Rating Rationale
March 19, 2020 | Mumbai
LFL Earth Trust I
(Originator: Lendingkart Finance Limited)
'Provisional CRISIL A (SO)' assigned to Series A1 PTCs    
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Pool Principal
(Rs Cr) 		 Original Tenure (Months)# Credit Collateral
(Rs Cr)		 Ratings@ Rating Action
LFL Earth Trust I Series A1 PTCs 49.15 54.61 28 3.91 Provisional CRISIL A (SO) Provisional Ratings Assigned
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, Securities and Exchange Board of India (SEBI) directive, 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in principle ratings assigned by CRAs'.
# Indicates door to door tenure from pool cut-off date. Actual tenure will depend on the level of prepayments in the pool, and exercise of the clean-up call option
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL A (SO)' to Series A1 pass-through certificates (PTCs) issued by 'LFL Earth Trust I'. The transaction is backed by Small and medium enterprises (SME) loan receivables originated by Lendingkart Finance Ltd. (Lendingkart; rated CRISIL BBB+/CRISIL PP-MLD BBB+r/Positive).  The ratings are based on the credit support available to the PTCs, credit quality of underlying pool receivables, Lendingkart's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread' structure. Lendingkart will assign the loan receivables to 'LFL Earth Trust I', a trust being settled by Catalayst Trusteeship Ltd. (CTL), which will then issue Series A1 PTCs for 90.0% of the pool principal. Lendingkart 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:

  • External credit collateral of Rs 3.91 crore (7.2% of pool principal or 5.7% of pool cash flow)
  • Internal credit support in the form of cashflow subordination, aggregating Rs 13.68 crore for Series A1 PTCs.

Series A1 PTCs are entitled to monthly interest, while the principal payment is promised on an ultimate basis.
 
This is a 'provisional' rating and will be converted into a 'final' rating on receipt of the following documents:

  • Trust deed
  • Assignment agreement
  • Accounts agreement
  • Servicing agreement
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee letter
  • Representations and warranties letter
  • CA certificate

Additional documents, if executed for the transaction should also any, be provided. A rating rationale/report indicating the conversion of the 'provisional' rating to 'final' post the receipt of all the required final legal documents will be published on the CRISIL website. Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' rating.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 3.91 crore (7.2% of the pool principal or 5.7% of the pool cash flow) provides credit support to Series A1 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 13.68 crore for Series A1 PTCs
       
  • Modest seasoning on contracts in the pool
    • The contracts in the pool have a weighted average seasoning of 12.5 months and amortisation of 31.2% as of the cut
    • All the contracts in the pool are current as of cut-off date
Constraining Factors
  • Concentration in the pool
    • The pool is concentrated in terms of geography and borrower. Top three states Gujarat, Maharashtra and Telangana account for 45.0% of the pool principal.
Liquidity : Strong
Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.6 times the currently estimated base shortfalls.
 
These aspects have been factored by CRISIL in its rating analysis.
 
About the pool
The pool securitised comprises SME loan receivables. The pool has weighted average net seasoning of 12.5 monthly instalments. The pool is geographically concentrated with top three states accounting for 45.0% of pool principal. Average ticket size is Rs 7.6 lakh with weighted average interest rate of 26.8%. All the contracts in the pool were current as on pool cut-off date (January 31, 2020). CRISIL has adequately factored all these aspects in its rating analysis.

Rating assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed the moving portfolio delinquency information on portfolio for performance from April 2018 to December 2019. As on December 2019, 30+ dpd and 90+ dpd on the portfolio was 6.6% and 2.3% respectively. CRISIL has also analysed the static pool performance of Lendingkart's originations since January 2017 and performance till December 2019.
 
Based on these aspects, CRISIL has estimated base case shortfalls in the pool at 11.0% - 13.0% of cash flows.
  • CRISIL has assumed a stressed monthly prepayment rate of 0.5% to 1.0% in its analysis.
  • CRISIL has factored in risk arising on account of commingling of cash flows
  • 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 Lendingkart Rated 'CRISIL BBB+/CRISIL PP-MLD BBB+r/Positive' No effect.
Servicer Lendingkart Rated 'CRISIL BBB+/CRISIL PP-MLD BBB+r/Positive' Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. The Trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank CSB Bank Limited 'Not Rated by CRISIL' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit Fincare Small Finance Bank Rated 'CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee CTL Adequate past track record Negligible effect. Can be replaced at minimal cost.

Rating sensativity factors
Upward
  • Credit enhancement  (based on both internal and external credit enhancements) available in the structure exceeding 2.1 times the estimated base case shortfalls on the residual cash flows of the pool.
  • A sharp upgrade in rating of the servicer/originator
Downward
  • Credit enhancement falling below 1.35 times the estimated base case shortfalls
  • A sharp downgrade in rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating
About the Originator
Lendingkart commenced operations from fiscal 2015 and is registered as a non-deposit accepting NBFC. The lending principle for the company is based on credit evaluation using a proprietary scoring model with minimum human interface and therefore, with a significantly faster turnaround time. Lendingkart is targeting the niche segment of low ticket size, shorter tenure unsecured loans.

Lendingkart is a 100% subsidiary of Lendingkart Technologies Pvt. Ltd. LTPL). Promoters hold around 19% in LTPL while other investors hold around 79% with Fullerton Financial Holdings Pte Ltd. being the single largest shareholder.

Lendingkart has turned profitable within three years of its operations reporting a Profit after tax (PAT) of Rs 18.5 crore on total income of Rs 161.6 crore in the nine months ended December 31, 2018 compared to losses in the previous fiscals. On a consolidated basis, LTPL reported a total income of over Rs 164 crores and reported losses at around Rs 50 crores in the nine months ended December 31, 2018.

Past rated pools
CRISIL has ratings outstanding on one securitisation transactions originated by Lendingkart. CRISIL is receiving monthly performance reports pertaining to these transactions.

1Portfolio performance is measured by 30+ dpd, 90+ dpd, 120+ dpd, 150+ dpd, and 180+ dpd (depending on the loan tenure), which are defined as the sum of overdue and future principal for contracts overdue for more than 30, 90, 120, 150, and 180 days, respectively, expressed as a percentage of portfolio outstanding at that point in time
 2Credit costs = provisioning + write offs as a percentage of average total assets.

Key Financial Indicators - (Standalone -Lendingkart) 
As on/for the period ended Unit Nine months ended
December 31, 2018		 Year ended
March 31, 2018
Total Assets Rs crore 1226 548
Total income Rs crore 162 90
Profit after tax Rs crore 19 (23)
Gross NPA % 1.1 2.0
Gearing Times 1.4 2.7
Return on assets % 2.8 Negative

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 Crore)		 Date of Allotment Maturity
Date #		 Coupon Rate (p.a.p.m) Outstanding
Rating &		 Credit collateral (Rs Crore)
Series A1 PTCs 49.15 24-Feb-20 18-Jun-22 12.00% Provisional CRISIL A (SO) 3.91*
# 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. Series
* Additional credit support includes Rs.13.68 crore in form of scheduled cash flow subordination (assuming zero prepayments) - Includes overcollateralization of Rs.5.46 crore (10.0% of pool 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 A1 PTCs LT  49.15 Provisional CRISIL A (SO)                  
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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