Rating Rationale

Rating Rationale

June 21, 2023 | Mumbai

SANSAR TRUST FEB 2023

(Originator: Shriram Finance Limited)

‘CRISIL AA+ (SO)’ for Series A1 PTCs and ‘CRISIL A- (SO)' for Series A2 PTCs converted from provisional ratings to final ratings

Rating Action

Tranche Name	Amount Rated (Rs.Crore)	Outstanding Amount (Rs.Crore)	Balance Tenure (Months)	Credit Collateral (Rs.Crore)	Ratings/Credit Opinions	Rating Action
Series A1 PTCs	711.18	671.22	59	31.71	CRISIL AA+ (SO)	Converted from Provisional Rating to Final Rating
Series A2 PTCs	43.79	43.79	59	31.71	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 its provisional rating assigned to Series A1 Pass-Through Certificates (PTCs) and Series A2 PTCs issued by ‘Sansar Trust Feb 2023’ to a final rating of 'CRISIL AA+ (SO)' for Series A1 PTCs and ‘CRISIL A-(SO)’ for Series A2 PTCs. This is under a securitisation transaction originated by Shriram Finance Limited (SFL; rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’).

This securitisation transaction is backed by receivables from loans originated by SFL; including used and new tractors, commercial vehicles (CV) passenger vehicles (PV) and construction equipment (CE). The rating is based on the credit support available to the PTCs, credit quality of underlying receivables, SFL’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 terms 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
Power of Attorney

Other Documents

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

The transaction has a ‘par with excess interest spread (EIS)’ structure. SFL has assigned the pool to ‘SANSAR TRUST FEB 2023), settled by a trust which has issued two series of PTCs, Series A1 and Series A2 PTCs, to investors. PTC payouts are supported by credit collateral in the form of fixed deposits; and EIS.

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

Internal credit support in the form of scheduled cashflow subordination assuming zero prepayments aggregating to Rs 147.43 crore (19.5% of pool principal including 5.8% of principal subordination in the form of junior tranche) for Series A1 PTCs.
External credit enhancement of of Rs 31.71 crore (4.2% of pool principal) shall be maintained in the form of fixed deposit.

Interest payouts to Series A1 PTC holders is promised on a monthly basis, whereas principal payouts are scheduled on a monthly basis however promised on final maturity date. Series A2 PTC holders shall receive residual monthly interest if any, whereas prinicpal payouts are scheduled only once Series A1 is fully paid off and are promised on final maturity date.

Key Rating Drivers & Detailed Description

Strengths:

Credit support available in the structure for PTCs:
- Credit collateral of Rs 31.71 crore (4.2% of pool principal or 3.3% of pool cash flows) provides credit support to Series A1 and A2 PTC investor payout. Series A1 PTCs also benefit from scheduled cashflow subordination aggregating Rs 147.43 crore (19.5% of pool principal, including 5.8% of principal subordination in the form of junior tranche).
Borrower diversification:
- The pool has 18,007 contracts and is therefore, fairly diversified; top 10 borrowers contribute to only 0.5% of the outstanding pool principal.
All contracts are current as of pool cut-off date i.e., February 20, 2023.

Weakness:

Higher proportion of contracts with large ticket size in new-asset sub-segment of the pool:
- Contracts having high ticket size have exhibited higher delinquencies in the new-asset segment at the portfolio level.
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.

These aspects have been factored by CRISIL Ratings in its rating analysis.

Liquidity: Strong

The credit cum liquidity enhancement available in the transaction is Rs. 31.71 crore (4.2% of the 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

Upward

For Series A1 PTCs: Credit enhancement (based on both internal and external credit enhancements) exceeding 2.5 times the estimated base case shortfalls.
For Series A2 PTCs: Credit enhancement (based on both internal and external credit enhancements) exceeding 1.7 times the estimated base case shortfalls.

