Rating Rationale
March 04, 2024 | Mumbai

Pegasus 11 2023

(Originator: Muthoot Capital Services Limited)

'CRISIL AA (SO)' for Series A1 PTCs and 'CRISIL A+ (SO)’ for Equity Tranche converted from provisional ratings to final ratings

 

Rating Action

Tranche Name

Amount Rated (Rs.Crore)

Outstanding Amount (Rs.Crore)

Balance Tenure

Credit Collateral (Rs.Crore)

Ratings/Credit Opinions

Rating Action
Series A1 PTCs 78.18 78.18 41 4.95 CRISIL AA (SO) Converted from Provisional Rating to Final Rating

Equity Tranche

4.86

4.86

41

4.95

CRISIL A+ (SO)

Converted from Provisional Rating to Final Rating

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has converted the provisional rating assigned to Series A1 Pass-Through Certificates (PTCs) issued by ‘Pegasus 11 2023’ to a final rating of 'CRISIL AA (SO)' for Series A1 PTCs and ‘CRISIL A+ (SO)’ for Equity Tranche. The PTCs and Equity Tranche were issued under a securitisation transaction backed by is backed by a pool comprising two-wheeler loan receivables originated by originated by Muthoot Capital Services Limited (MCSL; ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’).  .

 

This transaction is backed by a pool comprising two-wheeler loan receivables originated MCSL. The ratings are based on credit quality of the pool cash flow, origination, and servicing capabilities of MCSL, credit support available to the PTCs and Equity Tranche, payment mechanism for the transaction, and soundness of the transaction’s legal structure.

 

CRISIL Ratings has now received the final legal/executed documents for this transaction. These executed documents are in line with terms of the transaction envisaged when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.

 

Legal Documents

  • Declaration of Trust
  • Assignment Agreement
  • Accounts Agreement
  • Servicing Agreement
  • Power of Attorney

 

Other Documents

  • Information Memorandum
  • Term Sheet
  • Auditor’s Certificate
  • Legal Opinion
  • Representations and Warranties Letter
  • Trustee Awareness Letter

 

The transaction has a ‘par with monthly subordinated excess interest spread (EIS)’ structure, wherein the trust settled by a trustee will issue Series A1 PTCs and Equity Tranche in exchange for 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 26.52 crore (30.0% of pool principal or 23.7% of pool cashflows) for Series A1 PTCs and Rs 21.66 crore for Equity Tranche (24.5% of pool principal or 19.4% of pool cashflows)
  • External credit-cum-liquidity collateral of Rs 4.95 crore (5.6% of the pool principal or 4.4% of pool cashflows) for Series A1 PTCs and Equity Tranche.

 

Series A1 PTC holders are entitled to receive timely interest on a monthly basis while the principal payment is promised on an ultimate basis. Equity Tranche is completely subordinated to Series A1 PTCs and Equity Tranche principal payments are not promised at every payout. Principal payments to Equity Tranche will happen after Series A1 PTCs are paid in full.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit support available in the structure
    • Credit collateral of Rs 4.95 crore (5.6% of the pool principal or 4.4% of pool cashflows) provides credit support to Series A1 PTCs and Equity Tranche. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 26.52 crore for Series A1 PTCs and Rs. 21.66 crore for Equity Tranche.
  • High seasoning of contracts in the pool 
    • The contracts in the pool have a weighted average seasoning (Number of instalments paid) of 13.3 months, and consequently, the pool has amortised by 30.2% as of the cut-off date of 18th November, 2023.

 

Weakness:

  • High risk profile of underlying asset class
    • The pool is backed by two-wheeler loans, an asset class which has historically exhibited higher delinquency
  • Geographical Concentration
    • The pool is concentrated in terms of geography. Top 3 states- Kerala (52.2%), Karnataka (24.0%), and Uttar Pradesh (7.8%), account for 83.9% of the pool

Liquidity: Strong

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls.

 

CRISIL Ratings has adequately factored these aspects into its rating analysis.

Rating Sensitivity factors

Upward

  • For Series A1 PTCs:
    • Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 2.3 times the estimated base case shortfalls on the residual cash flows of the pool
  • For Equity Tranche:
    • Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 1.9 times the estimated base case shortfalls on the residual cash flows of the pool

 

Downward

  • A sharp downgrade in the rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating
  • For Series A1 PTCs:
    • Credit enhancement (based on both internal and external credit enhancements) available in the structure falling below 2.1 times the estimated base case shortfalls on the residual cash flows of the pool
  • For Equity Tranche:
  • Credit enhancement (based on both internal and external credit enhancements) available in the structure falling below 1.7 times the estimated base case shortfalls on the residual cash flows of the pool.

