Rating Rationale
June 25, 2024 | Mumbai
Airspeed 03 2024
(Originator: Spandana Sphoorty Financial Limited)
‘CRISIL AA (SO)’ for Series A PTCs converted from Provisional Rating to Final Rating
 
Rating Action
Tranche NameAmount Rated (Rs in Crores)Outstanding AmountBalance TenureCredit Collateral (Rs.)Ratings/Credit OpinionsRating Action
Series A PTCs209.64182.961911.98CRISIL AA (SO) Converted 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

Detailed Rationale

CRISIL Ratings has converted the provisional rating assigned to Series A Pass-Through Certificates (PTCs) issued by ‘Airspeed 03 2024’ under a securitisation transaction originated by Spandana Sphoorty Financial Limited (Spandana; rated ‘CRISIL A/Positive’) to a final rating of 'CRISIL AA (SO)'. This securitisation transaction is backed by backed by a pool of microfinance loan receivables originated by Spandana. The ratings are based on credit quality of the underlying pool receivables, origination and servicing capabilities of Spandana, credit support available to the PTCs, payment mechanism for the transaction, and soundness of the transaction’s legal structure.

 

CRISIL Ratings has now received the final legal/executed documents for this transaction. These executed documents are in line with terms of the transaction envisaged when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.

 

Legal Documents

  • Restated Declaration of Trust
  • Deed of Assignment of Receivables in the process of Securitisation
  • Power of Attorney

 

Other Documents

  • Information Memorandum
  • Legal Opinion
  • Auditors Certificate
  • Originator’s Representation and Warranties Letter
  • Trustee Awareness Letter

 

The transaction has a ‘Par with EIS’ structure. SSFL has assigned the loan pool to ‘Airspeed 03 2024’, a trust settled by Axis Trustee Services Limited, which has issued Series A PTCs to investors in exchange for a purchase consideration equal to 87.5% of the pool principal outstanding as on the cut-off date (Feb 29, 2024).

 

Series A PTC holders are promised timely interest on a monthly basis and principal on ultimate basis on the maturity date of the PTCs. Investor payouts for PTCs are supported by cash collateral, overcollateralisation and subordination of excess interest spread (EIS).

 

Total credit support available in the transaction structure is as below:

 

  • Internal credit enhancement from scheduled cashflow subordination (assuming zero prepayments) aggregating to Rs 63.84 crore (26.6% of pool principal) which includes Rs 29.95 crore of principal overcollateralization (12.5% of initial pool principal) and Rs 33.89 crore of EIS (14.1% of initial pool principal) for Series A PTCs.
  • External credit enhancement from a cash collateral in the structure amounting to Rs 11.98 crore (5.0% of initial pool principal) to be maintained in the form of a fixed deposit.

Key Rating Drivers & Detailed Description

Strengths:

  • Cash collateral in the structure amounting to Rs 11.98 crore (5.0% of pool principal) and internal credit enhancement from scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 63.84 crore (26.6% of pool principal) for Series A PTCs.
  • All of the 75,984 contracts in the underlying loan pool are current as of the cut-off date (February 29, 2024). The pool had a weighted average seasoning of 6.5 months and a pre-securitisation amortisation of 23.0% as of the cut-off date.

 

Weakness:

  • The microfinance industry remains susceptible to risks arising out of socio-political issues and regulatory changes. Such events can disrupt loan repayments of underlying borrowers.
  • 30+ delinquencies on SSFL’s portfolio have witnessed a slight uptick from 2.4% in Sep-23 to 2.7% in Dec-2023, majorly due to SSFL’s transition to a weekly collection model. The uptick has been more prominent in states such as Gujarat and Haryana. However, these are expected to be transitory and stabilize over the medium term.

 

These aspects have been adequately factored in its rating analysis by CRISIL Ratings.

Liquidity: Strong

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 factors

  • Credit enhancement available in the structure for Series A PTCs adequately covering for 2.3 times the estimated adjusted base shortfalls on the residual cash flows of the pool due to sustained healthy collections from the pool.

 

Downward factors

  • Credit enhancement available in the structure for Series A PTCs failing to cover 2.0 times the estimated adjusted base shortfalls due to weaker than expected performance of the pool.
  • 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 transaction is backed by microfinance receivables originated by SSFL. The key pool characteristics are outlined below:

  • The contracts in the pool have weighted average seasoning of 6.5 months, which has led to pre-securitisation principal amortisation of 23.0% as of the pool cut-off date.
  • The pool is diversified in terms of geography with the top 3 state and top 3 districts accounting for 40.5% and 8.4% of the pool principal respectively.
  • The average disbursement amount for loans in the pool is Rs 40,967, with a weighted average interest rate of 25.0% and a weighted average tenure of 23.6 months.
  • All the contracts in the underlying loan pool were current as of the cut-off date (February 29, 2024).

