Rating Rationale
August 30, 2019 | Mumbai
MFL Securitisation Trust LXXVIII
(Originator: Magma Fincorp Limited)
'CRISIL AAA (SO)' for Series A1, Series A2, Series B, Series C and Series D PTCs and 'CRISIL BBB- (SO) Equivalent' for Second Loss Facility, Converted from Provisional Rating to Final Rating
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Outstanding Amt.
(Rs. Cr)*		 Original Tenure (Months) Credit Collateral (Rs Cr) Ratings/ Credit Opinions Rating Action
MFL Securitisation Trust LXXVIII Series A1 PTCs 48.97 33.52 54 26.53 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Series A2 PTCs 43.11 37.27 CRISIL AAA (SO)
Series B PTCs 51.63 50.57 CRISIL AAA (SO)
Series C PTCs 43.50 42.95 CRISIL AAA (SO)
Series D PTCs 13.01 11.42 CRISIL AAA (SO)
Second loss facility 19.52 19.52 7.01 CRISIL BBB- (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has converted its provisional rating assigned to Series A1, Series A2, Series B, Series C, and Series D pass-through certificates (PTCs) issued by 'MFL Securitisation Trust LXXVIII' to final rating of 'CRISIL AAA (SO)' each under a securitisation transaction originated by Magma Fincorp Limited (MFL; rated 'CRISIL A1+'). The provisional credit opinion assigned to Second Loss Facility (SLF) under this transaction has been converted to a 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
 
This transaction is backed by a pool of receivables from car, commercial vehicle, and tractor loans originated by MFL. The ratings/credit opinions are based on credit support available to instruments, credit quality of the underlying pool of receivables, MFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'Par with Excess Interest Spread (EIS)' structure. In exchange for a purchase consideration equal to future pool principal outstanding as on the cut-off date, MFL assigned the loan pool to 'MFL Securitisation Trust LXXVIII', a trust settled by Catalyst Trusteeship Limited (CTL), which issueed instruments to investors. Investor payouts for the PTCs are supported by credit collateral and subordination of excess interest spread (EIS).
 
Total credit support available in the transaction at the time of securitisation is as below:

  • Internal credit enhancement in the form of scheduled EIS aggregating Rs 23.00 crore (11.5% of pool principal outstanding as of the cut-off date)
  • External credit enhancement of Rs 26.53 crore (13.25% of pool principal outstanding as of the cut-off date) of which First Loss Facility of Rs 7.01 crore (3.50% of pool principal outstanding as of the cut-off date) is in form of Fixed Deposit, and Second Loss Facility of Rs 19.52 crore (9.75% of pool principal oustanding as of the cut-off date) is in the form of Bank Guarantee.

Series A1, Series A2, Series B, and Series C PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis as per transaction documents, while Series D PTC holders are promised timely principal payments on a monthly basis. Series D PTC holders are entitled to receive a residual yield. MFL will continue to service loan contracts in the pool as the servicing agent.
 
As required, CRISIL has received the following final executed legal documents and other documents relevant to the transaction:

  • Trust deed
  • Deed of assignment
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's representations and warranties letter
Key Rating Drivers & Detailed Description
Supporting Factors
  • Internal and external credit enhancement
    • A credit collateral of Rs 26.53 Cr (13.25% of the pool principal outstanding as of the cut-off date) provides credit support to PTC investor payouts. PTC holders also benefit from scheduled EIS aggregating Rs 23.00 crore (11.5% of pool principal outstanding as of the cut-off date)
  • Seasoning of contracts
    • Loan contracts in the pool supporting this transaction have seen a weighted average seasoning of 11.6 months prior to securitisation, during which 22.5% of disbursed principal has amortised
Constraining Factors
  • Geographic concentration
    • Contracts originated in the top 3 states account for 48.6% of pool principal outstanding
Rating Sensitivity factors
Upward factor:
  • Credit enhancement (both internal and external credit enhancement) available for the second loss facility exceeding 1.3 times the estimated base case shortfalls on the residual cash flows of the pool.
Downward factor:
  • Credit enhancement falling below 2.0 times the estimated base case shortfalls
  • 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 receivables from a pool of car, commercial vehicle, and tractor loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 11.6 months. Contracts in the pool are also geographically concentrated with the top 3 states accounting for 48.6% of pool principal. The average ticket size for contracts in the pool is Rs 3.9 lakh, with a weighted average loan-to-value ratio of 76.7% at disbursement. The weighted average interest rate for contracts in the pool is 16.7%. All contracts were current on payment as of the pool cut-off date (February 28, 2019). CRISIL has adequately factored all these aspects in its rating analysis.
 

