Rating Rationale
February 14, 2020 | Mumbai
Platinum Trust September 2019 - Tranche II 
(Originator: Cholamandalam Investment and Finance Company Limited)
'CRISIL AAA (SO)' and 'CRISIL BBB+ (SO) Equivalent' converted from provisional rating to final rating for Series A PTCs and Second Loss Facility
 
Rating Action
Trust Name Instrument
Details		 Amount Rated (Rs Cr) Outstanding Principal
(Rs Cr)*		 Original Tenure (Months) Credit Collateral
(Rs Cr)		 Ratings/ Credit Opinions Rating Action
Platinum Trust September 2019 - Tranche II Series A PTCs 575.29 502.68 54 38.66 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Second Loss Facility 21.40 21.40 17.26 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*After January 2020 payouts
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A Pass-Through Certificates (PTCs) issued by 'Platinum Trust September 2019 - Tranche II' under a securitisation transaction originated by Cholamandalam Investment and Finance Company Limited (CIFCL; rated 'CRISIL AA+/Stable/CRISIL A1+') to final rating of 'CRISIL AAA (SO)'. CRISIL has converted the provisional credit opinion assigned to Second Loss Facility under this transaction to final credit opinion of 'CRISIL BBB+ (SO) Equivalent'.
 
CRISIL has received the final legal documents executed for this transaction. These executed documents are in line with terms of the transaction when provisional rating/credit opinion was assigned. Hence, CRISIL has converted the provisional rating/credit opinion to a final rating/credit opinion.
 
Please click on the following link for detailed information on CRISIL's policy on provisional rating:
Revision in CRISIL policy for assigning 'provisional' ratings
 
As required, CRISIL has received the following final executed legal documents and other documents relevant to the transaction:
Legal documents-

  • Trust Deed
  • Deed of Assignment
  • Power of Attorney
  • First Loss Credit Facility agreement
  • Secong Loss Credit Facility Guarantee

Other Documents-

  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Seller's representations and warranties letter

This transaction is backed by receivables from a pool of commercial vehicle loans originated by CIFCL. The rating / credit opinion is based on the credit support available to the PTCs, credit quality of the underlying receivables, CIFCL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread' structure. In exchange for a purchase consideration amounting to future principal outstanding as on the pool cut-off date, CIFCL assigned the loan pool to 'Platinum Trust September 2019 - Tranche II', a trust settled by IDBI Trusteeship Services Limited (ITSL), which then issued instruments to investors. Investor payouts for Series A PTCs are supported by credit collateral 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 48.34 crore (8.4% of pool principal)
  • External credit enhancement of Rs 38,65,93,000 (6.72% of pool principal), of which First Loss Facility of Rs 17,25,86,000 (3.00% of pool principal) is in the form of a Fixed Deposit and Second Loss Facility of Rs 21,40,07,000 (3.72% of pool principal) is in the form of a Fixed Deposit or Bank Guarantee.

Series A PTC holders are entitled to receive timely interest and timely principal on a monthly basis.

Key Rating Drivers & Detailed Description

Supporting Factors

*Internal and external credit enhancement

o    A credit collateral of Rs 38.66 crore (6.72% of pool principal) provides external credit support to Series A PTCs. The PTCs also enjoy internal credit support through scheduled EIS (assuming zero prepayment) aggregating Rs 48.34 crore (8.4% of pool principal)

* Seasoning profile of contracts in the pool

o    Contracts in the pool have a weighted average net seasoning of 10.3 months. This has led to 24.1% of disbursed principal being amortised prior to securitisation.

 

Constraining Factors

* Moderate geographic concentration

o    33.9% of the pool principal is from contracts originated in the top 3 states
 

* 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.

About the pool

The transaction is backed by receivables from pool of commercial vehicle loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 10.3 months. Contracts in the pool are also geographically concentrated with the top 3 states accounting for 33.9% of pool principal. The average ticket size for contracts in the pool is Rs 7.0 llakh, with a weighted average loan-to-value ratio of 81.8% at disbursement. The weighted average interest rate for contracts in the pool is 13.5%. All contracts were current on payment as of the pool cut-off date (August 31, 2019). CRISIL has adequately factored all these aspects in its rating analysis.
 

