Rating Rationale
September 28, 2023 | Mumbai

SANSAR TRUST JUNE 2023 III

(Originator: Shriram Finance Limited)

‘CRISIL AAA (SO)’ for Series A1 SNs and Series A2 SNs and ‘CRISIL BBB+ (SO) Equivalent’ for second loss facility 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 SNs

243.75

229.94

59

34.47

CRISIL AAA (SO)

Assigned on conversion from Provisional Rating to Final Rating&

Second Loss Facility

17.06

17.06

59

17.41

CRISIL BBB+ (SO) Equivalent

Converted from provisional credit opinion to final credit opinion

Series A2 SNs

104.45

104.45

59

34.47

CRISIL AAA (SO)

Assigned on conversion 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

*As on August 2023 payouts

&Senior tranche PTCs was split into two tranches i.e. Series A1 SNs (70% of the initial rated amount) and Series A2 SNs (30% of the initial rated amount). Ratings has been assigned of ‘CRISIL AA (SO)’ to both Series A1 SNs and Series A2 SNs, while converting the provisional ratings of ‘CRISIL Provisional CRISIL AAA (SO)’ on Series A1 SNs

 

Detailed Rationale

CRISIL Ratings has converted its provisional rating assigned to Securitization Notes (SNs) issued by ‘Sansar Trust June 2023 III’ to a final rating of 'CRISIL AAA (SO)' under a securitisation transaction backed by receivables from loans originated by Shriram Finance Limited (SFL; rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’) including used and new tractors, commercial vehicles (CV), passenger vehicles (PV), and construction equipment (CE).The ratings on second loss facility under this transaction has been converted to ‘CRISIL BBB+ (SO) Equivalent’. 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. At the time of provisional rating, CRISIL had assigned Provisional CRISIL AAA (SO) rating to a single tranche, Series A Pass Through Certificates, of Rs 348.21 crore. The second loss facility under this transaction has been assigned a credit opinion of ‘Provisional CRISIL BBB+ (SO) Equivalent’. However, as per the executed documents two tranches of Securitisation Notes (“SN”) – Series A1 SNs (70% of the initial rated principal) and Series A2 SNs (30% of the initial rated principal) have been issued to investors. Interest payments are promised to both Series A1 and Series A2 SN holders on monthly basis. Principal payments for both tranches are expected monthly and are promised only on the final maturity date. Principal payments to Series A2 SN holders are subordinated to Series A1 SN holders. This change in structure does not have any impact on the rating assigned.

 

Other terms of the transaction in the executed documents are in line with those envisaged at the time of provisional rating. The changes in structure, on the whole, does not have an impact on the credit profile. Hence, CRISIL Ratings has assigned ‘CRISIL AAA (SO)’ rating to Series A1 SNs and Series A2 SNs, while converting the provisional credit rating of “Provisional CRISIL AAA (SO)’ on Series A1 PTCs to a final rating of CRISIL AAA (SO). Provisional credit opinion of ‘Provisional CRISIL BBB+ (SO) Equivalent’ is converted to final credit opinion of ‘CRISIL BBB+ (SO) Equivalent’

 

Legal Documents

  • Trust Deed read with the supplemental Trust Deed
  • Assignment Agreement
  • First Loss Credit Facility Agreement
  • Second 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 JUNE 2023 III’, settled by a trust which has issued two tranches of securitisation notes - Series A1 SNs and Series A2 SNs to investors. PTC payouts are supported by cash collateral in the form of fixed deposits; and EIS.