Rating Assumptions
To assess the base case collection shortfalls for this transaction, CRISIL has analysed the performance of static pools of car, CV, and tractor loan originations over FY 2013 to FY 2018 and their performance till September 2018. CRISIL has also analysed the performance of previously rated securitisation transactions, and the performance of MFL's portfolio. Observed trends in delinquencies and collections in recent quarters have also been factored in. The 90+ delinquency on MFL's CV portfolio is 3.8%, Car portfolio is 6.3%, CE portfolio is 5.7%, and Tractor Portfolio is 12.3% as of December 2018.
 
CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 6-8% of future cash flows from the pool. 

  • 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 of servicer is '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 MFL Rated 'CRISIL A1+' No effect.
Servicer MFL Rated 'CRISIL A1+' Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL). However, CRISIL does not envisage the requirement for replacement.
Collection and Payout Account Bank IDFC First Bank Not rated by CRISIL Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Bank guarantee ICICI Bank Rated 'CRISIL AAA/CRISIL AA+/Stable' Significant effect; however, the second loss facility agreement incorporates a rating trigger according to which if CRISIL's rating of the guarantor or bank guarantee provider falls below 'CRISIL AA', the Originator (at its own cost) must arrange for another guarantor or bank guarantee (from an eligible Bank) or substitute the credit enhancement in the form of a fixed deposit as per CRISIL's criteria
First loss facility in the form of Fixed Deposit DCB Bank Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee CTL Adequate track record Negligible effect. Can be replaced at minimal cost.
 
About the originator
Incorporated as Magma Leasing Ltd, Magma Fincorp commenced operations in 1989. The company is a significant player in the asset-finance business with loan AUM of Rs 17,029 crore as on March 31, 2019. It has a significant presence in the passenger car and utility vehicle finance segment. It also provides construction equipment and commercial vehicle loans to small entrepreneurs and small road transport operators. The company has diversified its product offerings by financing tractors, pre-owned vehicles, providing mortgage finance, and lending to the SME sector.

In February 2013, Magma Fincorp acquired GE Money Housing Finance. Post-acquisition, the company was renamed Magma Housing. Additionally, the Magma group acquired the home equity loan portfolio of GE Money Financial Services Pvt Ltd. Magma ITL, incorporated in 2007 as an NBFC that was set up in joint venture with International Tractors Ltd (manufacturer of Sonalika tractors), has been merged with Magma Fincorp.
 
Liquidity Position 
The credit collateral available in the transaction is Rs 26.53 crore (13.25% of pool principal) which is in the form of fixed deposits/bank guarantee. The credit collateral fully covers 4 months of payout obligations even with no collections from the underlying loan pool.

Liquidity: Strong
Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 2.0 times the currently estimated base shortfalls.
 
Past rated pools
CRISIL has ratings outstanding on seven ABS transactions originated by MFL. CRISIL is receiving monthly performance reports pertaining to these transactions in a timely manner.
Key Financial Indicators
Particulars as on March 31, Unit 2019* 2018*
Total Assets Rs Cr. 16789 14894
Total income Rs Cr. 2513 2328
Profit after tax Rs Cr. 304 237
Gross NPA % 4.8 8.6
Adjusted Gearing Times 5.6 7.7
Return on total managed assets # % 1.8 1.4
*As per IndAS
# Profit after tax by total assets + securitisation (Assignment)

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 (%) (Annualised) Outstanding
Ratings/Credit Opinions		 Credit collateral
(Rs Cr) ^
Series A1 PTCs 48.97 28-Mar-19 15-Sep-23 10.50% CRISIL AAA (SO)$ 26.53 *
Series A2 PTCs 43.11 CRISIL AAA (SO)&
Series B PTCs 51.63 CRISIL AAA (SO)$
Series C PTCs 43.50 CRISIL AAA (SO)$
Series D PTCs 13.01 - CRISIL AAA (SO)$
Second loss facility 19.52 Not applicable CRISIL BBB- (SO) Equivalent 7.01
# 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
^ Scheduled excess interest spread (EIS) amounting to Rs 23.00 Cr (assuming zero prepayments) also provides credit support to PTCs
* Includes a second loss facility of Rs 19.52 Cr
$ Series A1, Series A2, Series B, and Series C PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis
& Series D PTC holders are entitled to receive timely principal payments on a monthly basis. The rating on Series D PTCs covers only the principal payments and not the interest payments as Series D PTC holders are eligible to receive a residual yield only
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs LT 33.52 CRISIL AAA (SO) 18-04-19  Provisional CRISIL AAA (SO)              
Series A2 PTCs LT 37.27 CRISIL AAA (SO) 18-04-19   Provisional CRISIL AAA (SO)              
Series B PTCs LT 50.57 CRISIL AAA (SO) 18-04-19 Provisional CRISIL AAA (SO)              
Series C PTCs LT 42.95 CRISIL AAA (SO) 18-04-19 Provisional CRISIL AAA (SO)              
Series D PTCs LT 11.42 CRISIL AAA (SO) 18-04-19 Provisional CRISIL AAA (SO)              
Second loss facility LT 19.52 CRISIL BBB- (SO) Equivalent 18-04-19 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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