Downward

For Series A1 PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.0 times the estimated base case shortfalls.
For Series A2 PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 1.3 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 cash flow is securitised and comprises receivables from vehicle loans originated by SFL. The pool has a weighted average net seasoning of 9.1 months, with top 3 states (Karnataka, Madhya Pradesh and Andhra Pradesh) cumulatively accounting for 40.9% of the pool principal. Average ticket size of the pool is Rs 4.9 lakh. All the contracts continue to be current as on the cut-off date (i.e. February 20, 2023).

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed the static pool information (with information on 90+DPD) on new and used vehicles portfolio of SFL for originations in the period FY2013 to FY2023 (with performance data until Dec 2022). CRISIL Ratings has also analysed the portfolio cuts based on Tenure, Ticket Size, State, IRR etc. and compared the pool with the portfolio on these parameters.

CRISIL Ratings has also analysed performance of rated securitisation transactions, and the performance of STFCL’s portfolio. As of Dec 2022, 90+dpd for the used and new portfolio are 2.8% and 5.7%, respectively.

CRISIL Ratings has also factored in pool-specific characteristics and estimated the base case peak shortfalls in the pool in the range of 5.0-7.0% of pool cash flows.

CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.3 to 1.3% in its analysis.
CRISIL Ratings does not envisage any risk arising on account of commingling of cash flows since its 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)
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 and seller	SFL	Rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’	No effect.
Servicer	SFL	Rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/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 servicer). However, CRISIL Ratings does not envisage the requirement for replacement.
Collection & Payout Account	The Hongkong and Shanghai Banking Corporation Ltd	Not rated by CRISIL	Negligible effect. Account bank can be changed without impacting the rating.
Credit collateral in the form of Fixed Deposit	The Hongkong and Shanghai Banking Corporation Ltd	Not rated by CRISIL	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee	IDBI Trusteeship Services Limited	Not rated by CRISIL	Negligible effect. Can be replaced at minimal cost.

About the Originator

Following the consummation of the merger of Shriram City Union Finance (SCUF) and demerged undertaking of Shriram Capital Limited with STFCL, the company has been renamed to Shriram Finance Ltd (SFL). Shriram Housing Finance Ltd (SHFL) continues to operate as a subsidiary of SFL which holds around 85.02% stake in the same. Pursuant to the consummation of the transaction, Shriram Capital and SCUF cease to exist.

STFCL, incorporated in 1979, was registered with RBI as a deposit-taking, asset-financing non-banking financial company. STFCL provides financing for vehicles such as CVs (both pre-owned and new), tractors, and passenger vehicles.

SCUF, was incorporated in 1986 and predominantly operates in the retail financing segment with a focus on small enterprise loans, two-wheeler financing, gold loans, housing loans and others (auto and personal loans

Key Financial Indicators – SFL consolidated (CRISIL Ratings estimates)

Particulars (for the period ending)	Unit	Sep 2022	2021
Total assets	Rs.Cr.	2,03,353	NA
Total income (net of interest expenses)	Rs.Cr.	8,027	NA
Profit after tax	Rs.Cr	2,771	NA
Gross NPA	%	6.5	NA
Adjusted Gearing	Times	4.3	NA
Return on managed assets	%	2.8	NA

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 A1 PTCs

711.18

28-Mar-2023

18-Mar-28

8.30

Highly Complex

31.71

CRISIL AA+ (SO)

Series A2 PTCs

43.79

-

CRISIL A- (SO)

*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

#Additionally, Internal credit support in the form of scheduled cashflow subordination assuming zero prepayments aggregating Rs 147.43 crore (19.5% of pool principal including 5.8% of principal subordination in the form of junior tranche) for Series A1 PTCs.

^tentative date of allotment

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 A1 PTCs

LT

671.22

CRISIL AA+ (SO)

12-04-23

Provisional CRISIL AA+ (SO)

--

--

--

--

Series A2 PTCs

LT

43.79

CRISIL A- (SO)

12-04-23

Provisional CRISIL A- (SO)

--

--

--

--

All amounts are in Rs.Cr.

Criteria Details

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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