Rating Rationale

Rating Rationale

July 09, 2024 | Mumbai

Platinum Trust Apr 2024- Tranche II

(Originator: Cholamandalam Investment and Finance Company Limited)

‘CRISIL AAA (SO)’ for Series A PTCs and ‘CRISIL A (SO) Equivalent’ for Second Loss Facility converted from provisional ratings to final ratings

Rating Action

Tranche Name	Amount Rated (Rs Crores)	Outstanding Amount (Rs Crore)*	Balance Tenure (Rs Crore)*	Credit Collateral (Rs Crore)	Ratings/Credit Opinions	Rating Action
Series A PTCs	425.7	407.88	75	27.68^#	CRISIL AAA (SO)	Converted from provisional Rating to Final rating
Second Loss Facility	6.39	6.39	75	21.29	CRISIL A (SO) Equivalent	Converted from Provisional credit opinion to Final credit opinion

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

* As after June 2024 payouts
^#Includes a second loss facility of Rs 6.39 crore

Detailed Rationale

CRISIL Ratings has converted the provisional rating/credit opinion on Series A Pass-Through Certificates (PTCs) to a final rating of ‘CRISIL AAA (SO)’ and ‘CRISIL A (SO) Equivalent’. This securitisation transaction is backed by receivables from vehicle, construction equipment and tractor loans originated by Cholamandalam Investment Finance Company Limited (CIFCL; rated ‘CRISIL A1+’).

The rating/credit opinion is based on the credit support available to the PTCs, credit quality of underlying receivables, CIFCL’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 rating to a final rating.

Legal Documents

Declaration of Trust Deed
Deed of Assignment of receivables in the process of securitisation
Power of Attorney
FLCF Agreement
SLCF Agreement

Other Documents

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

The transaction has a ‘Par with excess interest spread (EIS)’ structure. CIFCL has assigned the pool to ‘Platinum Trust April 2024- Tranche II’, which has issued the PTCs to investors. Series A PTC payouts are supported by credit collateral in the form of fixed deposits and EIS.

The total credit support available in the transaction is as below:

Internal credit support in the form of scheduled EIS assuming zero prepayments aggregating Rs 51.39 crore (12.1% of pool principal) for Series A PTCs.
External credit enhancement of Rs 27.68 crore (6.5% of the pool principal or 4.9% of pool cashflows) of which first loss facility of Rs 21.29 crore (5.0% of pool principal) is in the form of a fixed deposit and second loss facility of Rs 6.39 crore (1.5% of pool principal) is in the form of a fixed deposit / bank guarantee.

Series A PTC holders are entitled to receive timely interest and timely principal payments on a monthly basis.

Key Rating Drivers & Detailed Description

Strengths:

Credit support available in the structure
Credit collateral of Rs 27.68 crore (6.5% of the pool principal or 4.9% of pool cashflows) provides credit support to Series A PTCs. The PTCs also benefit from internal credit support through scheduled EIS (assuming zero prepayment) aggregating to Rs 51.39 crore (12.1% of pool principal).
Repayment track record of contracts in the pool
The contracts in the pool have a weighted average number of installments paid of 8.5, and consequently, the pool has amortised by 12.5% as of the cut-off date of 31st March 2024. Additionally, none of the contracts have been overdue in the past 6 months

Weakness:

Higher LTV contracts in pool

57.3% of the pool principal are from contracts having LTV higher than 85% while the weighted average LTV of the pool is 84.2%
Long tenure contracts in the pool
25.8% of the pool principal are from contracts having original tenure greater than 72 months. Long tenure contracts have performed weaker on the portfolio.

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

Liquidity: Strong

Liquidity position 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 Ratings has adequately factored these aspects into its rating analysis.

Rating Sensitivity factors

Upward

For Series A PTCs: None
For Second Loss Facility: Credit enhancement (based on both internal and external credit enhancements) available in the structure exceeding 1.6 times the estimated base case shortfalls on the residual cash flows of the pool

Downward

For Series A PTCs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.5 times the estimated base case shortfalls. For Second Loss Facility: 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 pool securitised comprises of commercial vehicle, construction equipment and three-wheeler loans. The pool has weighted average number of instalments paid of 8.5. The pool has moderate geographic concentration with top three states accounting for 35.1% of pool principal. Average ticket size is Rs 6.7 lakhs with weighted average interest rate of 14.3%. All the contracts in the pool were current as on pool cut-off date (March 31st, 2024). CRISIL Ratings has adequately factored all these aspects in its rating analysis.

