Rating Rationale
August 08, 2018 | Mumbai
MFL Securitisation Trust LXII
(Originator: Magma Fincorp Limited)
'CRISIL AAA (SO) Equivalent' for Liquidity facility, 'CRISIL AAA (SO)' for Series A1 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 rated amount (Rs Cr)* Pool Principal (Rs Cr)  Original Tenure (Months) Balance Tenure
(Months)*		 Credit Collateral
(Rs Cr)		 Ratings/ Credit Opinions Rating Action
MFL Securitisation Trust LXII Liquidity facility 1.54 1.54 154.26 51 51 -- CRISIL AAA (SO) Equivalent Converted from provisional to final rating
Series A1 PTCs 144.23 124.01 15.30 CRISIL AAA (SO)
Series A2 PTCs 10.03 8.62 CRISIL AAA (SO)
Second loss facility 9.90 9.90 5.40 CRISIL BBB+ (SO) Equivalent
1 crore = 10 million
*Data as after July 2018 payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A1 and A2 pass-through certificates (PTCs) issued by 'MFL Securitisation Trust LXII' to final ratings of 'CRISIL AAA (SO)'. The credit opinion on liquidity facility and the second loss facility under the transaction have also been converted from provisional ratings to final ratings of 'CRISIL AAA (SO) Equivalent' and 'CRISIL BBB+ (SO) Equivalent' respectively. The provisional ratings were assigned on April 11, 2018. CRISIL has received the final legal documents executed for the transaction. The executed documents are in line with the transaction terms at the time of provisional rating. Hence, CRISIL has converted the provisional rating to final rating.
 
As required, CRISIL has received the following documents. Accordingly, the 'provisional' ratings/credit opinions have been converted into 'final' ratings/credit opinions.
 
Legal Documents

  • Trust Deed
  • Deed of Assignment
  • Bank Guarantee
  • Power of Attorney

Other Documents

  • Information Memorandum
  • Legal Opinion
  • Representations & Warranties from Originator
  • Trustee Awareness Letter
  • CA Certificate

Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings.
 
The transaction is backed by receivables from new and used car, commercial vehicle (CV) and construction equipment (CE) loans originated by Magma Fincorp Ltd (MFL; rated 'CRISIL A1+'). The ratings are based on the credit support available to the PTCs, credit quality of the underlying pool receivables, MFL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The PTCs are supported by the credit collateral ' in the form of fixed deposit and bank guarantee  and excess interest spread. The total credit support available in the transaction at the time of securitisation was as follows:

  • Internal credit support in the form of scheduled Excess Interest Spread (EIS), aggregating Rs 19.42 crore (12.6% of pool principal)
  • External credit enhancement of Rs. 15.30 crore (9.9% of pool principal) of which Rs. 5.40 crore (3.5% of pool principal) is in form of Fixed Deposit and Rs. 9.90 crore (6.4% of pool principal) is in the form of bank guarantee. Additionally, there is liquidity facility in the transaction of Rs. 1.54 crore (1.0% of pool principal)

The transaction has a 'par' structure and Series A1 PTCs are entitled to receive timely interest and timely principal on a monthly basis while Series A2 PTCs are promised  only the principal payments on a monthly basis. Series A2 PTC holders are entitled to receive a residual yield. MFL will continue to service the pool contracts as the servicing agent. The Trust is settled by IDBI Trusteeship Ltd (ITSL).

