Rating Rationale
January 12, 2017 | Mumbai
Starling CV IFMR Capital 2016
(Originator: Muthoot Capital Services Ltd)
'Provisional CRISIL A- (SO)/Provisional CRISIL BBB (SO)' assigned to Series A1 and Series A2 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
Starling CV IFMR Capital 2016 Series A1 PTCs 99.64 110.71 41 11.02& Provisional CRISIL A- (SO)@ Provisional Rating Assigned
Series A2 PTCs 2.21 11.02^ Provisional CRISIL BBB (SO)@ Provisional Rating Assigned
#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
*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.
&Additional credit support includes Rs 23.83 crore in the form of scheduled cash flow subordination (assuming zero prepayment) - Includes overcollateralization of Rs 11.07 crore (10.0% of pool principal)
^Additional credit support includes Rs 21.21 crore in the form of scheduled cash flow subordination (assuming zero prepayment) ' Includes overcollateralization of Rs 8.86 crore (8.0% of pool principal)
@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'Ã''''Ã'''Ã''Ã'Â?.
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL A- (SO)' and 'Provisional CRISIL BBB (SO)' ratings to Series A1 pass-through certificates (PTCs) and Series A2 PTCs, respectively, issued by Starling CV IFMR Capital 2016. The pool is backed by two-wheeler loan receivables originated by Muthoot Capital Services Ltd (MCSL; 'CRISIL A-/ FA-/Stable/CRISIL A1'). The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, MCSL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'par with monthly subordinated excess interest spread (EIS)' structure, wherein the trust will issue Series A1 PTCs and Series A2 PTCs in exchange of a purchase consideration equal to 90.0% and 2.0%, respectively, 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 23.83 crore and Rs 21.21 crore for Series A1 PTCs and Series A2 PTCs, respectively
  • External credit-cum-liquidity collateral of Rs 11.02 crore (10% of pool principal), of which 2% of pool principal is in the form of cash collateral and 8% of pool principal is a guarantee provided by MCSL

Series A1 PTCs are senior, and will have the first priority right on the trust property. These PTCs are entitled to monthly interest. Principal and interest payments for Series A2 PTCs are fully subordinated to payouts for Series A1 PTCs. The transaction envisages ultimate payment structure for principal payouts for both Series A1 and Series A2 PTCs. Series A2 PTCs are  entitled to monthly interest payment along with Series A1 PTCs and principal payment after Series A1 PTCs have been paid in full. Catalyst Trusteeship Ltd will be appointed the trustee to monitor the transaction on behalf of the PTC holders. MCSL 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
  • Guarantee deed
  • Legal opinion
  • Trustee letter
  • Auditor's certificate
  • Representations and warranties letter

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 11.02 crore (10% of the pool principal) provides credit support to Series A1 and Series A2 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 23.83 crore for Series A1 PTCs and Rs 21.21 crore for Series A2 PTCs
  • High seasoning of contracts in the pool
    • The contracts in the pool have a weighted average seasoning of 8.6 months, and consequently, the pool was highly amortized by 40.3% as of the cut-off date
  • Good performance of past two-wheeler pool originated by MCSL
    • CRISIL has an outstanding rating on one transaction originated by MCSL. The cumulative collection ratio of the transaction was a robust 97.8% as of December payouts (four months post-securitisation)
 
Constraining Factors

  • Moderate geographic concentration
    • More than 75% of the pool principal was originated in Kerala and Karnataka
  • Moderate presence of overdue contracts
    • The contracts in the pool were current as of the cut-off date. However, as on December 26, 2016, 1-month overdue contracts accounted for 8.5% of pool principal
  • High risk profile of underlying asset class
    • The pool is backed by two-wheeler loans, an asset class which has historically exhibited higher deinquency
 
In the weeks following demonetisation, the collection efficiency was negatively impacted for MCSL, but has since improved significantly, and collections for December are in line with collections pre-demonetisation.
CRISIL has adequately factored these aspects in its rating analysis

About the pool
The pool cash flow is securitised and comprises receivables from two-wheeler loans originated by MCSL. The pool has a weighted average net seasoning of 8.6 months, with Kerala and Karnataka accounting for 55.5% and 21.4%, respectively, of the pool principal outstanding. Average ticket size of the pool is Rs 0.5 lakh. All contracts in the pool were current as on the cut-off date (November 30, 2016). As of December 26, 2016, 1-month overdue contracts accounted for 8.5% of pool principal
 
About the Originator
MCSL, set up in 1994, is a deposit-taking, systemically important, non-banking financial company. It started operations by financing two-wheelers. In the late 1990s, on account of intense competition, the company shifted to gold loans. s the group scaled up its gold financing business in MFL, MCSL 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. As on September 30, 2016, of its advances portfolio of around Rs 1170 crore 90% comprised two-wheeler loans and 10% other loans.
 
For fiscal 2016, MCSL's profit after tax (PAT) was Rs 22.9 crore on total income of Rs 230 crore, against a PAT of Rs 22.3 crore on total income of Rs 190 crore for fiscal 2015. PAT for the first half of fiscal 2017 was Rs 12.5 crore on total income of Rs 134 crore.
 
Past Rated Pools
CRISIL has an outstanding rating on one 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. The cumulative collection ratio of the transaction was a robust 97.8% as of December payouts (four months post-securitisation).

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
Rating
Credit cum liquidity Enhancement (Rs Cr.)
Series A1 PTCs 99.64 28-Dec-16 23-May-20 10.39% Provisional CRISIL A- (SO) 11.02&
Series A2 PTCs 2.21 28-Dec-16 23-May-20 14.06% Provisional CRISIL BBB (SO) 11.02^
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 23.83 crore in form of scheduled cash flows subordination (assuming zero prepayments) - Includes overcollateralization of Rs 11.07 crore (10.0% of pool principal)
^Additional credit support includes Rs 21.21 crore in form of scheduled cash flow subordination (assuming zero prepayments) ' Includes overcollateralization of Rs 8.86 crore (8.0% of pool principal)
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014   
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Beginning
Series A1 PTCs  LT   99.64 Provisional CRISIL A- (SO)   --    --    --    --  -- 
Series A2 PTCs  LT  2.21 Provisional CRISIL BBB (SO)   --    --    --    --  -- 
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies
Criteria for Notching up Stand Alone Ratings of Companies based on Group Support
Criteria for rating Short-Term Debt (including Commercial Paper)

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