Rating Rationale
April 22, 2020 | Mumbai
INDIAN RECEIVABLE PGDA DEC19 C
(Originator: Tata Motors Finance Limited)
Rating placed on 'Watch Developing'
 
Rating Action
Transaction Details Initial Rated amount (Rs Crore) Outstanding amount (Rs Crore) Original Tenure (Months)# Initial
Credit Collateral (Rs Crore)		 Ratings/ Credit Opinion Rating Action
INDIAN RECEIVABLE PGDA DEC19 C Acquirer payouts 459.91 327.66 26 40.56 CRISIL A (SO) Equivalent Placed on 'Rating Watch with Developing Implications'
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilitie
Detailed Rationale

CRISIL has placed its credit opinion equivalent of CRISIL A (SO) on acquirer payouts under INDIAN RECEIVABLE PGDA DEC19 C on 'Rating Watch with Developing Implications'. The payouts are backed by a pool of vehicle loan receivables originated by Tata Motors Finance Limited (TMFL; 'CRISIL AA-/CRISIL A/Negative/CRISIL A1+'). 
 
The rating action is driven by administrative delays at the end of the assignee bank (which is also the bank where cash collateral (CC) is maintained in the form of fixed deposit) that has resulted in non-adherence to certain transaction terms. The credit opinion also factors in credit quality of pool cash flows backing the payouts, TMFL's origination and servicing capabilities and the credit enhancement available in the transaction structure. 
 
On April 20, 2020, the assignee representative in the transaction and the originator intimated CRISIL that CC was not being utilised on payout dates to make assignee payouts (acquirer's payouts) as set out in the transaction documents despite sufficient CC being available in the structure. 
 
As per the transaction documents, CC is to be utilised on each monthly pay-out date in case of collection shortfalls. In compliance with the transaction terms, at the first instance of payout shortfall in January 2020, the assignee representative and the originator had provided instructions for partial liquidation and removal of lien marking on the fixed deposit. CRISIL is given to understand that despite repeated follow-ups, the bank branch, where the CC is placed, refused to honour the liquidation instructions. CRISIL further understands that, even as of today, CC utilisation instructions pertaining to payouts since January 2020 continue to be pending to be acted upon.    
 
On April 21, 2020, the assignee informed CRISIL that despite the operational difficulties associated with monthly CC utilisation, the waterfall mechanism set out in the documents would be followed from July 2020 payouts, post the expiry of moratorium given in accordance with the RBI’s COVID-19 Package. Based on communications received, it is also expected that the pending CC utilisation pertaining to shortfalls until March 2020 payouts would happen once the ongoing lockdown is lifted.
 
CRISIL is given to understand that such administrative delays would not recur once the lockdown is lifted. Furthermore, the assignee representative has extended assurances that in case there is any operational or administrative issues in adhering to the transaction structure, CRISIL would be intimated immediately.  
 
CRISIL will monitor the adherence of counterparties to the transaction terms over the next few months and the watch will be resolved based on the demonstrated track-record on this front.  
 
The underlying pool in the transaction has demonstrated satisfactory collection performance till date with cumulative collection ratio of 95.3% as of April 2020 payouts. The assignee has approved the originator's request regarding extension of moratorium to the borrowers in the underlying pool as well as assignee payouts corresponding to scheduled collections between March 1, 2020 and May 31, 2020. CC utilisation has been suspended during the moratorium period. 
 
As per the transaction structure, the originator has assigned 95% of the par value of the loan receivables to the assignee in exchange for a purchase consideration equal to 95% of the pool principal outstanding at the time of assignment. The assignee is promised interest payouts and principal payouts on a monthly basis, and CC is to be utilised on payout dates to bridge any shortfall in assignee payouts.
 
The transaction has been evaluated as part of Partial Credit Guarantee (PCG) scheme offered by Government of India to Public Sector Banks (PSBs) for purchase of pooled assets from NBCFs/HFCs through DA route. The credit opinion does not factor in the partial credit guarantee of the Government of India to the transaction and is purely based on the credit collateral as provided by the originator in the structure.

Key Rating Drivers & Detailed Description
Constraining Factors
  • Non-adherence to transaction terms
    • As per the terms of the transaction, CC is to be utilized on every monthly pay-out date in case of shortfalls. However, there have been administrative delays at the end of the assignee bank, which is also the bank where cash collateral is maintained, in utilizing CC.
  • No internal subordination
    • As per the terms of the transaction there is no credit support from the pool in the form of subordinated excess interest spread (EIS) or principal over-collateralization.
  • Borrower concentration
    • Pool loans exhibit concentration, the 10 largest borrowers account for 14.3% of the initial pool principal
Supporting Factors
  • Credit support available in the structure
    • Initial Credit-cum-liquidity collateral of Rs 40.56 crore (8.38% of initial pool principal) provides support exclusively to acquirer’s payouts. As per the terms of the transaction, the credit-cum-liquidity collateral shall not be used to fund any shortfall in the seller’s payouts.
  • Seasoning profile
  • 30.1% of the contracts in the pool has been amortized after 4 months of securitization
CRISIL has adequately factored these aspects in its rating analysis
 
Liquidity: Strong

  • Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.2 times the currently estimated base shortfalls
Rating Sensitivity factors
Upward

