India Universal Trust AL2

(Originator: HDFC Bank Limited)
‘CRISIL AAA (SO)’ for Series A1 PTCs; ‘CRISIL AAA (SO)’ for Series A2 PTCs, ‘CRISIL AAA (SO)’ for Series A3 PTCs and ‘CRISIL BBB+ (SO) Equivalent’ for Second Loss Facility converted from provisional ratings to final ratings

 

Rating Action

Tranche Name	Amount Rated (Rs.Crore)	Outstanding Amount (Rs.Crore)	Balance Tenure	Credit Collateral* (Rs.Crore)	Ratings/Credit Opinions	Rating Action
Second loss facility	457.76	457.76	72	247.44	CRISIL BBB+ (SO) Equivalent	Converted from Provisional credit opinion to Final credit opinion
Series A1 PTCs	4500.0	4500.0	24	581.48	CRISIL AAA (SO)	Converted from Provisional Rating to Final Rating
Series A2 PTCs	4000.0	4000.0	36	581.48	CRISIL AAA (SO)	Converted from Provisional Rating to Final Rating
Series A3 PTCs	3871.9	3871.9	72	581.48	CRISIL AAA (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

*Total available external credit enhancement consists of cash collateral of Rs 705.20 Crores i.e. 5.7% of the initial pool principal (increased from 4.7% as proposed at the time of provisional rating), issued by HDFC Bank favoring the trustee.  As stated by the originator, incremental 1.0% of external credit enhancement has been provided to give additional cushion for payouts to the investor

Detailed Rationale

CRISIL Ratings has converted its provisional ratings/Credit opinion assigned to Series A1 Pass-Through Certificates (PTCs), Series A2 PTCs, Series A3 PTCs and Second Loss Facility issued by ‘India Universal Trust AL2’ to final ratings of 'CRISIL AAA (SO)' for Series A1 PTCs, ‘CRISIL AAA (SO)’ for Series A2 PTCs, ‘CRISIL AAA (SO)’ for Series A3 PTCs and ‘CRISIL BBB+ (SO) Equivalent’ for Second Loss Facility. The PTCs and the second Loss Facility were issued under a securitisation transaction originated by HDFC Bank Limited (HDFC Bank: rated 'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'),

 

This transaction is backed by a pool of new car loan receivables originated by HDFC Bank. The rating is based on the credit support available to the PTCs, the credit quality of the underlying pool receivables, HDFC Bank’s origination and servicing capabilities, 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 the terms of the transaction envisaged when provisional ratings were assigned. Hence, CRISIL Ratings has converted the provisional ratings to final ratings.

 

Executed documents:

• Restated Declaration of Trust
• Deed of Assignment of receivables in the process of securitisation [[including originators’ representations and warranties]
• Servicer Agreement
• First Loss Facility Agreement
• Second Loss Facility Agreement
• Power of Attorney

 

Other Documents:

• Information Memorandum
• Legal Opinion
• Trustee Letter
• Auditor’s Certificate

 

The transaction has a ‘par with flow-back excess interest spread (EIS) structure, wherein the trust settled by a trustee has issued Series A1 PTCs, Series A2 PTCs and Series A3 PTCs in exchange for a purchase consideration equal to 36.37%, 32.33% and 31.30% of the pool principal at the time of securitisation, respectively. The PTC holders are promised timely interest and timely principal payments on a monthly basis. Interest payments to PTC tranches are paid on a pari-passu basis, at their respective yields.

 

Till Series A1 PTCs are outstanding, the scheduled principal amortisation of the pool along with principal prepayments for the month shall be split between the Series A1 PTCs, Series A2 PTCs and Series A3 PTCs in the proportion of 70%:25%:5%, respectively. On the date when Series A1 PTCs are fully redeemed, the remaining principal after redeeming Series A1 PTCs (which would have otherwise been utilised for payment of scheduled Series A1 Principal), is split in the proportion 90%:10% among Series A2 PTCs and Series A3 PTCs, respectively.

 

Once Series A1 PTCs is paid in full and until Series A2 PTCs and Series A3 PTCs are outstanding, the scheduled principal amortisation of the pool along with principal prepayments for the month shall be split between Series A2 PTCs and Series A3 PTCs in the proportion of 90%:10%, respectively. Once Series A1 PTCs and Series A2 PTCs are repaid in full, the pool principal amortisation amount along with prepayments for the month (100%) shall be paid with respect to Series A3 PTCs.

 

Investor payouts for PTCs are supported by cash collateral and subordination of excess interest spread (EIS). HDFC Bank will continue to service loan contracts in the pool as the servicing agent.

 

The total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, is commensurate with the rating assigned to the PTCs.

Key Rating Drivers & Detailed Description

Strengths:

• Credit support available in the structure

• The total available external credit enhancement consists of cash collateral of Rs 705.20 Crores i.e. 5.7% of the initial pool principal (increased from 4.7% as proposed at the time of provisional rating), issued by HDFC Bank favoring the trustee.  As stated by the originator, incremental 1.0% of external credit enhancement has been provided to give additional cushion for payouts to the investor. The PTCs also benefit from scheduled excess interest spread aggregating Rs 226.91 crore (1.83% of pool principal).

