Peter CV Trust July 2024

(Originator: IndoStar Capital Finance Limited)

‘CRISIL AAA (SO)’ for Series A1 PTC, ‘CRISIL A+ (SO)’ for Series A2 PTC and ‘CRISIL A (SO)’ for Equity Tranche converted from provisional ratings to final ratings

 

Rating Action

Tranche Name	Amount Rated (Rs.Crore)	Outstanding Amount (Rs.Crore)	Balance Tenure	Credit Collateral (Rs.Crore)	Ratings/Credit Opinions	Rating Action
Equity Tranche	5.67	5.67	50	7.08	CRISIL A (SO)	Converted from Provisional Rating to Final Rating
Series A1 PTC	102.02	85.17	50	7.08	CRISIL AAA (SO)	Converted from Provisional Rating to Final Rating
Series A2 PTC	5.67	5.67	50	7.08	CRISIL A+ (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 its provisional ratings assigned to Series A1 Pass-Through Certificate (PTCs), Series A2 PTCs and Equity Tranche issued by ‘PETER CV TRUST JULY 2024’ to final ratings of 'CRISIL AAA (SO)'. CRISIL A+ (SO)’ and ‘CRISIL A (SO)’ respectively. The PTCs were issued under a securitisation transaction originated by IndoStar Capital Finance Limited (IndoStar; rated ‘CRISIL AA-/Stable/CRISIL A1+’).

 

This securitisation transaction is backed by receivables from vehicle loans originated by IndoStar. The rating is based on the credit support available to the PTCs, credit quality of underlying receivables, IndoStar’s origination and servicing capabilities, the payment mechanism, 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 ratings to final ratings.

 

Executed documents:

• Amended and restated Trust Deed
• Deed of Assignment by way of securitisation
• General Power of attorney

 

Other Documents:

• Information Memorandum
• Legal Opinion
• Trustee’s Letter
• Auditor’s Certificate(s)
• Originator’s Representations and Warranties Letter

 

The transaction has a ‘Par with turbo amortisation’ structure. IndoStar has assigned the pool to ‘Peter CV Trust July 2024’, a trust settled by Axis Trustee Services Limited, which in turn has issued Series A1 PTCs, Series A2 PTCs and Equity Tranche to investors in exchange for a purchase consideration amounting to 90.0%, 5.0% and 5.0% of the initial pool principal respectively. IndoStar will continue to service the underlying loan pool.

 

Series A1 PTCs are promised monthly interest payments on a timely basis. Principal repayment, while expected on a monthly basis, is promised only on an ultimate basis by the instrument’s legal final maturity. The residual cashflows after making expected interest payout to Series A2 PTC shall be utilised to make additional principal repayment to Series A1 PTCs on a monthly basis. Series A2 PTCs are fully subordinated to Series A1 PTCs

 

Post redemption of Series A1 PTCs, Series A2 PTC investors are promised monthly interest payments on a timely basis. Principal repayment, while expected on a monthly basis, is promised only on an ultimate basis by the instrument’s legal final maturity. The residual cashflows shall be utilised to make additional principal repayment to Series A2 PTCs on a monthly basis. Equity tranche is fully subordinated to Series A1 PTCs and Series A2 PTCs.

 

Post redemption of Series A1 PTCs and Series A2 PTCs, Equity Tranche investors are also expected to receive residual yield amounts on a monthly basis, however, the rating on Equity Tranche only addresses the likelihood of principal repayment, and not the payment of residual yield amounts..

 

CRISIL Ratings has estimated base case shortfalls in the pool at 6.0%-8.0% of cash flows. These shortfalls are further stressed to evaluate the adequacy of credit enhancement and arrive at the rating of PTCs. The total credit enhancement available in the transaction (internal – in the form of principal subordination 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.

