Rating Rationale
May 10, 2019 | Mumbai
MFL Securitisation Trust LXXIV
(Originator: Magma Fincorp Limited)
'CRISIL AAA (SO)' for Series A1 PTCs and Series A2 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 Principal *
(Rs Cr)		 Original Tenure (Months) Balance Tenure * (Months) Credit Collateral
(Rs Cr)		 Ratings/ Credit Opinions Rating Action
MFL Securitisation Trust LXXIV Series A1 PTCs 147.14 130.56 53 50 15.60 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Series A2 PTCs 8.89 7.89 CRISIL AAA (SO)
Second loss facility 8.89 8.89 6.71 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
* After March 2019 Payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A1 and A2 pass-through certificates (PTCs) issued by 'MFL Securitisation Trust LXXIV' under a securitisation transaction sponsored by Magma Fincorp Limited (MFL; rated 'CRISIL A1+') to final ratings of 'CRISIL AAA (SO)'. 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'.
 
This transaction is backed by receivables from a pool of new and used car 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 has assigned the loan pool to 'MFL Securitisation Trust LXXIV', a trust settled by IDBI Trusteeship Services Limited (ITSL). The trust has issued instruments to investors. Investor payouts for Series A1 and Series A2 PTCs are supported by credit collateral in the form of Fixed Deposit and Bank Guarantee, in addition to EIS.
 
Total credit support available in the transaction structure at the time of securitisation was:

  • Internal credit enhancement in the form of scheduled EIS aggregating Rs 12.85 crore (8.2% of pool principal outstanding as of the cut-off date).
  • External credit enhancement of Rs 15.60 Cr (10.0% of pool principal outstanding as of the cut-off date) of which Rs 6.71 Cr (4.3% of pool principal outstanding as of the cut-off date) is in form of Fixed Deposit, and Rs 8.89 crore (5.7% of pool principal oustanding as of the cut-off date) is in the form of Bank Guarantee.

Series A1 PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis, while Series A2 PTC holders are promised timely principal payments on a monthly basis. Series A2 PTC holders are entitled to receive a residual yield. MFL will continue to service loan contracts in the pool as the servicing agent.
 
For detailed information on CRISIL's policy on provisional ratings, click here: Revision in CRISIL policy for assigning 'provisional' ratings
 
As required, CRISIL has received the following final executed documents:
 
Legal Documents:

  • Trust deed
  • Deed of assignment
  • SLCF Guarantee
  • Power of attorney

Other Documents:

  • 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 15.60 Cr (10.0% of the pool principal at the time of securitisation) provides credit support to Series A1 & Series A2 PTC investor payouts. PTC holders also benefit from scheduled EIS aggregating Rs 12.85 crore (8.2% of pool principal at the time of securitisation)
  • Seasoning of contracts at the time of securitisation
    • Loan contracts in the pool supporting this transaction have seen a weighted average seasoning of 11.3 months prior to securitisation, during which 28.1% of disbursed principal has amortised
Constraining Factors
  • Geographic concentration
    • Contracts originated in 3 states account for 44.9% of pool principal outstanding at the time of securitisation
Liquidity Position
The credit cum liquidity enhancement available in the transaction is 15.60 crore (10.0% of initial pool principal) which is in the form of fixed deposit placed with DCB Bank (Rated 'CRISIL A+/CRISIL A1+') and bank guarantee from ICICI Bank (Rated 'CRISIL AAA/Stable'). At the time of securitisation, the enhancement fully covered two months of promised principal and interest payouts even with no collections from underlying receivables.
 
About the Pool
The transaction is backed by receivables from a pool of receivables from car loans originated by MFL. At the time of securitisation, contracts in the pool had a weighted average net seasoning of 11.3 months. The pool was mildly concentrated in terms of geography with top 3 states accounting for 44.9% of the pool principal at the time of securitisation. The average ticket size for contracts in the pool was low at Rs 3.6 Lakh, with a moderate loan-to-value ratio at disbursement of 75.1% and a weighted average interest rate of 15.1% at the time of securitisation. All contracts in the pool were current on the cut-off date (November 30, 2018). 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 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 for MFL's car loan portfolio is 8.8% as of September 2018.
 
CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 4-6% 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 Kotak Mahindra Bank Limited Rated 'CRISIL AAA/FAAA/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Bank guarantee ICICI Bank Limited Rated 'CRISIL AAA/Stable/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 Limited 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee ITSL 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 15,555 crore as on March 31, 2018. 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 Finance Ltd. 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, which was set up in joint venture with International Tractors Ltd (the manufacturer of Sonalika tractors), has been merged with Magma Fincorp.
 
Past Rated Pools
CRISIL has ratings outstanding on eleven 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 2018 2017
Total assets Rs Cr 13262 13222
Total income Rs Cr 2425 2535
Profit after tax Rs Cr 230 17
Gross NPA % 7.0 6.7
Adjusted gearing Times 6.4 7.4
Return on assets % 1.3 0.1

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 147.14 28-Dec-18 26-May-23 10.22% CRISIL AAA (SO)$ 15.60*
Series A2 PTCs 8.89 - CRISIL AAA (SO)&
Second loss facility 8.89 Not applicable CRISIL BBB+ (SO) Equivalent 6.71
1 crore = 10 million
# 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 12.85 Cr (assuming zero prepayments) also provides credit support to PTCs
* Includes a second loss facility of Rs 8.89 Cr
$ Series A1 PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis
& Series A2 PTC holders are entitled to receive timely principal payments on a monthly basis. The rating on Series A2 PTCs covers only the principal payments and not the interest payments as Series A2 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 130.56 CRISIL AAA (SO)     27-12-18 Provisional CRISIL AAA (SO)          
Series A2 PTCs LT 7.89 CRISIL AAA (SO)     27-12-18   Provisional CRISIL AAA (SO)          
Second loss facility LT 8.89 CRISIL BBB+ (SO) Equivalent     27-12-18 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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