Rating Rationale
March 18, 2020 | Mumbai
VC Aslan 02 2020
(Originator: Muthoot Capital Services Limited)
'Provisional CRISIL AA+ (SO)' assigned to Series A1 PTCs   
 
Rating Action
Trust Name Details Amount Rated (Rs Crore) Pool Principal (Rs Crore)  Original Tenure
(Months)		 Credit Collateral (Rs Crore) Ratings/ Credit Opinion@ Rating Action
VC Aslan 02 2020 Series A1 PTCs 27.44 31.54 20 1.84 Provisional CRISIL AA+ (SO) Provisional Rating Assigned
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures, and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, Securities and Exchange Board of India (SEBI) directive, 'Standardising the term, rating symbol, and manner of disclosure with regard to conditional/ provisional/ in-principle ratings assigned by CRAs'.
Detailed Rationale

CRISIL has assigned its 'Provisional CRISIL AA+ (SO)' rating to Series A1 pass-through certificates (PTCs) issued by VC Aslan 02 2020. The pool is backed by two-wheeler loan receivables originated by Muthoot Capital Services Ltd (MCSL; 'CRISIL A/FA+/Stable/CRISIL A1'). The ratings are based on the credit support available to the PTCs, the credit quality of the underlying pool receivables, MCSL's origination and servicing capabilities, and soundness of the transaction's legal structure.
 
The transaction has a 'par with monthly subordinated excess interest spread (EIS)' structure, wherein the trust settled by IDBI Trusteeship Services Limited will issue Series A1 PTCs in exchange of a purchase consideration equal to 87.0% of the pool principal at the time of securitisation. Total credit support available in the transaction is as follows:

  • Internal credit support in the form of scheduled cash flow subordination, aggregating Rs 7.11 crore (22.5% of pool principal or 19.5% of pool cashflows) for Series A1 PTCs
  • External credit-cum-liquidity collateral of Rs 1.84 crore (5.8% of pool principal or 5.1% of pool cashflows) also provides support to Series A1 PTCs

Series A1 PTCs are entitled to receive monthly interest. The transaction envisages ultimate payment structure for principal payouts for Series A1 PTCs. IDBI Trusteeship Services Limited has been appointed to monitor the transaction on behalf of the PTC holders. MCSL will continue to service the pool contracts as the servicing agent.
 
This is a 'provisional' rating and will be converted into a 'final' rating on receipt of the following documents:

  • Trust deed
  • Assignment agreement
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee letter
  • Auditor's certificate
  • Representations and warranties letter

Additional documents, if any, executed for the transaction should also be provided. A rating rationale/report indicating the conversion of the 'provisional' rating to 'final' post the receipt of all the required final legal documents will be published on the CRISIL website. Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' rating.

Key Rating Drivers & Detailed Description
Supporting factors
  • Credit support available in the structure
    • Credit collateral of Rs 1,84,00,000 (5.83% of the pool principal or 5.1% of pool cashflows) provides credit support to Series A1 PTCs. The PTCs also benefit from scheduled cashflow subordination aggregating Rs 7.11 crore.
  • Moderate seasoning of contracts in the pool
    • The contracts in the pool have a weighted average seasoning of 4.3 months, and consequently, the pool is moderately amortised by 26.6% as of the cut-off date
Constraining Factors
  • High risk profile of underlying asset class
    • The pool is backed by two-wheeler loans, an asset class which has historically exhibited higher delinquency
Rating Sensitivity factors
Upward for Series A1
  • Credit enhancement  (based on both internal and external credit enhancements) available in the structure exceeding 3.5 times the estimated base case shortfalls on the residual cash flows of the pool.
Downward
  • Credit enhancement falling below 2.25 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
Liquidity: Strong
  • The credit cum liquidity enhancement available in the transaction is Rs 1.84 crore (5.8% of the pool principal) which is in the form of fixed deposit. Liquidity is strong given that the credit enhancement (internal and external combined) in the structure is sufficient to cover losses exceeding 1.5 times the currently estimated base shortfalls
CRISIL has adequately factored these aspects in its rating analysis.
 
About the Pool
The pool cash flow is securitised and comprises receivables from two-wheeler loans originated by MCSL. The pool has a weighted average net seasoning of 4.3 months, with Karnataka, Uttar Pradesh and Andhra Pradesh accounting for 20.9%, 14.7% and 14.5% respectively, of the pool principal outstanding. Average ticket size of the pool is Rs 0.54 lakh. All contracts in the pool were current as on the cut-off date (February 29, 2020).

Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL has analysed moving portfolio delinquency and static pool information (with information on 90+ delinquencies) for auto portfolio provided by MCSL for originations in the period FY 2011 to December 2019 (with performance data till December 2019). The 90+ dpd for the 2-wheeler loan portfolio of MCSL is 6.7% as of December 2019.

CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 6.0 to 8.0% of pool cash flows.
  • CRISIL has assumed a stressed monthly prepayment rate of 0.1% to 0.7% in its analysis.
  • Based on its assessment of MCSL's short-term credit risk profile, CRISIL has factored in the risk arising out of commingling of cash flows.
  • 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 MCSL Rated 'CRISIL A/FA+/Stable/CRISIL A1' No effect.
Servicer
 		 MCSL Rated 'CRISIL A/FA+/Stable/CRISIL A1' Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. Under certain circumstances, the trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank ICICI Bank Limited Rated 'CRISIL AA+/CRISIL AAA/Stable' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit ICICI Bank Limited Rated 'CRISIL AA+/CRISIL AAA/Stable' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee IDBI Trusteeship Services Limited Adequate track record Negligible effect. Can be replaced at minimal cost.

About the Originator
Set up in 1994, MCSL is a deposit-taking, systemically important, non-banking financial company. It started with financing two-wheelers; later, it began offering business loans. In the late 1990s, on account of intense competition, the company exited these businesses and shifted to gold loans. Subsequently, as the group scaled up its gold financing business in MFL, MCSL entered the two-wheeler financing segment once again in fiscal 2008 and gradually exited the gold loan business. MCSL is listed on the Bombay Stock Exchange and the National Stock Exchange and is the only listed company in MPG.

Past Rated Pools
CRISIL has outstanding ratings on twelve transactions originated by MCSL. CRISIL has received the legal documents for the transactions, and receives monthly performance reports pertaining to all CRISIL-rated MCSL originated securitisation transactions.
Key Financial Indicators
Particulars March 31 Unit 2019 2018
Total Assets Rs. crore 2261 1,978
Total Income Rs. crore 535 398
Profit after tax Rs. crore 82 54
Gross NPA % 5.4 4.6
Adjusted Gearing Times 4.7 4.5
Return On Managed Assets % 3.2 2.9
 

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 (%) Outstanding
Rating		 Credit cum liquidity Enhancement
(Rs Cr.)
Series A1 PTCs 27.44 16-Mar-20 17-Nov-21 10.00% Provisional CRISIL AA+ (SO) 1.84&
*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
&Additional credit support includes Rs 7.11 crore in form of scheduled cash flows subordination (assuming zero prepayments) - Includes overcollateralization of Rs 4.10 crore
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs  LT 27.44 Provisional CRISIL AA+ (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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