Rating Rationale

Rating Rationale

July 27, 2023 | Mumbai

Platinum Trust April 2023 - Tranche II

(Originator: Cholamandalam Investment and Finance Company Limited)

‘CRISIL AAA (SO)’ for Series A PTCs and ‘CRISIL BBB+ (SO) Equivalent’ for Second Loss Facility converted from provisional ratings to final ratings

Rating Action

Trust Name	Details	Amount Rated (Rs.Crore)	Outstanding Amount (Rs.Crore)^%	Balance Original Tenure (Months)^{^%}	Credit Collateral (Rs.Crore)*	Ratings/Credit Opinions	Rating Action
Platinum Trust April 2023 - Tranche II	Series A PTCs^&	761.23	691.46	58	57.09^#	CRISIL AAA (SO)	Converted from Provisional Rating to Final Rating
Platinum Trust April 2023 - Tranche II	Second loss facility	34.26	34.26	58	22.84	CRISIL BBB+ (SO) Equivalent	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

^&Series A PTC holders are entitled to receive timely interest and ultimate principal

*At the time of securitisation, additionally, scheduled excess interest spread (EIS) amounting to Rs 70.76 crore (assuming zero prepayments) also provides credit support to PTCs

^#Includes a second loss facility of Rs 34.26 crore

^{^}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

^%As on July 2023 payout

Detailed Rationale

CRISIL Ratings has converted the provisional rating of ‘CRISIL AAA (SO)’ on series A pass-through certificates (PTCs) and provisional credit opinion of ‘CRISIL BBB+ (SO) Equivalent’ on second loss facility to a final rating of ‘CRISIL AAA (SO)’ on Series A PTCs and final credit opinion of ‘CRISIL BBB+ (SO) Equivalent’ on second loss facility. The PTCs were issued by ‘Platinum Trust April 2023 – Tranche II’ under a securitisation transaction backed by receivables from vehicle and tractor loans originated by Cholamandalam Investment Finance Company Limited (CIFCL; rated ‘CRISIL A1+’).

The rating/credit opinion is based on the credit support available to the PTCs, credit quality of underlying receivables, CIFCL’s origination and servicing capabilities, the payment mechanism, 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

Trust Deed
Deed of Assignment
First Loss Credit Facility Agreement;
Second Loss Credit Facility Agreement; and
Power of Attorney

Other Documents

Information Memorandum
Legal Opinion
Auditors Certificate
Originator’s Representation and Warranties Letter
Trustee Awareness Letter

The transaction has a ‘Par with excess interest spread (EIS)’ structure. CIFCL will assign the pool to ‘Platinum Trust April 2023 – Tranche II’, which will issue the PTCs to investors. Series A PTC payouts are supported by credit collateral in the form of fixed deposits and EIS. IDBI Trusteeship Services Limited (ITSL) has been appointed to monitor the overall transaction on behalf of the PTC investors.

The total credit support available in the transaction is as below:

Internal credit support in the form of scheduled EIS assuming zero prepayments aggregating Rs 70.76 crore (9.3% of pool principal) for Series A PTCs.
External credit enhancement of Rs 57.09 crore (7.5% of pool principal) of which first loss facility of Rs 22.84 crore (3.0% of pool principal) is in the form of a fixed deposit and second loss facility of Rs 34.26 crore (4.5% of pool principal) is in the form of a fixed deposit / bank guarantee.

Series A PTC holders are entitled to receive timely interest on a monthly basis. Principal repayment, while expected on a monthly basis, is promised only on an ultimate basis, by the instrument’s legal final maturity.

Key Rating Drivers & Detailed Description

Credit support available in the structure
- At the time of securitisation, credit collateral of Rs 57.09 crore (7.5% of the pool principal or 6.1% of pool cashflows) provides credit support to Series A PTCs. The PTCs also benefit from internal credit support through scheduled EIS (assuming zero prepayment) aggregating to Rs 70.76 crore (9.3% of pool principal).
High seasoning of contracts in the pool
- At the time of securitisation, the contracts in the pool had a weighted average seasoning of 11.2 months, and consequently, the pool had amortised by 21.9% as of the cut-off date of 31st March, 2023.

Weakness:

Potential effect of macro-economic headwinds

Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, an increasing interest rate scenario, and moderation in demand on account of inflation and geo-political uncertainties. These factors may hamper pool collection ratios.

Higher LTV contracts in pool
- At the time of securitisation, 68.3% of the pool cashflows were from contracts having LTV higher than 80% while the weighted average LTV of the pool is 82.1%

Liquidity: Strong

The credit cum liquidity enhancement available in the transaction is Rs. 33.08 crore (4.15% of the initial pool principal) which is in the form of fixed deposit. Liquidity 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.

Rating Sensitivity factors

For Series A PTCs: None.
For Second Loss Facility: credit enhancement (both internal and external credit enhancement) available in the structure exceeding 1.5 times the estimated base case shortfalls on the residual cash flows of the pool.

Downward

For Series A PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 2 times the estimated base case shortfalls. For Second Loss Facility: Credit enhancement (based on both internal and external credit enhancements) falling below 1.2 times the estimated base case shortfalls.
A sharp downgrade in the rating of the servicer/originator.
Non-adherence to the key transaction terms envisaged at the time of the rating.

