Rating Rationale
July 05, 2019 | Mumbai
Sansar Trust June 2019 III
(Originator: Shriram Transport Finance Company Limited)
'Provisional CRISIL AAA (SO)' assigned to Series A PTCs and 'Provisional CRISIL BBB+ (SO) Equivalent' assigned to Second loss facility
 
Rating Action
Trust Name Instrument
Details

 
Amount Rated (Rs Cr) Pool Principal
(Rs Cr)

 
Original Tenure (Months) Credit Collateral (Rs Cr) Ratings / Credit Opinions@ Rating Action
Sansar Trust June 2019 III Series A PTCs 400.39 400.39 58 41.01 Provisional CRISIL AAA (SO) Provisional Rating Assigned
Second loss facility 20.99 20.02 Provisional CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, Securities and Exchange Board of India (SEBI) directive, 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in principle ratings assigned by CRAs.
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL AAA (SO)' ratings to Series A Pass-Through Certificates (PTCs) issued by 'Sansar Trust June 2019 III' under a securitisation transaction originated by Shriram Transport Finance Company Limited (STFCL; rated 'CRISIL AA+/FAAA/Stable/CRISIL A1+'). The Second Loss Facility under this transaction has been assigned a credit opinion of 'Provisional CRISIL BBB+ (SO) Equivalent'.
 
This securitisation transaction is backed by receivables from new and used commercial vehicles, passenger vehicles, construction equipment (CE) and three-wheeler loans originated by STFCL. The rating / credit opinion is based on the credit support available to the PTCs, credit quality of underlying receivables, STFCL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread' structure. STFCL will assign the pool to 'Sansar Trust June 2019 III', settled by Catalyst Trusteeship Limited (CTL) which will issue the PTCs to investors. The Series A PTC payouts are supported by credit collateral in the form of Fixed Deposits and Excess Interest Spread (EIS).
 
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 55.77 crore (13.9% of pool principal)
  • External credit enhancement of Rs 41.01 crore (10.24% of pool principal) of which second loss facility of Rs 20.99 crore (5.24% of pool principal) is in the form of a Fixed Deposit and first loss facility of Rs 20.02 crore (5.0% of pool principal) is also in the form of a Fixed Deposit

Series A PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis.
 
This is a 'Provisional' rating and will be converted into a 'Final' rating on receipt of the following documents:

  • Trust deed
  • Deed of assignment
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee letter
  • Auditor's certificate
  • Representations and warranties letter

Additional documents, if any, executed for the transaction should also be provided. A rating rationale/report indicating the conversion of the 'Provisional' rating to 'Final' rating post receipt of all the required final legal documentation will be published on the CRISIL website. Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' rating.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support in the structure
    • Credit collateral of Rs 41.01 crore (10.24% of pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled EIS (assuming zero prepayment) aggregating Rs 55.77 crore (13.9% of pool principal).
  • Seasoning of contracts
  • The contracts in the pool exhibits moderate seasoning with weighted average seasoning of 11.0 months resulting in 14.9% amortization.
Constraining Factors
  • Moderate IRR
    • Weighted average IRR of the pool is moderate at 15.1%. At portfolio level, contracts with higher IRR have performed weaker compared to contracts with lower IRR.
About the Pool
The transaction is backed by receivables from a pool of new and used commercial vehicles, passenger vehicles, CE and three-wheeler loans. The pool is moderate seasoned as evidenced by its weighted average net seasoning of 11.0 months. Contracts in the pool are geographically diversified with top 3 states accounting for 39.3% of pool principal. The average ticket size for contracts in the pool is Rs 4.0 lakh, with a low weighted average loan-to-value ratio of 73.3%. The weighted average interest rate of contracts in the pool is 15.1%. All contracts in the pool were current on payment as on the pool cut-off date (May 31, 2019). CRISIL has adequately factored all these aspects in its rating analysis.


Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed static pool information on new and used vehicles portfolio of STFCL for originations in the period FY2013 to Q4FY2018 (with performance data till September 2018). CRISIL has also analysed performance of rated securitisation transactions, and the performance of STFCL's portfolio. As of March 2019, 90+ dpd for the used and new portfolio are 5.7% and 4.9%, respectively.
 
CRISIL has also factored in pool-specific characteristics and estimated the base case peak shortfalls in the pool in the range of 6-8% of pool cash flows.

  • CRISIL has assumed a stressed monthly prepayment rate of 0.3% to 0.8% in its analysis.
  • CRISIL does not envisage any risk arising on account of commingling of cash flows since CRISIL's short term rating on the servicer is 'CRISIL A1+'
  • CRISIL has adequately factored in the risks arising on account of counterparties (refer to counterparty details)
  • CRISIL 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 STFCL Rated 'CRISIL AA+/CRISIL PP-MLD AA+r/FAAA/Stable/CRISIL A1+'  
No effect.

 
Servicer STFCL Rated 'CRISIL AA+/CRISIL PP-MLD AA+r/FAAA/Stable/CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL given CRISIL's rating on the servicer). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank HDFC 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 HDFC 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 HDFC 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 CTL Adequate Track Record Negligible effect. Can be replaced at minimal cost.

About the Originator
STFCL, incorporated in 1979, is the flagship company of the Shriram group. It is 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. It has pan-India presence, with about 1,545 branches and 838 rural centres as on March 31, 2019. In April 2018, STFCL completed the sale of its majority stake in wholly owned subsidiary Shriram Automall to MXC Solutions India Pvt Ltd (MXC, owner of CarTrade.com) for Rs 156.38 crore.
 
STFCL's reported total income (net of interest expense) and profit after tax (PAT) of Rs.7908 crore and Rs.2564 crore respectively, for fiscal 2019 against Rs. 7015 crore and Rs. 2461 crore, respectively, for fiscal 2018.

Liquidity Position 
The credit collateral available in the transaction is Rs 41.01 crore (10.24% of pool principal) which is in the form of fixed deposits placed with HDFC Bank Ltd. (Rated 'CRISIL AAA/CRISIL AA+/Stable'). The credit collateral fully covers 4 months of promised principal and interest payouts to Series A PTC holders even with no collections from the underlying pool of receivables.

Past Rated Pools
CRISIL has ratings outstanding on 17 securitisation transactions originated by STFCL. CRISIL is receiving monthly performance reports pertaining to these transactions.
Key Financial Indicators
Particulars for the year ending March 31 Unit  2019 2018
Total Assets Rs Cr 1,05,292 97,245
Total income (net of interest expenses) Rs Cr 7,908 7,015
PAT Rs Cr 2,564 2,461
Gross NPA (per IGAAP) % 8.29 9.15
Overall Capital Adequacy Ratio % 20.27 17.38
Return on Managed Assets % 2.5 2.7

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. 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 (%) (annualized) Outstanding
Ratings/credit opinions
Credit collateral
(Rs Cr) ^
Series A PTCs 400.39 17-Jun-19 22-Apr-24 8.90% Provisional CRISIL AAA (SO)$ 41.01 *
Second loss facility 20.99 - Provisional CRISIL BBB+ (SO) Equivalent 20.02
# Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool, and possible exercise of the clean-up call option
^ In addition, scheduled Excess Interest Spread (EIS) amounting to Rs 55.77 Cr (assuming zero prepayments) also provides credit support to PTCs
* Includes a second loss facility of Rs 20.99 Cr
$ Series A PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs LT 400.39 Provisional CRISIL AAA (SO)                 -- 
Second loss facility LT  20.99 Provisional CRISIL BBB+ (SO) Equivalent                  
All amounts are in Rs.Cr.
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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