Rating Rationale
December 04, 2024 | Mumbai
 
Niveda Trust September 2024
(Originator: Piramal Enterprises Limited)
‘CRISIL AA+ (SO)’ for Series A PTC Converted from Provisional Rating to Final Rating
 
Rating Action
Tranche Name Amount Rated
(Rs.Crore)		 Outstanding Amount
(Rs.Crore)		 Balance Tenure Credit Collateral
(Rs.Crore)		 Ratings/Credit Opinions Rating Action
Series A PTC 194.25 174.86 50 21.58 CRISIL AA+ (SO) Converted from Provisional Rating to Final Rating
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities

 

Detailed Rationale

CRISIL Ratings has converted the provisional rating assigned to Series A Pass-Through Certificates (PTCs) issued by ‘Niveda Trust September 2024’ to a final rating of ‘CRISIL AA+ (SO)' under a securitisation transaction backed by a pool of unsecured business loans (UBL) initially originated, underwritten & serviced by Piramal Capital & Housing Finance Limited (PCHFL; rated ‘CRISIL A1+’) and later on sold to PEL under a direct assignment transaction.

 

This transaction is backed by a pool comprising unsecured business loan receivables originated by PCHFL. The ratings are based on credit quality of the pool backing the transaction, the origination and servicing capabilities of PCHFL, credit support available to the PTCs, payment mechanism for the transaction, and soundness of the transaction’s legal structure.

 

CRISIL Ratings has now received the final legal/executed documents for this transaction. These executed documents are in line with terms of the transaction envisaged when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.

 

Legal Documents

  • Restated Trust Deed
  • Deed of Assignment of receivables in the process of securitisation
  • Cash Collateral Agreement
  • Power of Attorney

 

Other Documents

  • Information Memorandum
  • Legal Opinion
  • Auditors Certificates
  • Originator’s Representation and Warranties Letter
  • Trustee Awareness Letter

 

Investor payouts for PTCs are supported by cash collateral, overcollateralization, and subordination of excess interest spread (EIS). PCHFL will continue to service loan contracts in the pool as the servicing agent.

 

The total credit enhancement available in the transaction (internal – in the form of over collateral and EIS; and external – in the form of cash collateral) provide loss absorption against stressed shortfalls in the pool, commensurate with the rating assigned to the PTCs.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit support available in the structure

−                     External cash collateral in the structure amounting to Rs 21.58 crore (10.0% of pool principal) and subordination in the form of overcollateralization and EIS aggregating to Rs. 21.58 crore (10.0% of pool principal) and Rs. 32.03 crore (14.8% of pool principal) respectively.

  • Borrower profile and repayment track record

-                      The underlying borrowers have a weighted average bureau score of 749.

-                      The pool has weighted average seasoning of around 21 months and all the contracts in the pool have been ever current since origination.

  • Structure of the transaction

-                The legal structure envisaged for the transaction entails bankruptcy remoteness of the receivables and credit enhancement from the originator, and adherence to prevailing regulations on securitisations.

These shall be certified through an independent legal opinion from an external legal counsel.

 

Weaknesses:

  • Limited portfolio track record

-                      Limited portfolio performance track record for the unsecured business loan book of PCHFL. Major disbursements have happened in the previous two fiscals and are yet to witness complete performance cycle.

  • Interest rate risk

-                      There is interest rate risk in the transaction as the contracts in the pool have fixed interest rates, while the PTC yield is floating, linked to a benchmark rate. The internal credit enhancement through EIS could therefore be affected in case of a rising interest rate scenario. This is however, to an extent, mitigated by the cap specified on the investor yield in the terms of the transaction.

These aspects have been adequately factored in its rating analysis by CRISIL Ratings.

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 factors:

  • Credit enhancement available in the structure adequately covering for 4.0 times the estimated adjusted base shortfalls on the residual cash flows of the pool due to sustained healthy collections from the pool.
  • A sharp upgrade in the rating of the servicer/originator.

 

Downward factors:

  • Credit enhancement (internal and external combined) falling below 3.0 times the estimated base case shortfall.
  • A sharp downgrade in the rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating.

About the Pool

The transaction is backed by unsecured business loan receivables loans initially originated, underwritten & serviced by PCHFL later on sold to PEL under a direct assignment transaction. The key pool characteristics are outlined below:

  • The contracts in the pool have weighted average seasoning of 20.6 monthly instalments paid, which has led to principal amortisation of 34.8% as of the pool cut-off date.
  • The pool is moderately concentrated in terms of geography with the top 3 state and top 10 cities accounting for 51.7% and 46.2% of the pool principal respectively.
  • The average ticket size for contracts in the pool is Rs 5.6 lakh, with a weighted average interest rate of 19.5%.
  • All the contracts in the underlying loan pool were ever current as of the cut-off date (July 31, 2024).

 

Rating assumptions

 

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed the 90+ delinquencies of the static pools of PCHFL’s UBL originations from Q1FY23 till Q3FY24. Dynamic delinquencies on PCHFL’S and PEL’S UBL book have also been factored in the analysis. Additionally, CRISIL Ratings has also analysed the portfolio cuts based on pool parameters such as original tenure, sanction amount, interest rate, etc. and compared the pool with the portfolio on these parameters.

