Rating Rationale
January 22, 2020 | Mumbai
Northern Arc 2019 2W Triund
(Originator: Orange Retail Finance India Private Limited)
'Provisional CRISIL A (SO)' assigned to Series A1 PTCs and 'Provisional CRISIL BBB (SO)' assigned to Series A2 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
Northern Arc 2019 2W Triund Series A1 PTCs 22.68 26.07 36 1.64 Provisional CRISIL A (SO) Provisional Rating Assigned
Series A2 PTCs 1.04 Provisional CRISIL BBB (SO)
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 A (SO)' rating to Series A1 and 'Provisional CRISIL BBB (SO)' rating to Series A2 pass-through certificates (PTCs) issued by 'Northern Arc 2019 2W Triund' under a securitisation transaction originated by Orange Retail Finance India Private Limited (ORFIL; rated 'CRISIL BBB-/Positive').
 
This transaction is backed by a pool of receivables from two-wheeler (TW) loans originated by ORFIL. The ratings are based on credit support available to instruments, credit quality of the underlying pool of receivables, ORFIL'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 91.0% of future pool principal outstanding as on the cut-off date, ORFIL will assign the loan pool to 'Northern Arc 2019 2W Triund', a trust settled by Catalyst Trusteeship Limited (CTL), which will issue instruments to investors. Investor payouts for Series A1 and Series A2 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 scheduled cashflow subordination (assuming zero prepayments) ' including Rs 2.35 crore of principal overcollateralization (9.0% of initial pool principal) ' amounting to Rs 8.20 crore (31.4% of initial pool principal) for Series A1 PTCs and Rs 6.87 crore (26.4% of initial pool principal) for Series A2 PTCs
  • External credit enhancement amounting to Rs 1.64 crore (6.3% of initial pool principal) in form of Fixed Deposit

Series A1 PTCs are senior and will have the first priority right on the trust property. These PTCs are entitled to receive timely interest payments on a monthly basis. Principal and interest payments for Series A2 PTCs are fully subordinated to payouts for Series A1 PTCs. The transaction envisages an ultimate repayment structure for principal payouts for both Series A1 and Series A2 PTCs. On maturity of Series A1 PTCs, Series A2 PTCs are entitled to timely interest payments on a monthly basis. ORFIL will continue to service loan contracts in the pool 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
  • Deed of assignment
  • Power of attorney
  • Information memorandum
  • Legal opinion
  • Trustee's awareness letter
  • Auditor's certificate
  • Originator's 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
  • Internal and external credit enhancement
  • External credit collateral in the structure amounting to Rs 1.64 crore (6.3% of initial pool principal) and internal credit enhancement from scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 8.20 crore (31.4% of initial pool principal) ' including Rs 2.35 crore of principal overcollateralization (9.0% of initial pool principal) for Series A1 PTCs and Rs 6.87 crore (26.4% of initial pool principal) ' including Rs 2.35 crore of principal overcollateralization (9.0% of initial pool principal) for Series A2 PTCs
  • Repayment track record of contracts
    • All the contracts in the underlying loan pool were current on repayment as of the cut-off date
Constraining Factors
  • Geographic concentration
    • As of the cut-off date, loans originated in Andhra Pradesh accounted for 41.1% of the pool principal, and loans originated in the top 3 states accounted for nearly 100.0% of the pool principal.
Rating sensativity factors
Upward
  • For Series A1 PTCs: Credit enhancement  (based on both internal and external credit enhancements) available in the structure exceeding 2.25 times the estimated base case shortfalls on the residual cash flows of the pool. For Series A2 PTCs: Credit enhancement  (based on both internal and external credit enhancements) available in the structure exceeding 1.85 times the estimated base case shortfalls on the residual cash flows of the pool for Series A2 PTCs.
Downward
  • For Series A PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 1.75 times the estimated base case shortfalls. For second loss facility: Credit enhancement (based on both internal and external credit enhancements) falling below 1.5 times the estimated base case shortfalls
  • A sharp downgrade in rating of the servicer/originator
  • Non-adherence to the key transaction terms envisaged at the time of the rating
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.
 
These aspects have been factored by CRISIL in its rating analysis
 
About the pool
The transaction is backed by receivables from pool of commercial vehicle and car loan contracts. Contracts in the pool have a moderate seasoning profile as evidenced by a weighted average net seasoning of 9.8 months. Contracts in the pool are also highly geographically concentrated with the top 3 states accounting for nearly 100.0% of the pool principal. The average ticket size for contracts in the pool was Rs 0.58 lakh, with a weighted average loan-to-value ratio of 84.1% at disbursement. The weighted average interest rate for contracts in the pool is 26.9%. All contracts were current on payment as of the pool cut-off date (November 30, 2019). CRISIL has adequately factored all these aspects in its rating analysis.
 

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL has analysed ORFIL's moving portfolio delinquency information for vehicle loans from April 2016 to June 2019, along with static pool performance for vehicle loans made 2016 onwards with performance up to March 2019. CRISIL has also analysed the portfolio cuts based on various parameters and compared the pool with the portfolio on these parameters. ORFIL's overall portfolio delinquency (90+ POS as % of total POS) was 4.1% as of June 2019.
 
Based on these aspects and other pool specific characteristics, CRISIL has estimated base case peak shortfalls in the pool at 10.0-12.0% of cash flows. 
  • 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 given CRISIL's short term view of servicer.
  • 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 & Seller ORFIL Rated 'CRISIL BBB-/Positive' No effect.
Servicer ORFIL Rated 'CRISIL BBB-/Positive' 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 DCB Bank Ltd Rated 'CRISIL AA-/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Credit collateral in the form of Fixed Deposit DCB Bank Ltd Rated 'CRISIL AA-/Stable/CRISIL A1+' 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
ORFIL, is a non-deposit taking non-systemically important NBFC engaged in financing of two wheelers. ORFIL started its operations in 2014 after its promoters acquired an erstwhile NBFC (Amber Finance India Limited in 2014). From fiscal 2016, ORFIL has started business correspondent (BC) model lending for RBL and continued the same till FY2018. In September 2017, fresh equity was infused by the current investor groups who bought out some of the original promoters. ORFIL bought out the BC portfolio from RBL and started growing its own book from FY2018. Further, ORFIL also started co-lending model along with Incred in FY2018 and is in process of further expansion of the co-lending model with other private sector banks and NBFCs. ORFIL was operating with 48 branches and has presence in 3 states as on March 31, 2019.

Past rated pools
This is the first PTC transaction of ORFIL to be rated by CRISIL.
Key Financial Indicators
Particulars as on March 31 Unit 2019 2018
Total assets Rs crore 239 56
Total income (excluding finance cost) Rs crore 36.4 8.8
Profit after tax Rs crore 5.1 0.3
Gross NPA % 1.85 0.82
Gearing Times 1.4 7.4*
Return on assets % 3.4 1.0
*including unsecured promoter loans which were subsequently converted to equity

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 22.68 26-Dec-19 17-Dec-22 11.75% Provisional CRISIL A (SO) 1.64
Series A2 PTCs 1.04 15.00% Provisional CRISIL BBB (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
^ Additional credit support includes Rs 8.20 crore in the form of scheduled cashflow subordination for Series A1 PTCs ' including Rs 2.35 crore of principal overcollateralisation and Rs 6.87 crore for Series A2 PTCs (assuming zero prepayments) ' including Rs 2.35 crore of principal overcollateralisation
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 22.68 Provisional CRISIL A (SO)                  
 Series A2 PTCs   LT  1.04 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

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