  • Credit enhancement  (based on both internal and external credit enhancements) available in the structure exceeding 2.0 times the estimated base case shortfalls on the residual cash flows of the pool.
  • A sharp upgrade in the rating of the servicer/originator
     
Downward
  • Non-adherence to the key transaction terms, including CC utilisation, as set out in the transaction documents
  • Credit enhancement falling below 1.5 times the estimated base case shortfalls
  • A sharp downgrade in the rating of the servicer/originator
Pool Performance Summary (after April 2020 payouts)
Deal Name INDIAN RECEIVABLE PGDA DEC19 C
Originator TMFL
Months post securitisation 4
Residual tenure (months) 22 (without adjusting for moratorium)
Pool amortisation 30.10%
Cumulative Collection Ratio (CCR)! 95.30%
Average collection ratio across three months 95.30%
Total overdues$ 1.30%
Threshold collection ratio* 90.00%
!CCR = {Total collections in the pool/(Total billings + opening overdues at the time of securitisation)}
$Total overdues = (Total overdues in the pool expressed as a percentage of initial pool principal)
*TCR=it is the minimum CCR required on a pool's future cash flows, to be able to service the investor payouts on time.
 
About the pool
The pool consists of vehicle loan contracts comprising mostly of commercial vehicles. As on the cut-off date, the weighted average seasoning of the pool was 22.6 months, and the pool was geographically diverse, with the top three states accounting for 36.7% of the pool principal. All the contracts in the pool were current on payments as on the pool cut-off date, with a weighted average loan-to-value ratio of 94.5% and average ticket size of Rs. 12.9 lakhs.
 
Key Rating Assumptions
To assess the base case collection shortfalls for the transaction CRISIL has analysed vintage-wise static pool performance of loans disbursed across asset classes, excluding the ones disbursed under subvention or loss cover schemes. This analysis has been done for originations by TMFL from FY 2012 to FY2018 with performance up to March 2019. Also, CRISIL has considered contracts that are current on payment as of 6 months seasoning, as contracts in the securitised pool exhibit a similar repayment and seasoning profile. Performance of rated securitisation transactions, as well as the performance of TMFL's portfolio has also been considered. 90+ dpd on TMFL's portfolio was 5.0% as of June 2019.

CRISIL's has adequately factored all these pool specific characteristics and analysed the bucket wise shortfall of the loans in the pool to arrive at the base case shortfall.
  • 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 below).
  • 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 TMFL 'CRISIL AA-/CRISIL A/Negative/CRISIL A1+' No effect.
Servicer TMFL 'CRISIL AA-/CRISIL A/Negative/CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank Bank of Baroda 'CRISIL AAA/Stable CRISIL AA+/Negative'  
Credit-cum-liquidity collateral in the form of Fixed deposit bank Bank of Baroda 'CRISIL AAA/Stable CRISIL AA+/Negative' Significant effect; as the credit opinion on acquirer payouts is linked to long term credit risk profile of the credit enhancement provider.
Acquirer's representative ITSL Adequate track record Negligible effect. Can be replaced at minimal cost
 
About the Originator
TMFL is a non-deposit taking, systemically important, non-banking financial and asset financing company and is one of the major financiers of CVs and cars for TML's customers and channel partners.

In March 2016, TMFHL acquired 100% stake in TMFL (earlier Sheba Properties Limited), a non-banking finance company registered with RBI, for Rs 405 crore from TML. As on March 31, 2016, TMFL (earlier Sheba Properties Limited) had total assets of Rs 205 crore, of which the investment portfolio constituted 94% of the assets or Rs 193 crore.

With the implementation of scheme of arrangement effective January 2017, the entire new vehicle finance business undertaking has been transferred from TMFHL to TMFL.

For the year ended March 31, 2019, the company reported profit after tax (PAT) of Rs 204 crore on total income (net of interest expenses) of Rs 1208 crore (basis IND AS), as against a net profit of Rs 272 crore (net of interest expenses) and total income of Rs 1028 (basis IND AS) crore in previous fiscal.
 
Past Rated Pools
CRISIL have ratings outstanding on 5 securitisation transaction originated by TMFL. CRISIL is receiving monthly performance related to all the TMFL transactions.
Key Financial Indicators
As on /for the year ended March 31,   2019 2018
Total Assets Rs crore 32,917 22,809
Total income (net of interest expenses) Rs crore 1,208 1,028
Profit after tax Rs crore 204 272
Capitalization % 15.25% 16.56
Gross NPA % 2.92 4.69
Net NPA % 1.52 3.27

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 Crore)		 Date of Allotment Maturity date# Coupon Rate (p.a.p.m.) (%) Outstanding
Rating/Credit Opinion &		 Credit cum liquidity Enhancement
(Rs Crore)
Acquirer payouts 459.91 31-Dec-2019 10-Feb-2022 9.10% CRISIL A (SO) Equivalent/Watch Developing 40.56
#Indicates door-to-door tenure; actual tenure will depend on the level of prepayments in the pool, exercise of clean-up call option, extension due to moratorium and the extent of shortfalls
&Acquirer payouts holders are entitled to receive timely interest and timely principal on a monthly basis
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Acquirer payouts LT  327.66 CRISIL A (SO) Equivalent/Watch Developing   09-01-20 CRISIL A (SO) Equivalent              -- 
         08-01-20  Provisional CRISIL A (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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