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure at the time of securitisation
    • Credit collateral of Rs 15.30 crore (9.9% of the pool principal) provides credit support to Series A1 PTCs and Series A2 PTCs. The PTCs also benefit from scheduled EIS aggregating Rs 19.42 crore (12.6% of pool principal).
  • Current nature of all contracts in the pool
    • All the contracts were current as of the cut-off date of February 28, 2018
  • Good seasoning of contracts in the pool
    • The contracts in the pool had a weighted average seasoning of 13.4 months, and amortisation of 27.9% as of the cut-off date
Constraining Factors
  • High interest rate of contracts in the pool
    • Weighted average interest rate (IRR) of the pool was 16.4%; High IRR contracts have performed adversely in the portfolio
About the pool
The pool cash flow securitised comprises receivables from new and used car, commercial vehicle and construction equipment loans originated by MFL. At the time of securitisation, the pool had a weighted average net seasoning of 13.4 months. The pool was geographically diversified with top 3 states accounting for 35.9% of the pool principal. Average ticket size of the pool was low at Rs 4.3 lakh with moderate loan to value ratio of 76.9%. The pool had high interest rate contracts with weighted average interest rate of 16.4%. All contracts in the pool were current as on the cut-off date (February 28, 2018). CRISIL has adequately factored all these aspects in its rating analysis.
 
Rating Assumptions
To assess the base case collection shortfalls for the transaction, CRISIL has analysed the performance of static pool for Car, CV and CE originated by MFL originated from FY2013 onwards and their performance till March 2018. CRISIL has also analysed performance of rated securitisation transactions, and the performance of MFL's portfolio and has factored in the observed trends in the delinquencies and collection in the recent quarters. 90+ delinquencies have reduced since March 2017, As of June 2018, 90+ delinquencies was 9.4%, 11.4% and 16.5% for Car, CV and CE asset class respectively.
 
CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 4 to 6% of pool cash flows. 
  • CRISIL has assumed a stressed monthly prepayment rate of 0.3 to 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 ICICI Bank Rated 'CRISIL AAA/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Liquidity facility Kotak Mahindra Bank Ltd Rated 'CRISIL AAA/CRISIL AA+FAAA/Stable/CRISIL A1+' Negligible effect; Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Second loss facility in the form of bank guarantee ICICI Bank Rated 'CRISIL AAA/Stable' Significant effect; the rating of the PTCs is directly linked to the credit rating on long-term debt obligations of guarantee provider.
First loss facility in the form of fixed deposit HDFC Bank Ltd 'CRISIL AAA/CRISIL AA+/Stable'. 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, MFL 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 five transactions originated by MFL. CRISIL is receiving monthly performance reports pertaining to the CRISIL-rated MFL originated securitisation transactions.
Key Financial Indicators
As On/For The Period Ended March 31 Unit 2018 2017
Total assets Rs. Cr. 13,262 13,222
Total income Rs. Cr. 2,425 2,535
Profit after tax Rs. Cr. 230 13
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)^
Liquidity facility 1.54 22-Mar-18 23-Jun-22 - CRISIL AAA (SO) Equivalent -
Series A1 PTCs 144.23 9.00% CRISIL AAA (SO)$ 15.30*
Series A2 PTCs 10.03 - CRISIL AAA (SO)&
Second loss facility 9.90 - CRISIL BBB+ (SO) Equivalent 5.40
#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. 19.42 Cr (assuming zero prepayments) also provides credit support to PTCs
*Includes a second loss facility of Rs.9.90 Cr
$Series A1 PTC holders are entitled to receive timely interest and timely principal.
&Series A2 PTCs are entitled to receive timely principal. 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
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount* Rating Date Rating Date Rating Date Rating Date Rating Rating
Liquidity facility LT 1.54  CRISIL AAA (SO) Equivalent 11-04-18 Provisional CRISIL AAA (SO) Equivalent              
Series A1 PTCs LT 124.01 CRISIL AAA (SO)  11-04-18  Provisional CRISIL AAA (SO)              
Series A2 PTCs LT 8.62 CRISIL AAA (SO) 11-04-18 Provisional CRISIL AAA (SO)              
Second loss facility LT 9.90 CRISIL BBB+ (SO) Equivalent 11-04-18 Provisional CRISIL BBB+ (SO) Equivalent              
All amounts are in Rs.Cr.
*As after July 2018 payout
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt

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