 

The total credit support available in the transaction at the time of securitisation is as below:

  • Internal credit support in the form of scheduled cashflow subordination assuming zero prepayments aggregating to 37.83 crore (10.9% of initial pool principal) for SNs
  • External credit enhancement of of Rs 34.47 crore (9.9% initial of pool principal) split into first loss facility of Rs 17.41 crore (5.0% of initial pool principal) and second loss facility of Rs 17.06 crore (4.9% of initial pool principal). Both First loss facility will be in the form of fixed deposit while second loss facility could be in the form of fixed deposit or bank guarantee.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit support available in the structure for PTCs:
    • Credit collateral of Rs 34.47 crore (9.9% of initial pool principal) provides credit support to Series A PTC investor payout. Series A PTCs also benefit from scheduled cashflow subordination aggregating Rs 37.90 crore (10.9% of initial pool principal).
  • Borrower diversification:
    • At the time of securitisation, the pool had 11,021 contracts and is therefore, fairly diversified; top 10 borrowers contributed to only 0.8% of the initial pool principal. 
  • All contracts were current as of pool cut-off date i.e., June 20, 2023.

 

Weakness:

  • Higher proportion of contracts with longer tenure in new-asset sub-segment of the pool:
    • Contracts having longer tenures 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. 34.47 crore (9.9% 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

Upward

  • For Series A1 and A2 SNs: none
  • For Second Loss Facility: Credit enhancement (based on both internal and external credit enhancements) exceeding 1.9 times the estimated base case shortfalls.

 

Downward

  • For Series A1 and A2 SNs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.3 times the estimated base case shortfalls.
  • For Second Loss Facility: Credit enhancement (based on both internal and external credit enhancements) falling below 1.6 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. At the time of securitisation, the pool had a weighted average net seasoning of 10.8 months, with top 3 states (Tamil Nadu, Madhya Pradesh and Karnataka) cumulatively accounting for 36.1% of the initial pool principal. Average ticket size of the pool was Rs 3.9 lakh. All the contracts were current as on the cut-off date (i.e. June 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 loan portfolio of SFL for originations in the period FY2013 to FY2023 (with performance data until Jun 2023). 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 SFL’s portfolio. As of Mar 2023, 90+dpd for the used CV and new CV portfolio are 2.8% and 5.1% respectively.

 

CRISIL Ratings has also factored in pool-specific characteristics, and potential changes to the pool during the replenishment period based on the eligibility criteria and replenishment termination events 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 for the vehicle segment.
  • 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 rating 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

ICICI Bank Limited

Rated ‘CRISIL AAA/CRISIL AA+/Stable’

Negligible effect. Account bank can be changed without impacting the rating.

Second loss facility in the form of Fixed Deposit

ICICI Bank Limited

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

ICICI Bank Limited

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

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

Mar-23

2021

Total assets

Rs. Cr.

2,10,600

NA

Total income (net of interest expenses)

Rs. Cr.

17,577

NA

Profit after tax

Rs. Cr.

6,020

NA

Gross NPA (Gross Stage-3)

%

6.0*

NA

Adjusted Gearing

Times

3.8

NA

Return on assets

%

3.0

NA

*Gross Stage-3 estimated on combined basis for SFL and SHFL

 

Past rated pools

CRISIL Ratings has ratings outstanding on 23 securitisation transactions originated by SFL. CRISIL 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)

ISIN

Name of the security

Date of issuance

Coupon rate (%)

Maturity date

Size of the issue (Rs.Crore)

Complexity level

Rating assigned

Cash collateral (Rs.Crore)

INE0QFO15016

Series A1 SNs

30-Jun-23

 

7.90

20-Jul-28

 

243.75

Highly complex

 

CRISIL AAA (SO)

34.47

INE0QFO15024

Series A2 SNs

7.90

104.45

CRISIL AAA (SO)

-

Second Loss Facility

NA

 

CRISIL BBB+ (SO) Equivalent

 

17.41
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 SNs LT 229.94 CRISIL AAA (SO) 11-07-23 Provisional CRISIL AAA (SO)   --   --   -- --
Second Loss Facility LT 17.06 CRISIL BBB+ (SO) Equivalent 11-07-23 Provisional CRISIL BBB+ (SO) Equivalent   --   --   -- --
Series A2 SNs LT 104.45 CRISIL AAA (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
Meaning and applicability of SO and CE symbol

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