August 09, 2017 | Mumbai
Firefinch CV IFMR Capital 2017
(Originator: Muthoot Capital Services Limited)
 'CRISIL A-(SO)/CRISIL BBB (SO)' Converted from Provisional Rating to Final Rating for Series A1 and Series A2 PTCs
 
Rating Action
Transaction Details Amount Rated
(Rs. Cr.)		 PTC Principal Outstanding
(Rs. Cr.)		 Original Tenure (Months)# Balance Tenure (Months)# Credit Collateral
(Rs. Cr.)		 Ratings Rating Action
Firefinch CV IFMR Capital 2017
 		 Series A1 PTCs 59.03 45.81 42
 		 39
 		 5.12 CRISIL A- (SO) Converted from Provisional Rating to Final Rating
Series A2 PTCs 1.31 1.31 5.12    CRISIL BBB (SO)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
#Indicates door-to-door tenure; actual tenure will depend on the level of prepayments in the pool, exercise of clean-up call option, and the extent of shortfalls   
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A1 PTCs and Series A2 PTCs issued by Firefinch CV IFMR Capital 2017 to final ratings of 'CRISIL A- (SO)' and 'CRISIL BBB (SO)' respectively. The provisional ratings were assigned on April 26, 2017. The pool is backed by two-wheeler loan receivables originated by Muthoot Capital Services Ltd (MCSL; 'CRISIL A-/ FA-/Stable/CRISIL A1'). The executed documents are in line with the transaction terms at the time of provisional rating. Hence, CRISIL has converted the provisional rating to final rating.
 
Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings
 
Series A1 PTC holders are entitled to timely interest on a monthly basis, while the principal payment is promised on an ultimate basis. Series A2 PTC holders are entitled to timely interest on a monthly basis once Series A1 PTC holders are paid in full. The principal payment to Series A2 PTC holders is promised on an ultimate basis. Total credit support in the transaction includes Rs 5.12 crore of external credit collateral, and internal credit support at the time of securitisation of Rs 15.19 crore and Rs 13.57 crore for Series A1 and Series A2 PTCs, respectively.
.
As required, CRISIL has received the following final documents:
 
Legal Documents

  • Assignment Agreement
  • Trust Deed
  • Servicing Agreement
  • Accounts Agreement
  • Power of Attorney 
  • Deed of Guarantee

Other Documents

  • Legal Opinion
  • Auditors' Certificate
  • Representations & Warranties from Originator
  • Trustee Awareness Letter
  • Information Memorandum
Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 5.12 crore (at the time of securitisation, 7.8% of pool principal) provides credit support to Series A1 and Series A2 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 15.19 crore for Series A1 PTCs and Rs 13.57 crore for Series A2 PTCs at the time of securitisation
  • High seasoning of contracts in the pool
    • At the time of securitisation, the contracts in the pool had a weighted average seasoning of 6.2 months, and consequently, the pool was highly amortized by 28.1% as of the cut-off date
Constraining Factors
  • Moderate geographic concentration
    • 69% of the pool principal was originated in Kerala and Karnatak
       
  • High risk profile of underlying asset class
The pool is backed by two-wheeler loans, an asset class which has historically exhibited higher deinquency

About the Pool
The pool cash flow was securitised and comprises receivables from two-wheeler loans originated by MCSL. The pool had a weighted average net seasoning of 6.2 months, with Kerala and Karnataka accounting for 55% and 14%, respectively, of the pool principal outstanding. Average ticket size of the pool was Rs 0.5 lakh.

Rating Assumptions at the time of securitisation
 
To assess the base case shortfalls for the transaction, CRISIL has analysed static pool information (with data on 90+ delinquencies and 0+ overdues) on auto portfolio provided by MCSL for originations in the period FY2011 to Q3 FY2017 (with performance data till February 2017).

As per data shared by MCSL, their overall collection efficiency (excluding overdues) at portfolio level for November 2016 was at 70% as compared to 78% for October 2016, the collection efficiencies have since recovered and were at 74% for December 2016 and January 2017. However, on including  arrear collections the collection efficiency rises to 97% as of January 2017
 
Based on these, CRISIL has estimated base case shortfalls in the pool at 10.0-12.0 per cent of cash flows. CRISIL has assumed stressed monthly prepayment rate of 0.5 per cent to 1.0 per cent of pool cash flows.
  • CRISIL does not envisage any risk arising on account of commingling of cash flows since CRISIL's short term rating on the servicer is 'CRISIL 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

MCSL

Rated 'CRISIL A-/FA-/Stable/CRISIL A1'

 
No effect.
 

Servicer

MCSL

Rated 'CRISIL A-/FA-/Stable/CRISIL A1'

Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL given CRISIL's rating on the servicer). However, CRISIL does not envisage the requirement for replacement.

Collection and Payout Account Bank

ICICI Bank

Rated 'CRISIL AAA/Stable'

Negligible effect. Account bank can be changed without impacting the rating.

Collateral in the form of Fixed Deposit

DCB Bank

Rated 'CRISIL A1+

Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.

Corporate Guarantee

MCSL

Rated 'CRISIL A-/FA-/Stable/CRISIL A1'

Significant effect. Rating on PTCs will be directly linked to the credit rating on long-term debt obligations of MCSL.

Trustee

CTL

Adequate track record

Negligible effect. Can be replaced at minimal cost.


About the Originator
Muthoot Capital Services Ltd (MCSL; rated 'CRISIL A-/Stable/FA-/Stable/CRISIL A1'), set up in 1994, is a deposit-taking, systemically important, non-banking financial company. It started operations by financing purchase of two-wheelers. In the late 1990s, on account of intense competition, the company shifted to gold loans. It entered the two-wheeler financing segment once again in fiscal 2008, and gradually exited the gold loan business. MCSL offers business loans in addition to two-wheeler loans. The company is listed on the Bombay Stock Exchange and the National Stock Exchange and is the only listed company in the group.

Of its advances portfolio of Rs 1439.7 crore as on March 31, 2017, 87.3% comprised two-wheeler loans. Profit after tax (PAT) was Rs 30.1 crore on total income of Rs 284.2 crore in fiscal 2017 (Rs 22.9 crore and Rs 228.5 crore, respectively, in fiscal 2016).

Past Rated Pools
CRISIL has an outstanding rating on three transaction originated by MCSL. CRISIL has received the legal documents for the transaction, and receives monthly performance reports pertaining to all CRISIL-rated MCSL originated securitisation transactions.

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 A1 PTCs 59.03 27-Mar-17 19-Sep-20 10.00% CRISIL A- (SO) 5.12&
Series A2 PTCs 1.31 27-Mar-17 19-Sep-20 13.17% CRISIL BBB (SO) 5.12^
1 crore = 10 million
*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 15.19 crore in form of scheduled cash flows subordination (at the time of securitization, assuming zero prepayments) - Includes overcollateralization of Rs 6.56 crore (10.0% of pool principal)
^Additional credit support includes Rs 13.57 crore in form of scheduled cash flow subordination (at the time of securitization, assuming zero prepayments) ' Includes overcollateralization of Rs 5.25 crore (8.0% of pool principal)
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs   LT   59.03  CRISIL A- (SO)  26-Apr-17  Provisional CRISIL A- (SO)   --   --    -- --
Series A2 PTCs  LT  1.31 CRISIL BBB (SO) 26-Apr-17 Provisional CRISIL BBB (SO)   --   --   --  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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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