Promising Lenders Fund

(AMC: Vivriti Asset Management Private Limited)

CRISIL Ratings assigns credit opinion equivalent of ‘CRISIL AA+ (SO)' and ‘CRISIL BBB- (SO)' to capital protection available to Class A and Class B unit-holders in Promising Lenders Fund

 

Rating Action

Rs.225.00 Crore* Promising Lenders Fund - Class A	CRISIL AA+ (SO) Equivalent (Assigned)
Rs.52.50 Crore^ Promising Lenders Fund - Class B	CRISIL BBB- (SO) Equivalent (Assigned)

 1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities

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.

Note: Credit opinion represents the capital protection available to Class A and Class B unit-holders

1 crore = 10 million

Refer to annexure for Details of Instruments & Bank Facilities

*Indicates maximum possible commitment from Class A unit-holders (up to 75% of the target fund size of Rs. 300 crore). The actual size of Class A is yet to be finalised

^Indicates maximum possible commitment from Class B unit-holders (up to 17.5% of the target fund size of Rs. 300 crore). The actual size of Class B is yet to be finalised

Detailed Rationale

CRISIL Ratings has assigned credit opinion equivalent of ‘CRISIL AA+ (SO)' and ‘CRISIL BBB- (SO)' to capital protection available to Class A and Class B unit-holders respectively, in the above-mentioned scheme of Vivriti Vihaan Trust, a category II Alternative Investment Fund (AIF). This scheme is a “Large Value Fund for Accredited Investors”. The Vivriti Asset Management Pvt Ltd (VAMPL) is the investment manager of the scheme.

 

The credit opinions indicate the degree of certainty regarding timely repayment, by the final maturity[1] of the scheme, of the total capital contribution made to the scheme by Class A and Class B unit-holders and our analysis indicates that the capital protection available to Class A and Class B unit-holders are commensurate with credit quality of CRISIL AA+ (SO) and CRISIL BBB- (SO) rated instruments respectively.

 

All distributions, gross of taxes, made to the Class A and Class B unit-holders till the final maturity1 of the scheme, i.e. the distribution proceeds[2] and redemption proceeds[3] at or prior to the maturity of the scheme have been considered as capital repayment for the purpose of this evaluation. While the gross monthly distributions are considered as capital repayment for this analysis, the same might not be treated similarly for tax computations and hence, the actual cash flows realised by the Class A and Class B unit-holders can be different depending on tax incidence. Further, the investors should note that any tax incidence has not been factored in our analysis. The rating/credit opinion is not a comment on either the scheme’s net asset value at the time of maturity or returns achievable by the Unit-holders.

 

On each distribution date, distribution to Class C unit-holders are subordinated to Class B unit-holders, while both Class B and Class C unit-holders are subordinated to Class A unit-holders. CRISIL Ratings' evaluation of capital protection for Class A and Class B unit-holders in this scheme are based on CRISIL Ratings’ expectation of the credit quality of the underlying investments by the scheme, portfolio composition of the scheme in terms of maturity profile, yield and concentration, structural features and credit support available to Class A and Class B unit-holders. CRISIL Ratings will review the portfolio periodically to re-evaluate the capital protection available to Class A and Class B unit-holders.

[1] Cashflows received from the underlying investments by the scheme maturity considered in CRISIL Ratings’ analysis. Payouts to investors will happen as per timelines in line with the scheme terms

[2] Proceeds from return on investment or capital gains, as reduced by amounts attributable to fund expenses and management fees

[3] Proceeds by way of principal repayments, capital repayments, pre-payments and redemption from the portfolio investments and temporary investments (including proceeds from sale of investments), as reduced by amounts attributable to fund expenses and management fees

Key Rating Drivers & Detailed Description

Strengths:

