Liquid Gold Series 8 Dec 2024

(Originator: IIFL Finance Limited)
'Crisil AAA (SO)' for Series A PTCs converted from provisional rating to final rating

 

Rating Action

Tranche Name	Amount Rated (Rs.Crore)	Outstanding Amount (Rs.Crore)	Balance Tenure	Credit Collateral (Rs.Crore)	Ratings/Credit Opinions	Rating Action
Series A PTCs	350.0	350.0	28	26.49	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

Detailed Rationale

Crisil Ratings has converted its provisional rating to final rating of ‘Crisil AAA (SO)’ rating to Series A Pass Through Certificates (PTCs), issued by ‘Liquid Gold Series 8 Dec 2024’ under a securitisation transaction backed by gold loan receivables originated by IIFL Finance Limited (IIFL Finance: rated ‘Crisil AA/Crisil AA-/Crisil PPMLD AA/Stable/Crisil A1+’).

 

This securitisation transaction is backed by gold loan receivables originated by IIFL Finance. The rating is based on the credit support available to the PTCs, the credit quality of the underlying pool receivables, IIFL Finance’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 terms of the transaction envisaged when provisional rating was assigned. Hence, Crisil Ratings has converted the provisional rating to a final rating.

 

Legal Documents

• Declaration of Trust
• Assignment Agreement
• Collection and servicing and security agent agreement
• Power of attorney

 

Other Documents

• Auditor’s Certificates
• Legal Opinion
• Originator’s Representations and Warranties Letter
• Information Memorandum
• Trustee Letter

 

Payment Structure: The transaction has a ‘par with turbo amortisation’ structure. The trust settled by the transaction’s trustee i.e. Catalyst Trusteeship Limited has issued Series A PTCs in exchange of a purchase consideration equal to 92.50% of the pool principal at the time of securitisation and 7.50% of the initial pool principal will act as principal overcollaterlization.

 

Both, principal and interest repayment to Series A PTC holders, while expected on a monthly basis, are promised only on an ultimate basis by the instrument’s final maturity date i.e. the transaction has an Ultimate Interest and Ultimate Principal (UIUP) structure

 

Adequacy of credit enhancement:

The investor payouts for PTCs are supported by cash collateral, subordination of overcollateral principal, and subordination of excess interest spread (EIS). On the Series A PTC final maturity date, the cash collateral can be used to make the promised interest and principal repayment in case of a shortfall in collections from the pool.

 

Credit enhancement available in the transaction structure for Series A PTC is as below:

 

• Internal credit enhancement from subordination of over collateral principal amounting to INR 28.38 crore (7.5% of the initial pool principal), and subordination of scheduled EIS amounting to INR 57.81 crore (15.3% of the initial pool principal).
• External credit enhancement from a cash collateral amounting to INR 26.49 crore (7.0% of the initial pool principal) which is expected to be maintained as fixed deposits.

 

Based on Crisil Ratings assessment, the total credit enhancement available in the transaction (internal – in the form of EIS and principal subordination; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, commensurate with the rating assigned to the PTCs.

Key Rating Drivers & Detailed Description

Strengths:

• Credit support available in the structure

• Cash collateral of Rs 26.49 crore (7.0% of the pool principal) provides credit support to Series A PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating to Rs 86.18 crore for Series A PTCs.

• The transaction benefits from a 6-month tail period i.e. the legal final maturity of Series A PTCs is 6 months post maturity of the pool receivables. The availability of tail period provides time for recovery via rollbacks and auctions.
• Current nature of all contracts in the pool

• All the contracts in the pool are current as of the cut-off date (March 22, 2025)

 

Weakness:

• Moderate geographic concentration

• 44.4% of the outstanding pool principals are from Karnataka, West Bengal and Gujarat

• Potential effect of macro-economic headwinds

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment which may hamper pool collection ratios

 

Crisil Ratings has adequately factored these aspects into its rating analysis.

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.

 

Crisil Ratings has adequately factored these aspects into its rating analysis

Rating Sensitivity factors

Upward

None

 

Downward

• For Series A PTCs:
  • Credit enhancement (based on both internal and external credit enhancements) falling below 3.0 times the estimated base case shortfalls
• Weaker than expected performance of the pool in terms of scheduled collections
• Material deviation of recovery from delinquent contracts compared to recovery observed on the portfolio 
• 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 company- Originator/Servicer profile
IIFL Finance is the listed holding company of the IIFL Finance group and is registered as a systemically important non-deposit-taking, non-banking financial company. The group offers various retail lending products, including gold loans, home loans, LAP, digital loans and microfinance loans, which are the core segments and form 98% of the AUM. Capital market-based lending (margin funding and loans against shares) and construction and developer finance form the balance of the AUM

Key Financial Indicators: : IIFL Finance (consolidated; Crisil Ratings-adjusted numbers)

As on/for the period	Unit	September 30, 2024	Mar 31, 2024/ FY24	Mar 31, 2023/ FY23
Total assets	Rs crore	55,372	62,421	53,001
Total income (net of interest expenses)	Rs crore	3,189	6,608	5,225
PAT	Rs crore	245	1,974	1,608
GNPA	%	2.4	2.3	1.8
RoMA	%	0.6	2.3	2.3
On-book gearing	Times	2.9	3.9	3.9