About the Pool

The pool securitised comprises of commercial vehicle and tractor loans. At the time of securitisation, pool had weighted average seasoning of 11.2. The pool is geographically concentrated with top three states accounting for 32.8% of pool principal. Average ticket size is Rs 8.2 lakhs with weighted average interest rate of 13.7%. All the contracts in the pool were current as on pool cut-off date (March 31st, 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 the static pool performance (with information on 90+ delinquencies) on the portfolio of CIFCL for originations in the period FY 2014 to FY2022 (with performance data till March 2022). CRISIL has also analysed performance of past rated securitisation transactions and the performance of CIFCL’s vehicle finance portfolio. 90+ delinquency (as % of managed assets) for CIFCL’s vehicle finance portfolio was 3.6% as of December 2022.

CRISIL Ratings 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.

CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.3 to 0.8% in its analysis.
CRISIL Ratings does not envisage any risk arising on account of commingling of cash flows since CRISIL Ratings' short term rating on the servicer is 'CRISIL A1+'
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	CIFCL	Rated ‘CRISIL A1+’	No effect.
Servicer	CIFCL	Rated ‘CRISIL A1+’	Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL Ratings given its rating on the servicer). However, CRISIL Ratings does not envisage the requirement for replacement.
Collection and Payout Account Bank	The Hongkong and Shanghai Banking Corporation Ltd	Not rated by CRISIL Ratings	Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Fixed Deposit	Bank of Baroda	Rated ‘CRISIL AAA/CRISIL AA+/Stable’	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating
First loss facility in the form of Fixed Deposit	Bank of Baroda	Rated ‘CRISIL AAA/CRISIL AA+/Stable’	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee	ITSL	Not rated by CRISIL Ratings	Negligible effect. Can be replaced at minimal cost.

About the Originator

Part of the Chennai-based Murugappa group, Chola Finance was incorporated in 1978. The company mainly provides vehicle financing and LAP, along with home loans, MSME and agricultural loans. The company has ventured into new businesses in the consumer and MSME ecosysytem, namely CSEL, SBPL and SME finance in the second half of fiscal 2022. It had 1,16 branches across 29 states in India, with 80% presence across tier III to tier VI cities, as on December 31, 2022.

Between April 2005 and March 2010, the company operated as a joint venture between DBS Bank and the Murugappa group. In March 2010, DBS Bank sold its 37.5% equity stake to the Murugappa group. Chola Finance exited the unsecured personal loan segment in October 2008 and subsequently from the asset management business The Murugappa group currently holds 51.6% equity stake in Chola Finance, of which 45.5% is held by Cholamandalam Financial Holdings Limited, a group company.

Chola Finance currently has two subsidiaries: Cholamandalam Securities Ltd (CSEC) and Cholamandalam Home Finance Ltd (CHFL), joint venture with Payswiff Technologies Pvt Ltd and three associates: White Data System India Pvt Ltd, Vishvakarma Payments Pvt Ltd and Paytail Commerce Pvt Ltd.

For FY2023, profit after tax (PAT) was Rs 2,666 crore, against Rs 2,147 crore and Rs 1,515 crore, respectively, for the previous fiscals

Key Financial Indicators

As on/for the quarter ended March 31	Unit	2023	2022	2021
Total Assets	Rs crore	113516	82363	74548
Total income (net of interest expense)	Rs crore	7229	5840	9576
Profit after tax	Rs crore	2666	2147	1515
Gross Stage III	%	3.0	4.4	4.0
Adjusted gearing	Times	6.8	5.9	6.7
Return on managed assets	%	2.7	2.7	2.2
CAR	%	17.1	19.6	19.1

Past rated pools

CRISIL Ratings has ratings outstanding on ten securitisation transactions originated by CIFCL. CRISIL Ratings is receiving monthly performance reports pertaining to these 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)

Type of

Instrument

Rated

Amount (Rs Cr.)

Date of

Allotment

Maturity Date*

Coupon

Rate (%)

Complexity level

Credit cum liquidity Enhancement (Rs crore)#

Outstanding

Rating

Series A PTCs

761.23

28-Apr-2023

23-May-2028

7.45%

(p.a.p.m.)

Highly Complex

57.09@

CRISIL AAA (SO)

Second Loss Facility

34.26

Not

applicable

22.84

CRISIL BBB+ (SO) Equivalent

*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

#At the time of securitisation, additional credit support includes Rs 70.76 crore for Series A PTCs in form of scheduled cash flow subordination (assuming zero prepayments)

@Includes a second loss facility of Rs. 34.26 crore

Annexure - Rating History for last 3 Years

Current

2023 (History)

2022

2021

2020

Start of 2020

Instrument

Type

Outstanding Amount

Rating

Date

Rating

Date

Rating

Date

Rating

Date

Rating

Rating

Series A PTCs

LT

691.46

CRISIL AAA (SO)

18-05-23

Provisional CRISIL AAA (SO)

--

--

--

--

Second loss facility

LT

34.26

CRISIL BBB+ (SO) Equivalent

18-05-23

Provisional CRISIL BBB+ (SO) Equivalent

--

--

--

--

All amounts are in Rs.Cr.

Criteria Details

Links to related criteria

CRISILs rating methodology for ABS transactions

Legal analysis in structured finance transactions

Evaluating risks in securitisation transactions - A primer

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