Detailed Rationale CRISIL Ratings has assigned ‘Provisional CRISIL AA- (SO)’ to Series A1 pass-through certificates (PTCs) issued by ‘UBL Trust 14’. The transaction is backed by unsecured Small and Medium Enterprises (SME) loan receivables originated by ECL Finance Ltd. part of Edelweiss group (ECL Finance; rated ‘CRISIL AA-/CRISIL PPMLD AA-r/Negative/CRISIL A1+’). The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, ECL Finance’s origination and servicing capabilities, and soundness of the transaction’s legal structure.
The transaction has a 'Par with EIS flowback' structure. ECL Finance will assign the loan receivables to ‘UBL Trust 14’, a trust settled by Catalyst Trusteeship Pvt Ltd (CTL), which will then issue Series A1 PTCs for 90.0% of the pool principal. ECL Finance will continue to service the pool contracts as the servicing agent.
The PTCs are supported by the credit collateral – in the form of fixed deposit and cashflow subordination. The total credit support available in the transaction is as below:
Series A1 PTCs are entitled to monthly interest, while the principal payment is promised on an ultimate basis. |
Key Rating Drivers & Detailed Description Strengths:
Weakness:
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Liquidity: Strong The credit collateral available in the transaction is Rs 2.04 crore (8.7% of the pool principal) is in the form of a fixed deposit. Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls. |
Rating Sensitivity factors Upward
Downward
These aspects have been factored by CRISIL Ratings in its rating analysis.
Additional disclosures for Provisional ratings: The provisional rating is contingent upon execution of the following documents:
Additional documents executed for the transaction, if any, should also be provided. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument.
The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days.
Rating that would have been assigned in absence of the pending steps/ documentation: In the absence of pending documentation considered while assigning provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.
Risks associated with provisional nature of credit rating: A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable. In case the documents received and/or completion of steps deviates significantly from the expectations, CRISIL Ratings may take an appropriate action including placing the rating on watch or a rating/outlook change, depending on status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio. |
About the Pool The pool securitised comprises unsecured SME loan receivables. The pool has weighted average net seasoning of 6.2 monthly instalments. The pool has a weighted average tenure of 27.8 months with top three states accounting for 56.9% of pool principal. Average ticket size of Rs 14.9 lakh with weighted average interest rate of 20.9%. All the contracts in the pool are current as on pool cut-off date (July 31, 2022). CRISIL Ratings has adequately factored all these aspects in its rating analysis.
Counterparty Details
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About the Originator ECL Finance was incorporated in July 2005 and registered with the RBI as a non-deposit taking non-banking financial company. It is a wholly owned subsidiary of Edelweiss Group. It is focused on offering secured corporate loan products and retail loan products, which include corporate finance, loan against property, loan against marketable securities, real estate finance, public issue financing, MSME finance and structured finance. As on December 31, 2021, the company had assets of Rs 12,221 crore.
ECL Finance had reported PAT of Rs 35.9 crore on total income of Rs 1299 crore for 9 months of fiscal 2021, against a net loss of Rs 142 crore on total income of Rs 1,629 crore during corresponding period of previous fiscal.
About the Group The Edelweiss group comprised 48 subsidiaries and associates as on March 31, 2021. The number of companies has come down from 74 as on March 31, 2016,and may come down further over the next few quarters (subject to requisite approvals). The group had 293 offices (including 10 international offices in 6 locations) in around 136 cities as on December 31, 2021. Furthermore, as part of streamlining its operating structure, the group has restructured the businesses into five verticals namely credit, insurance, asset management, asset reconstruction and wealth management.
The group is present across various financial services businesses, including loans to corporates and individuals, mortgage finance - loans against property and small-ticket housing loans, MSME finance, institutional and retail equity broking, corporate finance and advisory, wealth management, third-party financial products distribution, alternative and domestic asset management, and life and general insurance. In addition, the BMU focuses on liquidity and asset-liability management.
The group reported PAT of Rs 254 crore on total income of Rs 10,849 crore for fiscal 2021, against net loss of Rs 2,044 crore and total income of Rs 9,603 crore in fiscal 2020. During the nine months of fiscal 2022, the group reported net profit of Rs 167 crore on total income of Rs 5,389 crore, compared to net loss of Rs 382 crore and total income of Rs 6,367 crore during corresponding period in previous fiscal.
Key Financial Indicators: EFSL (Consolidated)
Past rated pools CRISIL Ratings is rating the second transaction originated by ECL Finance. CRISIL Ratings has been receiving monthly performance report for the previous transaction. |
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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
#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 &Series A1 PTC holders are entitled to receive timely interest on a monthly basis, while the principal payment is promised on an ultimate basis. *Additional credit support includes Rs. 5.58 crore in form of scheduled cash flow subordination (assuming zero prepayments) - including subordination of Equity tranche principal of Rs 2.34 crore (10.0% of pool principal) |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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