Rating Assumptions

To assess the base case collection shortfalls for this ABS transaction CRISIL has analysed static pool information (with data on 90+ delinquencies) on new and used vehicles and new tractors provided by CIFCL for originations in the period FY 2005 to FY 2019 (with performance data till June 2019). CRISIL has also analysed performance of past rated securitisation transactions and the performance of CIFCL's vehicle finance portfolio. 90+ delinquency (as % of managed assets) for CIFCL's vehicle finance portfolio was 1.8% as of March 2019.

 

Based on these, CRISIL has estimated base case shortfalls in the pool at 4.0-6.0% of cash flows.

 

  • CRISIL has assumed a stressed monthly prepayment rate of 0.3 to 0.8 per cent 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

CIFCL

Rated 'CRISIL AA+/Stable/CRISIL A1+'

 

No effect.

 

Servicer

CIFCL

Rated 'CRISIL AA+/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

Rated 'CRISIL AAA/CRISIL AA+/Stable'

Negligible effect. Account bank can be changed without impacting the rating.

First Loss Facility in the form of Fixed Deposit

HDFC Bank

Rated 'CRISIL AAA/CRISIL AA+/Stable'

Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.

Second Loss Facility in the form of Bank Guarantee

Axis Bank

Rated 'CRISIL AAA/CRISIL AA+ /Stable/CRISIL A1+'

Significant effect. Ratings on Series A PTCs is directly linked to the long-term credit risk profile of the guarantee provider.

Trustee

ITSL

Adequate track record

Negligible effect. Can be replaced at minimal cost.

 

Rating sensitivity factors

Upward factor:

  • Credit enhancement (both internal and external credit enhancement) available for the second loss facility exceeding 1.5 times the estimated base case shortfalls on the residual cash flows of the pool.

Downward factor:

  • Credit enhancement falling below 1.2 times of the estimated base case shortfalls for the second loss facility and 2.0 times for Series A PTCs
  • 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 Originator
Part of the Chennai-based Murugappa group, Chola Finance was incorporated in 1978. The company mainly provides vehicle financing and LAP, along with home loans, MSME (micro, small, and medium enterprises) and agricultural loans. It had 999 branches across 27 states in India, with 80% presence across tier III and tier IV cities, as on June 30, 2019.

Between April 2005 and March 2010, the company operated as a joint venture between DBS Bank and the Murugappa group. In March 2010, DBS Bank sold its 37.5% equity stake to the Murugappa group. Chola Finance exited the unsecured personal loan segment in October 2008. It also exited its asset management business through a complete stake sale in DBS Chola Asset Management to L&T Finance Ltd in September 2009. The Murugappa group currently holds 52.9% equity stake in Chola Finance, of which 46.4% is held by Cholamandalam Financial Holdings Limited, a group company.

Chola Finance currently has two subsidiaries: Cholamandalam Securities Ltd and Cholamandalam Home Finance Ltd.

For the first quarter of fiscal 2020 (as per IND AS), profit after tax (PAT) was Rs 314 crore on total income (net of interest expense) of Rs 942 crore, against PAT of Rs 285 crore on total income (net of interest expense) of Rs 810 crore for corresponding period of fiscal 2019.

 

Past rated transactions

CRISIL has ratings outstanding on seven securitisation transactions originated by CIFCL. CRISIL is receiving monthly performance reports pertaining to these transactions.

Key Financial Indicators
As on/for the quarter ended June 30  Unit 2019 2018
Total Assets Rs crore 62,420 47,980
Total income Rs crore 2,029 1,605
Profit after tax Rs crore 314 285
Gross NPA % 3.0 3.6
Adjusted gearing Times 8.8 7.8
Return on managed assets % 2.04 2.43

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 (%) (p.a.p.m.) Outstanding
Ratings/credit opinions		 Credit collateral (Rs Cr) ^
Series A PTCs 575.29 26-Sep-19 18-Mar-24 7.65% CRISIL AAA (SO) $ 38.66 *
Second loss facility 21.40 - CRISIL BBB+ (SO) Equivalent 17.26
# Indicates door to door tenure of 54 months from allotment date. Actual tenure of instruments will depend on the level of prepayments in the loan pool, and possible exercise of the clean-up call option.
^ In addition, scheduled EIS amounting to Rs aggregating Rs 48.34 crore also provides credit support to PTCs.
* Includes a second loss facility of Rs 21.40 crore
$ Series A PTC investors are entitled to receive timely interest and timely principal.
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
Series A PTCs  LT  502.68 CRISIL AAA (SO)     17-10-19  Provisional CRISIL AAA (SO)          
Second Loss Facility  LT  21.40 CRISIL BBB+ (SO) Equivalent     17-10-19  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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