 

Rating assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed the microfinance industry’s dynamic portfolio delinquencies on a state-level basis over various operating cycles, including the collection performance observed in stressed periods. Additionally, CRISIL Ratings has considered SSFL’s collection efficiency, dynamic portfolio delinquency, and static pool delinquency performance up to Dec-2023, along with write-offs, ARC sales, and restructuring information.

CRISIL Ratings has also analysed the portfolio cuts based on various parameters and compared the pool with the portfolio on these parameters. Further, CRISIL Ratings has factored the delinquency performance of the microfinance industry in various geographies.

 

CRISIL Ratings has estimated base case shortfalls in the pool at 7.0%-9.0% of cash flows. Additionally, stresses on account of economic, political and geographic concentration factors have been applied to arrive at the adjusted base shortfalls for the pool.

 

CRISIL Ratings has also factored the following assumptions, basis the typical industry characteristics of the asset class and its criteria for rating asset backed securitisations:

 

  • CRISIL Ratings has assumed a monthly prepayment of 0.5%-1.5% of initial pool principal.
  • CRISIL Ratings does not envisage any risk arising on account of commingling of cash flows given the rating of the servicer.
  • 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.
  • CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to Counterparty Details)

 

Counterparty details

Capacity

Counterparty

Rating

Effect on transaction rating in case of non-performance

Originator

SSFL

CRISIL A/Positive

No effect.

Servicer

SSFL

CRISIL A/Positive

Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL Ratings does not envisage the need for replacement. The trustee, on behalf of the investors, shall retain the right to nominate an alternate collection agent in case of a “Servicer Event of Default”, linked to insolvency of the servicer or breach of any transaction terms.

Collection and Payout Account Bank

Axis Bank Limited

CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+

Negligible effect. The trustee, on behalf of the investors, has the right to change the collection and payout account bank if needed.

Cash collateral bank

Axis Bank Limited

CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+

Negligible effect. The trustee, on behalf of the investors, has the right to change the bank with whom the cash collateral is maintained if needed.

Trustee

Axis Trustee Services Limited

Not rated by CRISIL Ratings

Negligible effect. The trustee can be replaced by the investor if needed.

 

Transaction waterfall mechanism

Series A PTC holders are promised timely interest payment on a monthly basis and principal repayment on an ultimate basis on the maturity date of the PTCs. The collections from the pool, including the internal subordination through overcollateral as well as EIS, will be used to make promised interest payouts to PTC holders, followed by expected principal payouts as per the scheduled monthly principal collections.

 

However, in case of a collection shortfall, while the cash collateral can be used to make the promised interest payouts, any shortfall in expected principal collections will be carried forward as arrears. The cash collateral can be utilised to meet any outstanding principal arrears on the maturity date of the PTCs.

 

Any prepayments will be utilised for accelerated redemption of PTCs.

 

About the Originator

SSFL is a public limited company incorporated under the provisions of the Companies Act, 1956, on March 10, 2003. It was registered as a non-deposit accepting NBFC with the Reserve Bank of India and was classified as an NBFC-MFI effective April 13, 2015. The shares of SSFL were listed on the stock exchanges in India in August 2019 pursuant to the IPO of equity shares. SSFL, along with its subsidiaries, is engaged in lending, providing small-value unsecured loans to low-income customers in semi-urban and rural areas. The tenure of these loans is generally 1-2 years. While SSFL extends microfinance loans, its subsidiaries extend other services such as loans against property, gold loans, business loans and personal loans.

Key Financial Indicators

Particulars

Unit

September-2023

March-2023

March-2022

March-2021

Total assets

Rs crore

12001

9884.7

7569.1

9468.1

Total income

Rs crore

1167

1476

1480

1396

Profit after tax

Rs crore

244

12

70

145

Gross NPA (90+ dpd)

%

1.3

2.1

17.2

5.6

Gearing

Times

2.3

2.0

1.2

2.0

Return on managed assets

%

4.5

0.1

0.8

1.6

*annualised

 

Performance of past rated pools

CRISIL Ratings has ratings outstanding on 7 other securitisation transactions originated by SSFL. The cumulative collection ratios in pools where payouts have commenced range from ~97% to ~99% with 90+ delinquencies below 2.5% as of March 2024 payouts.

 

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

Type of

Instrument

Rated Amount

(Rs Cr)

Date of

Allotment

 

Maturity

Date

Coupon Rate

(%) (p.a.p.m)

Complexity level

Outstanding

Ratings

Cash Collateral

(Rs Cr)

INE0V0F15012

Series A PTCs

209.64

27-Mar-2024

17-Dec-2025

9.65%

Highly complex

CRISIL AA (SO)

11.98

 

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTCs LT 182.96 CRISIL AA (SO) 08-04-24 Provisional CRISIL AA (SO)   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
Meaning and applicability of SO and CE symbol
Evaluating risks in securitisation transactions - A primer
CRISILs rating methodology for ABS transactions

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