 

Credit enhancement available in the transaction structure

• Cash collateral of INR 7.08 crore (6.25% of the initial pool principal or 4.9% of pool cash flows) for Series A1 PTCs, Series A2 PTCs and Equity Tranche principal repayment
• Scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 32.87 crore ((29.0% of pool principal ) including principal subordination of Series A2 PTC principal of Rs 5.67 crore (5.0%% of pool principal) & Equity tranche principal of Rs 5.67 crore (5.0%% of pool principal).
• Scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 25.55 crore (22.54% of pool principal), including principal subordination of Equity tranche principal of Rs 5.67 crore (5.0%% of pool principal)
• Scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 19.89 crore (17.54% of pool principal) for the principal repayment of Equity Tranche

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement available in the transaction structure
  • Cash collateral of INR 7.08 crore (6.25% of the initial pool principal or 4.9% of pool cash flows) for Series A1 PTCs, Series A2 PTCs and Equity Tranche principal repayment
  • Scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 32.87 crore (20.0% of pool principal) including principal subordination of Series A2 PTC principal of Rs 5.67 crore (5.0%% of pool principal) & Equity tranche principal of Rs 5.67 crore (5.0%% of pool principal).
  • Scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 25.55 crore (22.54% of pool principal), including principal subordination of Equity tranche principal of Rs 5.67 crore (5.0%% of pool principal)
  • Scheduled cashflow subordination (assuming zero prepayments) amounting to Rs 19.89 crore (17.54% of pool principal) for the principal repayment of Equity Tranche

 

• Payment track record of contracts in the pool
  • Loans in the pool have a weighted average seasoning of 8.5 months, during which 15.5% of the disbursed principal has been amortised prior to securitisation. All loans were current on repayment as of the pool cut-off date (30-June-2024) and had no instances of delinquency prior to securitisation.

 

Weakness:

• Potential effect of macroeconomic headwinds
  • The underlying borrowers’ cashflows could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, a rising interest rate scenario, and moderation in demand on account of inflation may hamper the pool’s collection performance.
• Borrower concentration: Top 10 borrower contributes 5.19% of pool cash flows.

 

CRISIL Ratings has adequately factored these aspects in its rating analysis.

Liquidity: Strong for Series A1 PTCs, Series A2 PTCs and Equity Tranche

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is above 1.5 times the estimated base shortfalls on the residual pool cash flows.

Rating Sensitivity factors

Upward factors

• For Series A1 PTCs: None.
• For Series A2 PTCs: Credit enhancement (based on both internal and external credit enhancements) exceeding 1.7 times the estimated base case shortfalls.
• For Equity tranche: Credit enhancement (based on both internal and external credit enhancements) exceeding 1.6 times the estimated base case shortfalls

 

Downward factors

• For Series A1 PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.0 times the estimated base case shortfalls.
• For Series A2 PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 1.5 times the estimated base case shortfalls.
• For Equity tranche: Credit enhancement (based on both internal and external credit enhancements) falling below 1.4 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.

About the Pool

The securitisation transaction is backed by a pool of receivables from used and new vehicle loans originated by IndoStar. As of the pool cut-off date (30-June-2024), the pool loans had a weighted average seasoning of 8.5 months, a weighted average interest rate of 16.8%, a weighted average LTV ratio of 82.1%, a weighted average original tenure of 44.8 months, and an average original loan amount of Rs 12.02 lakh. The top 3 states (West Bengal, Gujarat & Tamil Nadu) contributed 32.7% of the initial pool principal. All the underlying pool loans were current on repayment as on the cut-off date.

 

Rating assumptions To assess the base case shortfalls for the transaction, CRISIL has analysed static pool delinquency information on vehicle loans originated by IndoStar over the period Oct-2017 to Dec-2023 (with performance data till Mar-2024), in addition to write-offs and ARC sales from the vehicle loan portfolio. CRISIL has also analysed the performance of previously rated IndoStar-originated securitisation transactions, along with the collection efficiency and dynamic delinquency performance of IndoStar’s vehicle finance portfolio.   CRISIL Ratings has also factored in pool-specific characteristics, including seasoning, LTV levels, IRRs, and past track record of borrowers forming part of the pool. Based on these, CRISIL has estimated base case shortfalls in the pool at 6.0% - 8.0% of cash flows.   In addition, CRISIL Ratings has factored in the following:   CRISIL Ratings has assumed a monthly prepayment rate of 0.5-1.5% of the initial pool principal. CRISIL Ratings does not envisage any risk arising on account of commingling of cash flows given its short-term rating on the servicer. CRISIL Ratings has factored in the risks arising on account of transaction counterparties. CRISIL Ratings has factored in sensitivities based on various shortfall timing curves (front-ended, back-ended and normal).