 

CRISIL Ratings has estimated base case shortfalls in the pool at 7.0%-9.0% of pool principal. Additional stresses have been applied to commensurate with the rating level of the PTCs. Additional assumptions have been factored, basis the typical industry parameters in the similar asset class:

 

  • CRISIL Ratings has assumed a monthly prepayment rate of 0.5%-1.5% of the reducing principal outstanding in its credit enhancement calculation.
  • CRISIL Ratings has adequately factored in the transaction structure and risks arising out of counterparties (please refer Counterpart Details section below).
  • CRISIL Ratings has run sensitivities based on various shortfall curves (front-ended, back-ended and normal) and has adequately factored the same in its analysis.
  • Based on its assessment of PCHFL’s short-term credit risk profile, CRISIL Ratings envisages minimal risk on account of commingling of cashflows.
  • Additionally, interest rate risks arising out of a rising interest rate scenario have been factored in.

 

Counterparty details

Capacity

Counterparty

Rating

Effect on transaction rating in case of non-performance

Originator

PCHFL

‘CRISIL A1+’

 

No effect.

 

Seller

PEL

‘CRISIL A1+’

No effect.

Servicer

PCHFL

‘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 Limited

'CRISIL AAA/Stable/CRISIL AA+/Stable'

Negligible effect. The trustee, on behalf of the investors, has the right to change the collection and payout account bank if needed.

Cash collateral bank

IDFC First Bank Limited

'CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+'

Negligible effect. The trustee, on behalf of the investors, has the right to change the bank with whom the cash collateral is maintained if needed.

Trustee

Catalyst Trusteeship Limited

Not rated by CRISIL Ratings

Negligible effect. Can be replaced at minimal cost.

 

Transaction waterfall mechanism

Series A PTC holders are promised timely interest on a monthly basis and principal on ultimate basis on the maturity date of the PTCs. The collections from the pool, including the internal subordination through overcollateral, will be used to make promised interest payouts to PTC holders, followed by expected principal payouts as per the scheduled monthly principal collections.

 

However, in case of a collection shortfall, while the cash collateral can be used to make the promised interest payouts, any shortfall in expected principal collections will be carried forward as arrears. The cash collateral can be utilised to meet any outstanding principal arrears on the maturity date of the PTCs.

 

Any prepayments will be utilised for accelerated redemption of PTCs.The EIS would normally flow back to the originator after meeting the promised interest payouts and expected principal payouts to PTCs.

 

Additionally, transaction is also supported by trigger-based turbo amortisation clause wherein, 100% EIS shall be utilized to make principal payments to the Series A investors till Series A PTC are live, if PAR 60 of the pool exceeds 5% of intial pool principal or/and rating of series A PTC falls below AA+.

About the Originator
PCHFL was incorporated in February 2017. The entity was formed as a 100% subsidiary of Piramal Finance Ltd (PFL). PFL, itself, was a wholly-owned subsidiary of Piramal Enterprises Ltd. Till 2016, the financing portfolio was booked in PEL with limited operations in PFL. In fiscal 2017, following a business restructuring, Rs 13,706 crore of assets and Rs 12,575 crores of liabilities were transferred to PFL from PEL.

In August 2017, PCHFL received a certificate for commencement of housing finance business from National Housing Bank (NHB). Subsequently, the Board of Piramal Enterprises Ltd (PEL), the parent of PFL, approved a scheme of amalgamation of PFL and Piramal Capital Ltd (PCL) into PCHFL. PCL was a subsidiary of PEL and had limited operations. The merger process was completed in July 2018 with effect from March 31, 2018. Post the merger PCHFL became a wholly owned subsidiary of PEL.

Furthermore, on May 08, 2024, the board of Piramal Enterprises Limited (PEL) approved the composite scheme of arrangement for merger of PEL with PCHFL; and renaming PCHFL as Piramal Finance Limited (PFL).

About the PEL group
Founded by Mr Ajay Piramal, PEL is engaged in the financial services business through its subsidiaries. The company also holds a substantial stake in the Shriram group companies. 

In the financial services business, the company has four verticals: (i) real estate financing - lending to developers with established track record, with greater focus on providing loans for construction finance and lease rental discounting; (ii) corporate finance group, which lends to corporate clients across sectors (infrastructure, cement, renewables, automotive, logistics, services and entertainment); (iii) emerging corporate group that provides finance to mid-tier companies; and (iv) housing finance and other retail loans.

Key Financial Indicators

Piramal Capital & Housing Finance Limited - Consolidated

As on/for the year ended

Unit

Mar-24

Mar-23

Mar-22

Total Assets

Rs Cr

79,959

79,882

79,050

Total income

Rs Cr

8,371

9,088

7911

Profit after tax

Rs Cr

(1,684)

9,969

1,999

Gross NPA/Gross stage 3

%

2.4

3.8

3.4

Gearing (Gross)

Times

2.0

1.6

1.6

Return on assets*

%

(2.1)

12.5

1.3

( ) Negative
*calculated as PAT over average total assets

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Type of
Instrument		 Rated Amount
(Rs.Cr)		 Date of
Allotment		 Maturity
Date#		 Coupon Rate (%)
 (p.a.p.m.)*		 Complexity
level		 Outstanding
Rating		 Cash Collateral
(Rs.Cr)
INE14T415016 Series A PTC 194.25 05-Sep-24 15-Dec-28 10.00% p.a.p.m Highly complex CRISIL AA+ (SO) 21.58

*Floating yield linked to 6M SBI MCLR

#PTC Tenure will vary on the basis of prepayments, interest rate movement in the pool and exercise of the clean-up call option.

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A PTC LT 174.86 CRISIL AA+ (SO) 30-09-24 Provisional CRISIL AA+ (SO)   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Meaning and applicability of SO and CE symbol

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