Rating Rationale
October 30, 2019 | Mumbai
MFL Securitisation Trust XC
(Originator: Magma Fincorp Limited)
'CRISIL AAA (SO)' for Series A1 PTCs, Series A2 PTCs and 'CRISIL BBB- (SO)' for Series B PTCs converted from provisional ratings to final ratings   
 
Rating Action
Trust Name Details Amount Rated (Rs Cr) Pool Principal
(Rs Cr) 		 Original Tenure (Months) Credit Collateral
(Rs Cr)		 Ratings  Rating Action
MFL Securitisation Trust XC Series A1 PTCs 117.79 318.01 53 7.63 CRISIL AAA (SO) Converted from Provisional Rating to Final Rating 
Series A2 PTCs 162.06 CRISIL AAA (SO)
Series B PTCs 38.16 CRISIL BBB- (SO)
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 & A2 pass-through certificates (PTCs) issued by 'MFL Securitisation Trust XC' under a securitisation transaction originated by Magma Fincorp Limited (MFL; rated 'CRISIL A1+') to final rating of 'CRISIL AAA (SO)'. Rating assigned to Series B PTCs issued under this transaction have been converted to a final rating of 'CRISIL BBB- (SO)'.
 
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
 
All the transaction documents have been received for this transaction, including:

  1. Trust Deed  
  2. Restated Trust Deed       
  3. Deed of Assignment
  4. Power of Attorney   

We have also received the following additional documents as per CRISIL requirements:

  1. Legal Opinion
  2. Information Memorandum
  3. Auditor's Certificate
  4. Trustee Awareness Letter
  5. Representations and Warranties

This transaction is backed by a pool of receivables from new and used car, commercial vehicle (CV), tractor, and construction equipment (CE) 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 pool principal outstanding as on the cut-off date, MFL assigned the loan pool to 'MFL Securitisation Trust XC', a trust settled by Catalyst Trusteeship Services Limited (CTL), which issued instruments to investors. Investor payouts for Series A1, A2, and B PTCs are supported by credit collateral and subordination of excess interest spread (EIS).
 
Total credit support available in the transaction structure is as below:

  • Internal credit enhancement in the form of subordinated scheduled EIS (at the time of securitisation, assuming zero prepayment) aggregating Rs 49.27 crore (15.5% of pool principal outstanding as of the cut-off date)
  • External credit enhancement of Rs 7.63 crore (2.40% of pool principal outstanding as of the cut-off date) in form of Fixed Deposits

Series A1 and Series A2 PTC holders are entitled to receive timely interest on a monthly basis while principal repayment is promised on an ultimate basis (i.e., by transaction maturity) as per the transaction's waterfall mechanism. Series B PTC holders are promised principal repayment on an ultimate basis (i.e., by transaction maturity) as per the transaction's waterfall mechanism. Series B PTC holders are entitled to receive a residual yield. MFL will continue to service loan contracts in the pool as the servicing agent.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Internal and external credit enhancement
    • A credit collateral of Rs 7.63 Cr (2.40% of the pool principal outstanding as of the cut-off date) provides credit support to PTC investor payouts. PTC holders also benfit from subordination of scheduled EIS (at the time of securitisation, assuming zero prepayment) aggregating Rs 49.27 crore (15.5% of pool principal outstanding as of the cut-off date).
  • Diversification and seasoning of contracts as of cut-off date
    • There are over 12,000 loans in the underlying pool. The weighted average seasoning prior to securitisation for these loans was 11.0 months, during which 28.3% of the aggregate disbursed principal had amortised.
 
Constraining Factors
  • Geographic concentration
    • Contracts originated in the 3 largest states accounted for 40.0% of the pool principal outstanding as of the cut-off date.
About the Pool
The transaction is backed by receivables from pool of vehicle loan contracts. Contracts in the pool had a good seasoning profile as evidenced by a weighted average net seasoning of 11.0 months. Contracts in the pool were also geographically concentrated with the top 3 states accounting for 40.0% of pool principal. The average ticket size for contracts in the pool was Rs 3.56 lakh, and weighted average loan-to-value (at disbursement) ratio was 79.2%. The weighted average interest rate for contracts in the pool was 18.3%. All contracts were current on repayment as of the pool cut-off date (August 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, tractor, 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%, Used CV portfolio is 3.6%, Tractor portfolio is 12.3%, and CE portfolio is 4.6% 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 6-8% of future cash flows from the pool.
  • CRISIL has assumed a stressed monthly prepayment rate of 0.3-0.8% 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 Credit Suisse AG Rated 'CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Credit collateral in the form of Fixed Deposit IDFC Bank Not rated 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 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
* Credit enhancement (both internal and external credit enhancement) available in the structure exceeding 3.5 times the estimated base case shortfalls on the residual cash flows of the pool
* A sharp upgrade in the rating of the servicer/originator

Downward
* Credit enhancement (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 fourteen 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 (%) (p.a.p.m.) Outstanding
Ratings/Credit Opinions		 Credit collateral
(Rs Cr) ^
Series A1 PTCs 117.79 27-Sep-19 12-Feb-24 10.25% CRISIL AAA (SO)$ 7.63
Series A2 PTCs 162.06 10.25% CRISIL AAA (SO)&
Series B PTCs 38.16 - CRISIL BBB- (SO)&
# Indicates door to door legal maturity. Actual tenure will depend on the transaction's waterfall mechanism, the level of prepayments in the pool, and exercise of the clean-up call option
^ Scheduled excess interest spread (EIS) (at the time of securitisation, assuming zero prepayment) amounting to Rs 49.27 Cr (assuming zero prepayments) also provides credit support to PTCs
$ Series A1 and Series A2 PTC holders are entitled to receive timely interest on a monthly basis while principal repayment is promised on an ultimate basis (i.e., by transaction maturity) as per the transaction's waterfall mechanism
& Series B PTC holders are promised principal repayment on an ultimate basis (i.e., by transaction maturity) as per the transaction's waterfall mechanism. The rating on Series B PTCs covers only the principal repayment and not the interest payments as Series B 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 117.79 CRISIL AAA (SO) 23-09-19 Provisional CRISIL AAA (SO)              
Series A2 PTCs LT 162.06 CRISIL AAA (SO)  23-09-19 Provisional CRISIL AAA (SO)              
Series B PTCs LT 38.16 CRISIL BBB- (SO) 23-09-19 Provisional CRISIL BBB- (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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