 

Counterparty details

Capacity	Counterparty	Rating	Effect on transaction rating in case of non-performance
Originator	IndoStar	CRISIL AA-/Stable/CRISIL A1+	No effect.
Servicer	IndoStar	CRISIL AA-/ Stable/CRISIL A1+	Significant effect, because of change in servicing quality and replacement cost of the Servicer. However, CRISIL Ratings does not currently envisage the need for replacement. The Trustee, on behalf of the investors, shall retain the right to appoint a replacement Servicer in the occurrence of a ‘Servicer Event of Default’ as per the terms of the transaction.
Collection and Payout Account (CPA) Bank	Axis Bank Limited	CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the CPA Bank.
Cash Collateral Bank	Axis Bank Limited	CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+	Negligible effect. As per the terms of the transaction, the Trustee, on behalf of the investors, has the right to change the Bank with which the Cash Collateral fixed deposits are maintained.
Trustee	Axis Trustee Services Limited	Not rated by CRISIL Ratings	Negligible effect. As per the terms of the transaction, the Trustee can be replaced by the investors holding majority interest.

 

About the Originator

IndoStar, incorporated in July 2009, is registered with the Reserve Bank of India as a systemically important, non-deposit taking non-banking financial company. The company was founded and incorporated by private equity players (Everstone, Goldman Sachs, Baer Capital Partners, ACPI Investment managers, and CDIB International) with an initial capital of around Rs 900 crore. In May 2020, Brookfield invested Rs 1,225 crore and became the largest shareholder and co-promoter. As on date, Brookfield holds 56.20% stake, followed by the Everstone group) at 18.8%. Everstone Group have completed the sale of 14.21% of the total paid-up equity share capital of the Company through an Offer for Sale, to comply with the minimum public shareholding requirements as per SEBI. Pursuant to the same, Everstone Group’s holding stands at 18.8% and public shareholding in the company increased to 25% w.e.f. 05th May 2023.

 

IndoStar started business as a wholesale financier in fiscal 2011 and entered the SME finance (loans against property) segment in fiscal 2015. In fiscal 2018, the company started offering vehicle finance and housing finance (through wholly owned subsidiary, IndoStar Home Finance Pvt Ltd). In fiscal 2019, IndoStar acquired the CV finance business of IIFL Finance Ltd. The company plans to focus on used CV financing and affordable housing finance

Any other information: Not Applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of allotment	Coupon rate	Maturity date#	Size of the issue (Rs.Crore)	Complexity level	Rating assigned@	Cash collateral (Rs.Crore)
INE14MH15010	Series A1 PTC	29-Aug-24	9.20% p.a.p.m..	12-Dec-28	102.02	Highly complex	CRISIL AAA (SO)	7.08
INE14MH15028	Series A2 PTC	29-Aug-24	12.5% p.a.p.m	12-Dec-28	5.67	Highly complex	CRISIL A+ (SO)	7.08
NA	Equity Tranche@	29-Aug-24	Variable (residual EIS)	12-Dec-28	5.67	Highly complex	CRISIL A (SO)	7.08

#Indicates legal final maturity date for the instrument. Actual maturity date - depend on the level of collection shortfalls in the pool, the level of prepayments in the pool, and exercise of the clean-up call option.

@Equity tranche investors are expected to receive residual yield on a monthly basis, however, the rating on Equity tranche only addresses the likelihood of principal repayment, and not the payment of residual yield