Rating Rationale
October 10, 2019 | Mumbai
MFL Securitisation Trust LXXXIX
(Originator: Magma Fincorp Limited)
'CRISIL AAA (SO)' converted from provisional rating to final rating for Series A1, Series  A2, and Series A3 PTCs
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Outstanding Amount
(Rs Cr) *		 Original Tenure (Months) Balance Tenure (Months) * Credit Collateral (Rs Cr) Ratings/ Credit Opinions Rating Action
MFL Securitisation Trust LXXXIX Series A1 PTCs 152.49 146.68 32 31 19.10 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating
Series A2 PTCs@ 19.62 19.62 39 38 CRISIL AAA (SO)
Series A3 PTCs# 18.89 18.89 54 53 CRISIL AAA (SO)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
* After September 2019 payout
@ The executed transaction documentation refers to these instruments as Series A2 PTCs. An earlier rating rationale for this transaction referred to these instruments as Series B1 PTCs, the nomenclature is being updated in this rating rationale as per the transaction documents.
# The executed transaction documentation refers to these instruments as Series A3 PTCs. An earlier rating rationale for this transaction referred to these instruments as Series C1 PTCs, the nomenclature is being updated in this rating rationale as per the transaction documents.
Detailed Rationale

CRISIL has converted its provisional ratings assigned to Series A1, A2, and A3 pass-through certificates (PTCs) issued by 'MFL Securitisation Trust LXXXIX' to final ratings of 'CRISIL AAA (SO)' under a securitisation transaction originated by Magma Fincorp Limited (MFL; rated 'CRISIL A1+').
 
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 and commercial vehicle loans originated by MFL. The ratings 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 LXXXIX', a trust settled by IDBI Trusteeship Services Limited (ITSL), which  issued instruments to investors. Investor payouts for Series A1, A2, and A3 PTCs are supported by credit collateral and subordination of excess interest spread (EIS).
 
Total credit support available in the transaction structure at the time of securitisation was as below:

  • Internal credit enhancement in the form of subordinated scheduled EIS aggregating Rs 23.42 crore (12.3% of pool principal outstanding as of the cut-off date)
  • External credit enhancement of Rs 19.10 crore (10.0% of pool principal outstanding as of the cut-off date) in form of Fixed Deposit

Series A1 and Series A2 PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis as per the transaction waterfall, while Series A3 PTC holders are promised timely principal payments on a monthly basis as per the transaction waterfall. Series A3 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 at the time of securitisation
    • A credit collateral of Rs 19.10 Cr (10.0% 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 23.42 crore (12.3% 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 8.2 months prior to securitisation, during which 18.0% of disbursed principal had amortised
Constraining Factors
  • Geographic concentration
    • Contracts originated in the top 3 states accounted for 42.6% of pool principal outstanding at the time of securitisation
About the pool
The transaction is backed by receivables from pool of car and commercial vehicle loan contracts. Contracts in the pool have a good seasoning profile as evidenced by a weighted average net seasoning of 8.2 months at the time of securitisation. Contracts in the pool were also geographically concentrated with the top 3 states accounting for 42.6% of pool principal at the time of securitisation. The average ticket size for contracts in the pool was Rs 3.77 lakh, with a weighted average loan-to-value (at disbursement) ratio of 77.4% at the time of securitisation. The weighted average interest rate for contracts in the pool was 16.0% at the time of securitisation. All contracts were current on payment as of the pool cut-off date (July 31, 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 CE 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 (net of write-offs and NPA sales) on MFL's Car portfolio is 5.3%, New CV portfolio is 3.8%, and Used CV portfolio is 3.6% as of June 2019.

CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 5-7% of future cash flows from the pool.
 

  • CRISIL has assumed a stressed monthly prepayment rate of 0.5 to 1.5 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 Rated 'CRISIL AA+/CRISIL AAA/FAAA/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Credit collateral in the form of Fixed Deposit Kotak Mahindra Bank Rated 'CRISIL AA+/CRISIL AAA/FAAA/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.
 
Liquidity descriptor
Strong - Liquidity is strong given that the credit enhancement available in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls.
 
Rating Sensitivity factors
Upward
  • For Series A1, A2, and A3 PTCs: None
Downward
  • For Series A1, A2, and A3 PTCs: Credit enhancement (based on both internal and external credit enhancement) falling below 2 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
Past rated pools
CRISIL has ratings outstanding on fifteen 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 assets % 1.8 1.4

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 152.49 30-Aug-19 20-Apr-22 11.00% CRISIL AAA (SO)$ 19.10
Series A2 PTCs 19.62 18-Nov-22 11.25% CRISIL AAA (SO)&
Series A3 PTCs 18.89 20-Feb-24 - CRISIL AAA (SO)&
# 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
^ At the time of securitisation, scheduled excess interest spread (EIS) amounting to Rs 23.42 Cr (assuming zero prepayments) also provided credit support to PTCs
$ Series A1 and A2 PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis, as per the transaction waterfall
& Series A3 PTC holders are entitled to receive timely principal payments on a monthly basis, as per the transaction waterfall. The rating on Series A3 PTCs covers only the principal payments and not the interest payments as Series A3 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 146.68 CRISIL AAA (SO) 30-08-19 Provisional CRISIL AAA (SO)              
Series B1 PTCs LT 19.62 CRISIL AAA (SO)  30-08-19 Provisional CRISIL AAA (SO)               
Series C1 PTCs LT 18.89 PCRISIL AAA (SO) 30-08-19 Provisional CRISIL AAA (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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