• Support available to Class A and Class B unit-holders
  • Distributions to Class B and Class C unit-holders, who will collectively contribute a minimum of 25% of the total capital contribution, are subordinated to the distributions to Class A unit-holders and provide support to the capital repayment of Class A unit-holders.
  • Distributions to Class C unit-holders, who will collectively contribute a minimum of 7.5% of the total capital contribution, are subordinated to the distributions to Class B unit-holders and provide support to the capital repayment of Class B unit-holders.
  • The investments made by the Investment Manager are expected to earn healthy yield during the term of the scheme providing additional support to the capital contribution of the Class A and Class B unit-holders
• Credit quality of the investments
  • The scheme is expected to invest only in entities rated in the BBB category, including a minimum 30% in instruments rated BBB or higher and minimum 7.5% in instruments rated BBB+
• Liquidity mismatch
  • The scheme is not expected to invest in instruments with maturity later than that maturity date of the scheme

 

Weaknesses:

• Concentration of investments
  • There is concentration risk in the structure with maximum exposure to any entity allowed at 7.5% and to any sector at 40% of the total invested amount
• Limited time for recovery
  • The initial term of the fund is three years from the date of the final closing. In case of any event which affects the performance of the investments and results in default, there will be limited time for recovery because of the short tenure of the scheme

Liquidity: Strong

The credit opinion indicates the degree of certainty regarding repayment, by the maturity date of the scheme, of the total capital contribution made to the scheme by Class A and Class B unit-holders. Therefore, the capital protection available to the unit-holders would not be materially impacted by temporary liquidity challenges.

Rating Sensitivity factors

Upward factors: Class A and Class B unit-holders

• Substantially better than expected performance of the investments
• Substantially better than currently anticipated recovery post default from the underlying investments, both in terms of time to recovery and amount recovered

 

Downward factors: Class A and Class B unit-holders

• Substantially worse than expected performance of the investments
• Substantially worse than currently anticipated recovery post default from the underlying investments, both in terms of time to recovery and amount recovered

 

Rating Assumptions

To assess the total payouts to Class A and Class B unit-holders, CRISIL Ratings has factored in the following:

• CRISIL Ratings has assumed default correlation of 0.1 – 0.4 between entities
• Expected post default recovery rate has been considered for different industries

 

Based on the potential investment universe and assumptions based on correlation, post-default recovery and yields, multiple scenarios were considered for portfolio construction. Portfolio quality in each of the scenario was assessed using Monte Carlo simulations incorporating default probabilities, cash flows, correlations and recovery rate assumptions. With sufficiently large number of trials, portfolio shortfall distribution was generated under each scenario and these were evaluated to arrive at the final credit opinion.

 

Other key parameters factored

Scheme is allowed to invest in debt instruments and credit enhanced bonds issued by microfinance institutions, small and medium enterprise finance companies – secured and unsecured, vehicle finance companies, supply chain finance companies and asset finance companies.

• Minimum proportion of contribution by Class B and Class C unit-holders to be 17.5% and 7.5% respectively, of the total contribution made.
• Annual operating expenses not to exceed 0.06% p.a. (excluding GST) of total aggregate outstanding capital contributions.
• Annual management fees, for different classes and corresponding capital contribution, payable to the investment manager
• All the investments made by scheme should be in instruments rated in BBB category, including a minimum 30% in instruments rated BBB or higher and minimum 7.5% in instruments rated BBB+
• No investment to be made in floating rate instruments
• No investment to be made in in zero coupon instruments
• Atleast 50% of the commitment should be deployed within 3 months of the initial closing and the balance within 6 months of the initial closing
• For first 12 months from date of investments, principal moratorium might be provided, while post 12 months from date of investments, there will be at least equal monthly principal amortisation of the outstanding principal 
• No investments in instruments with maturity later than the maturity date of the scheme.
• The scheme shall not have more than 7.5% investment in single entity
• The scheme shall not have more than 40% investment in any sector
• The scheme shall not redeploy the interest income earned from investments till the hurdle rate for all the classes units are paid
• Minimum weighted average yield of 13.00% (XIRR) from the underlying investments for the tenure of the fund

 

Waterfall Mechanism

On a monthly basis, the distribution proceeds will be paid out in the following order of priority:

 