 

Key financial indicators: IIFL Finance (standalone; Crisil Ratings-adjusted numbers)

As on / for the period	Unit	September 30, 2024/	Mar 31, 2024/ FY24	Mar 31, 2023/ FY23
Total assets	Rs crore	22,730	27,588	24,082
Total income (net of interest expenses)	Rs crore	1,186	2,932	2,633
PAT	Rs crore	-464	585	806
GNPA	%	2.9	3.7	1.3
RoMA	%	(2.8)	1.6	2.4
On-book gearing	Times	2.4	3.6	3.4

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) together can mitigate against shortfalls in collection from the pool even after stressing them commensurate with the rating assigned to the PTCs. Crisil Ratings has adequately factored key risks  in the transaction including Credit & Market (as highlighted in rating assumptions section), Counterparty and Legal risks. Legal risks are assessed based on detailed analysis of transaction documentation. Risk factored from

 

Quality and experience of servicer

IIFL Finance will continue to service loans assigned to this trust. IIFL Finance has originated several securitisation transactions. Servicing has been done, and reports have been shared across all these transactions in a timely manner.

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) together can mitigate against shortfalls in collection from the pool even after stressing them commensurate with the rating assigned to the PTCs. Crisil Ratings has adequately factored key risks  in the transaction including Credit & Market (as highlighted in rating assumptions section), Counterparty and Legal risks. Legal risks are assessed based on detailed analysis of transaction documentation. Risk factored from counterparties are mentioned in the table below:

 

Counterparty details

Capacity	Counterparty	Rating	Effect on transaction rating in case of non-performance and Provision for appointment of back-up, if any
Originator	IIFL Finance	Rated ‘Crisil AA/Crisil AA-/Crisil PPMLD AA/Stable/Crisil A1+’	No effect.
Servicer	IIFL Finance	Rated ‘Crisil AA/Crisil AA-/Crisil PPMLD AA/Stable/Crisil A1+’	Significant effect, because of change in servicing quality and replacement cost of the Servicer. However, Crisil Ratings does not currently envisage the need for replacement. The Trustee, on behalf of the investors, shall retain the right to appoint a replacement Servicer in the occurrence of a ‘Servicer Event of Default’ as per the terms of the transaction. Since there is time lag between pool collections and investor payouts. In the interim, the money collected lies with the servicer and may commingle with its own cash flow. As monthly pool collections are commingled only for a short period of time, the short-term credit quality of the servicer determines the commingling risk.
Collection and Payout Account (CPA) Bank	ICICI Bank Limited	Rated ‘Crisil AAA/Crisil AA+/Stable’	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the CPA Bank
Credit-cum-liquidity collateral in the form fixed deposit	SBI	Rated 'Crisil AAA/Crisil AA+/Stable/Crisil A1+'	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the Bank with which the Cash Collateral fixed deposits are maintained.
Trustee	Catalyst Trusteeship Limited	Not rated by Crisil Ratings	Negligible effect. As per the terms of the transaction, the Trustee can be replaced by the investors holding majority interest.

 

A summary of key terms of servicer contract

The key points on the role of the servicer covered as part of the transaction documents are as below:

 

• The Trustee acting for and on behalf of the investors shall appoint, the servicer for the purpose of collecting, receiving and managing payment of the Receivables into the Collection and Payment Account for the purpose of managing, collecting and receiving the receivables, holding the underlying security and carry out other roles and roles and responsibilities as specified under the transaction documents
• The servicer shall receive servicing fees which shall be paid by the trustee in accordance with the Waterfall Mechanism as per the transaction documents.
• The servicer shall collect the receivables from the underlying borrowers and deposit the collected amounts in the collection and payment account in a timely manner as per the terms of the transaction documents.
• The servicer shall submit to the trustee all the data and reports in the manner and as per the timelines as specified under the transaction documents.
• The occurrence of certain events as per the terms of the transaction documents shall be construed as a Servicer Event of Default.

 

Provision for appointment of back-up servicer: The Trustee (acting on the instructions of the investors) as per the terms of the Servicer Agreement and upon the occurrence of Servicer’s Event of default, shall retain the right to appoint an alternate servicer

 

Performance of outstanding rated transactions

Crisil Ratings has no ratings outstanding on instruments issued under securitisation transactions backed IIFL Finance -originated loans. All the transactions rated in past have been withdrawn.

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of security	Date of allotment	Coupon rate (%)*	Maturity date#	Issue size (Rs.Crore)	Complexity level	Rating assigned	Cash collateral (Rs.Crore)
INE1U3R15011	Series A PTCs	26-Mar-25	10.00 XIRR	20-Jul-27	350.00	Highly Complex	Crisil AAA (SO)	26.49

*Coupon rate in p.a.p.m is 9.57%

#Indicates legal final maturity date for the instrument. Actual maturity date will depend on the level of collection shortfalls in the pool, the level of prepayments in the pool, and exercise of the clean-up call option.