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CRISIL has assigned a provisional credit opinion to HDFC Ltd’s (HDFC’s) assignment transaction where the acquirer’s payouts are determined to have a credit quality equivalent to a rating of ‘AAA(so)’. HDFC will directly assign the pool to the acquirer, who will pay a purchase consideration equal to the pool principal balance.
The transaction is backed by receivables from mortgage loans originated by HDFC. HDFC, in its capacity as the seller, will assign the rights, title and interest, and the entire ownership in the loan receivables to the acquirer. The acquirer’s yield is directly linked to the pool yield. The weighted average internal rate of return (IRR) of the pool is higher than the acquirer’s yield, resulting in excess interest spread (EIS). Based on the yield indicated by the originator, the transaction has a cumulative EIS of around 10 per cent. As the EIS is subordinated to the acquirer’s payouts, it increases the credit cushion to the purchaser. CRISIL's analysis indicates that the recommended credit collateral along with subordinated EIS is required to ensure that the acquirer’s payouts achieve a credit opinion equivalent to a rating of ‘AAA (so)’.
The credit opinion is based on the strength of the credit quality of the pool cash flows, HDFC’s origination and servicing capabilities, the enhancements to the structure, the payment mechanism for the transaction, and the soundness of the transaction’s legal structure.
About the pool:
The pool consists of all floating rate contracts with an average net seasoning of 9.4 months and a minimum net seasoning of 3 months. The loans have a minimum ticket size of Rs.2 million. A high proportion of the pool’s contracts (approximately 61 per cent) pertain to properties located in Maharashtra. The pool comprises a high proportion (91.7 per cent) of salaried individuals, which mirrors HDFC’s portfolio. Around 79.1 per cent of the contracts in the pool are current and no contract has overdues for more than two months.
About HDFC:
HDFC, India’s first and largest housing finance company, was incorporated in 1977 with the objective of providing housing finance to individuals, cooperative societies, and the corporate sector. Its initial shareholders included the International Finance Corporation, Washington, and the Aga Khan Trust. HDFC has disbursed loans amounting to Rs.222.9 billion during the first nine months of 2007-08 (refers to financial year, April 1 to March 31), as against Rs.174.7 billion during the corresponding period in 2006-07, registering a growth of 27.6 per cent. As on December 31, 2007, its total housing loan portfolio stood at Rs.669.8 billion, 67 per cent of which comprised loans to individuals, while the rest were to corporate bodies and builders. On an incremental basis, more than 90 per cent of the company’s loans are disbursed at variable rates. As on December 31, 2007, HDFC’s individual loan portfolio comprised over 90 per cent of variable-rate loans. This offers HDFC a natural hedge against interest rate movements. HDFC’s total assets as on December 31, 2007, were Rs.752.4 billion (Rs.588.4 billion as on December 31, 2006). For the nine months ended December 31, 2007, HDFC reported a profit after tax (PAT) of Rs.16.68 billion, as against Rs.10.2 billion for the corresponding period of the previous year. In the past, CRISIL has rated five mortgage-backed securitisation transactions of HDFC and all of them have shown strong performance.
1The ratings assigned are provisional and would become valid once the legal documentation pertaining to the transaction is duly executed to CRISIL’s satisfaction. Thereafter, CRISIL will issue a compliance letter.
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