About the Pool

The pool securitised comprises 2-wheeler loan receivables. The pool has weighted average net seasoning of 13.3 (Number of instalments paid ). The pool is geographically concentrated with top three states accounting for 83.9% of pool principal. Average ticket size is Rs 89,068 with weighted average interest rate of 24.7%. All the contracts in the pool were current as on pool cut-off date (November 18th, 2023). CRISIL Ratings has adequately factored all these aspects in its rating analysis.

 

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed moving portfolio delinquency and static pool information (with information on 90+ delinquencies) for two-wheeler portfolio provided by MCSL for originations in the period FY14 to Q1FY24. The 90+ dpd for the 2-wheeler loan portfolio of MCSL is 10.8% as of September 2023 (the company has adhered to PCA regulations).

 

CRISIL Ratings has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 8.0 to 10.0% of pool cash flows.

 

  • CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.1 to 0.7% in its analysis.
  • Based on its assessment of MCSL’s short-term credit risk profile, CRISIL Ratings has factored in the risk arising out of commingling of cash flows.
  • CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)
  • CRISIL Ratings 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

MCSL

Rated ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’

No effect.

Servicer

 

MCSL

Rated ‘CRISIL A+/CRISIL PPMLD A+/Stable/CRISIL A1+’

Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL Ratings does not envisage the need for replacement. Under certain circumstances, the trust or investor has the right to change the servicer by providing an intimation to CRISIL Ratings.

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

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

Not rated by CRISIL Ratings

Negligible effect. Can be replaced at minimal cost.

 

About the Originator

Incorporated in 1994, MCSL is a deposit-taking, systemically important non-banking financial company (NBFC). Though the company started operations in 1995, it commenced lending activities in 1998 after acquiring an NBFC license. Initially, it provided gold loans, but subsequently, as the group scaled up its gold financing business in MFL, MCSL entered the two-wheeler financing segment in fiscal 1998 and gradually exited the gold loan business. MCSL is listed on the Bombay Stock Exchange and the National Stock Exchange and is the only listed company of MPG. As on September 30, 2023, its AUM stood at Rs 1,770.6 crore. Around 81% of the total portfolio was two-wheeler loans.

Key Financial Indicators

Particulars

Unit

Sep-23

Mar-23

Mar-22

Total assets

Rs crore

2,244

2,435

2,075

Total income

Rs crore

207

445

398

Profit after tax

Rs crore

101

79

-172

Gross NPA (90+ dpd)

%

11.7

16.4

18.6

Adjusted gearing

Times

2.7

3.9

4.2

Return on managed assets

%

8.7

3.5

-7.4

 

Past rated pools

CRISIL Ratings has outstanding ratings on eight transactions originated by MCSL. CRISIL Ratings has received the legal documents for the transactions, and receives monthly performance reports pertaining to all CRISIL Ratings-rated MCSL originated securitisation transactions.

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` 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.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Type of Instrument

Rated Amount

(Rs.Cr)

Date of Allotment

 Maturity

Date

Coupon Rate (%)

p.a.p.m

Complexity level

Ratings assigned

 

Credit collateral

(Rs.Cr)&

INE0S8715011

Series A1 PTCs

78.18

06-Dec-2023

15-Aug-2027

9.45

Highly Complex

CRISIL AA (SO)

4.95^

INE0S8715029

Equity Tranche

4.86

06-Dec-2023

15-Aug-2027

0.0

Highly Complex

CRISIL A+ (SO)

4.95&

^Additional credit support includes Rs. 26.52 crore in the form of scheduled cash flow subordination (assuming zero prepayments) (30.0% of pool principal) for Series A1 PTCs including including Equity Tranche of Rs. 4.86 crore (5.5% of pool principal) and overcollateralization of Rs. 5.30 crore (6.00% of pool principal)

&Additional credit support includes Rs. 21.66 crore in the form of scheduled cash flow subordination (assuming zero prepayments) – including overcollateralization of Rs. 5.30 crore (6.00% of pool principal)

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs LT 78.18 CRISIL AA (SO)   -- 08-12-23 Provisional CRISIL AA (SO)   --   -- --
Equity Tranche LT 4.86 CRISIL A+ (SO)   -- 08-12-23 Provisional CRISIL A+ (SO)   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
Evaluating risks in securitisation transactions - A primer
CRISILs rating methodology for ABS transactions
Meaning and applicability of SO and CE symbol

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