• Seasoning profile of contracts in the pool

• The contracts in the pool are current and have a weighted average seasoning (number of instalments paid) of 17.5, and consequently, the pool has amortised by 27.4% as of the cut-off date of 31st October 2024

 

Weakness:

• Potential effect of macroeconomic headwinds

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Moderation in demand on account of inflation and geo-political uncertainties can lead to volatilities in cashflow generation capability of the borrowers. These factors may hamper pool collection ratios.

• Higher LTV contracts in pool

• Contracts accounting for 42.7% of pool principal are from contracts with LTV > 90%. In case of repossession of asset, losses can be higher for such high LTV loans. However, asset quality performance of higher LTV loans has been stable in HDFC Bank’s portfolio.

 

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 base case shortfalls in the pool.

Rating Sensitivity factors

Upward factors:

• For Series A1 PTCs, Series A2 PTCs & Series A3 PTCs:

• None

• For Second loss facility:

• Healthy collections performance of higher than 99.5% leading to credit cover building up. 

 

Downward factors:

• For Series A1 PTCs, Series A2 PTCs, Series A3 PTCs & Second loss facility:

• Weaker collection efficiency than expected for a considerable period on a sustained basis, i.e. lower than 98%, leading to depletion of credit cover available to PTC holders

• 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 pool securitised comprises new car loan receivables. The pool has weighted average net seasoning of 17.5 (number of instalments paid). The pool has moderate geographic concentration with top three states accounting for 42.7% of pool principal. Average ticket size is Rs 9.32 lakh with weighted average interest rate of 8.9%. All the contracts in the pool were current as on pool cut-off date (October 31st, 2024).

 

CRISIL Ratings has adequately factored all these aspects in its rating analysis

 

Rating Assumptions To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed moving portfolio delinquency  movement, monthly portfolio collections and static pool information (with information on 90+ delinquencies) for new car loan portfolio provided by HDFC Bank for originations in the period Q1FY19 to Q4FY24 with performance as of September 2024. The 90-180 dpd for the HDFC Bank car loan portfolio is 0.26% as of September 2024.   CRISIL Ratings has also factored in pool specific characteristics and estimated the base case shortfalls in the pool in the range of 1.0% to 1.8% of pool cash flows.   CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.3% to 0.5% in its analysis.   Based on the short-term rating of servicer ‘CRISIL A1+’, CRISIL Ratings does not any risk arising out of commingling of cash flows.   CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)   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.

 

Counterparty details

Capacity	Counterparty	Rating	Effect on PTC ratings in case of non- performance
Originator and seller	HDFC Bank	'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'	No effect.
Servicer	HDFC Bank	'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'	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	HDFC Bank	'CRISIL AAA/Stable/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.
First loss facility in the form of cash in current account in the name of trustee	HDFC Bank	'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'	Negligible effect. Based on triggers captured in the relevant documentation, the trustee, on behalf of the investors, has the right to change the bank with whom the cash collateral is maintained if needed.
Second loss facility in the form of cash in current account in the name of trustee	HDFC Bank	'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'	Negligible effect. Based on triggers captured in the relevant documentation, the trustee, on behalf of the investors, has the right to change the bank with whom the cash collateral is maintained if needed.
Trustee	Catalyst Trusteeship Limited	Not rated by CRISIL Ratings	Negligible effect. The trustee can be replaced by the investor if needed.

 

About the Originator

Incorporated in 1995, HDFC Bank offers a wide range of banking services, including commercial and transactional banking in the wholesale segment, and branch banking in the retail segment, with focus on mortgage loans, car finance, business banking loans, commercial vehicle finance, credit cards, and personal loans. The bank acquired Centurion Bank of Punjab in May 2008. It has four overseas branches, one each in Bahrain, Kenya, Qatar and UAE, as well as three representative offices, one each in the Dubai, London and Singapore. Further, the bank also has an Offshore Banking Unit at International Financial Service Centre (IFSC), at GIFT City, Gandhinagar in Gujarat.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Amount (Rs. Crore)	Date of allotment	Maturity Date&	Coupon Rate (%)	Complexity level	Ratings assigned	Cash collateral (Rs.Crore)
INE1CBK15011	Series A1 PTCs	4500	27-Nov-24	21-Nov-26	8.03% p.a.p.m	Highly Complex	CRISIL AAA (SO)	705.20
INE1CBK15029	Series A2 PTCs	4000	27-Nov-24	21-Nov-27	8.09% p.a.p.m	Highly Complex	CRISIL AAA (SO)	705.20
INE1CBK15037	Series A3 PTCs	3871.9	27-Nov-24	21-Nov-30	8.17% p.a.p.m	Highly Complex	CRISIL AAA (SO)	705.20
NA	Second Loss Facility*	457.76	27-Nov-24	21-Nov-30	NA	Highly Complex	CRISIL BBB+ (SO) Equivalent	247.44

&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

*Additional credit support includes Rs. 226.91 crore in form of scheduled cash flow subordination (assuming zero prepayments)