1. Operating expenses up to maximum of 0.06% p.a. (excluding GST) of the total aggregate outstanding capital contributions received by the scheme
2. Annual management fees, for different classes and corresponding capital contribution, payable to the investment manager
3. Unpaid target yield to Class A unit-holders from previous monthly distributions
4. Target yield to Class A unit-holders for the current monthly distribution
5. Unpaid target yield to Class B unit-holders from previous monthly distributions
6. Target yield to Class B unit-holders for the current monthly distribution
7. Unpaid target yield to Class C unit-holders from previous monthly distributions
8. Target yield to Class C unit-holders for the current monthly distribution
9. Residual amount shall be retained as reserve of the Fund and shall be utilised at the time of payment of distribution proceeds (DP) and redemption proceeds (RP) in the following order -

• Shortfall in Class A DP
• Shortfall in Class A RP
• Shortfall in Class B DP
• Shortfall in Class B RP
• Shortfall in Class C DP
• Shortfall in Class C RP
• Balance residual amount shall be simultaneously allocated to all unit-holders in proportion of their respective capital commitments

 

Each Redemption Proceeds will be paid out in the following order of priority

1. Operating expenses up to maximum of 0.06% p.a. (excluding GST) of the total aggregate outstanding capital contributions received by the scheme
2. Annual management fees, for different classes and corresponding capital contribution, payable to the investment manager
3. Redemption of capital contribution made by Class A unit-holders, to the extent of pro-rata share in the anticipated redemption amount (including overdue if any), on a cumulative basis
4. Redemption of capital contribution made by Class B unit-holders, to the extent of pro-rata share in the anticipated redemption amount (including overdue if any), on a cumulative basis
5. Redemption of capital contribution made by Class C unit-holders, to the extent of pro-rata share in the anticipated redemption amount (including overdue if any), on a cumulative basis

About the AMC

Vivriti Asset Management Private Limited [wholly owned subsidiary of Vivriti Capital Private Limited (VCPL)], set up in February 2019, manages fixed income funds. The company has 42 employees across sales, fund management, credit, products, operations, legal, compliance, and other support functions.

 

Vivriti AMC currently runs four funds, as follows –

 

1. Samarth Bond Fund (SBF): Category-II closed-ended fund with 6 years tenor, providing debt to financial institutions that extend last-mile finance to individuals and small businesses. The fund declared its final close in Mar’21.
2. India Impact Bond Fund (IIF): Category-II closed-ended fund with 3 years tenor, investing in causes furthering UN Sustainable Development Goals (UN SDG)
3. Short Term Bond Fund (STBF): Category-II closed-ended fund with 3 years tenor, investing in debt of financial institutions to generate superior risk-adjusted return over prevailing short duration bond funds
4. Vivriti Emerging Corporate Bond (VECBF): Category -II closed-ended fund with 3.5 years tenor, investing in debt of high growth emerging companies, diversified across sectors. 

 

Vivriti Asset Management’s Investment Committee comprises of 2 Executive Directors and an Independent Member, and its Board is chaired by an Independent Director.

 

Key Financial Indicators

As on/for the period ended March 31 Unit 2021 2020 Total Assets Rs. Cr. 27.7 10.1 Total income Rs. Cr. 2.8 0.7 Profit after tax Rs. Cr. Negative Negative Gross NPA % NA NA Overall capital adequacy ratio  % NA NA Return on average assets % NA NA

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs. Cr)	Complexity Level	Rating Assigned
NA	Promising Lenders Fund - Class A	NA$	NA	NA&	225.00@	Highly complex	CRISIL AA+ (SO) Equivalent
	Promising Lenders Fund - Class B		NA	NA&	52.50#	Highly complex	CRISIL BBB- (SO) Equivalent

^$Indicates the Initial Closing date for the fund. Investment manager is yet to hold Initial Closing.

^&Term of the fund shall be initial period of 3 years from the date of the Final Closing. At the end of this Term, the term of the fund may be extended by 2 (two) additional 1 (one) year periods each, by the Investment Manager with the approval of two-third majority of the Contributors

^@Indicates maximum possible commitment from Class A unit-holders (up to 75% of the target fund size of Rs. 300 crore). The actual size of Class A is yet to be finalized

^#Indicates maximum possible commitment from Class B unit-holders (up to 17.5% of the target fund size of Rs. 300 crore). The actual size of Class B is yet to be finalised