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed the static pool performance (with information on 90+ delinquencies) on new and used vehicles provided by CIFCL for originations in the period FY 2014 to Q3 FY 2023 (with performance data till March 2023). CRISIL has also analysed performance of past rated securitisation transactions and the performance of CIFCL’s vehicle finance portfolio. 90+ delinquency (as % of managed assets) for CIFCL’s vehicle finance portfolio was 3.3% as of Dec 2023.

CRISIL Ratings has also factored in pool specific characteristics and estimated the base case shortfalls in the pool by the maturity of the transaction in the range of 4.0% to 6.0% of pool cashflows.

CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.3 to 0.8% in its analysis.
CRISIL Ratings does not envisage any risk arising on account of commingling of cash flows since CRISIL Ratings' short term rating on the servicer is 'CRISIL A1+'
CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details 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.

Counterparty details

Capacity	Counterparty Name	Counterparty Rating/ Track record	Effect on credit ratings in case of non-performance
Originator	CIFCL	Rated ‘CRISIL A1+’	No effect.
Servicer	CIFCL	Rated ‘CRISIL A1+’	Significant effect, because of change in servicing quality and replacement cost of servicer (not factored in by CRISIL Ratings given its rating on the servicer). However, CRISIL Ratings does not envisage the requirement for replacement.
Collection and Payout Account Bank	HDFC Bank Ltd	Rated ‘CRISIL AAA/Stable/CRISIL AA+/Stable/CRISIL A1+’	Negligible effect. Account bank can be changed without impacting the rating.
Second loss facility in the form of Fixed Deposit	The Federal Bank Limited	Rated ‘CRISIL AA+/Positive/CRISIL A1+’	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating
First loss facility in the form of Fixed Deposit	The Federal Bank Limited	Rated ‘CRISIL AA+/Positive/CRISIL A1+’	Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee	IDBI Trusteeship Services Limited	Not rated by CRISIL Ratings	Negligible effect. Can be replaced at minimal cost.

About the Originator
Part of the Chennai-based Murugappa group, Chola Finance was incorporated in 1978. The company provides vehicle financing and LAP as well as home loans, MSME and agricultural loans. It has ventured into new businesses in the consumer and MSME ecosystems, namely CSEL, SBPL and SME finance in the second half of fiscal 2022. It had 1,309 branches across 29 states in India, with 90% presence across tier III to tier VI cities, as on December 31, 2023.

The Murugappa group holds 51.6% equity stake in Chola Finance, of which 45.5% is held by Cholamandalam Financial Holdings Ltd, a group company.

Chola Finance has two subsidiaries: Cholamandalam Securities Ltd and Cholamandalam Home Finance Ltd, a joint venture with Payswiff Technologies Pvt Ltd and three associates: White Data Systems India Pvt Ltd, Vishvakarma Payments Pvt Ltd and Paytail Commerce Pvt Ltd.

For fiscal 2024, company reported profit after tax (PAT) was Rs 3,423 crore on total income (net of interest expense) of Rs 19,216 crore compared with Rs 2,664 crore and Rs 7,226 crore, respectively for previous fiscal.

Key Financial Indicators

As on/for the period ended March 31,	Unit	2024	2023	2022
Total assets	Rs crore	1,56,451	1,13,516	82,363
Total income (net of interest expense)	Rs crore	19,216	7,228	5,840
PAT	Rs crore	3,423	2,664	2,147
GS III	%	2.48	3.08	4.51
Adjusted gearing	Times	7.0	6.9	6.1
Reported gearing	Times	6.9	6.8	5.9
RoMA	%	2.5	2.7	2.6
CAR	%	18.57	17.13	19.60

As on/for the nine months ended December 31,	Unit	2023	2022
Total assets	Rs crore	1,43,718	1,04,490
Total income (net of interest expense)	Rs crore	7,073	5,169
PAT	Rs crore	2,364	1,813
GS III	%	2.88	3.60
Adjusted gearing	Times	6.7	6.7
Reported gearing	Times	6.6	6.6
RoMA	%	2.4	2.5
CAR	%	19.37	17.75

Past rated pools

CRISIL Ratings has ratings outstanding on sixteen securitisation transactions originated by CIFCL.
CRISIL Ratings is receiving monthly performance reports pertaining to these transactions.

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	Name of the security	Date of issuance	Coupon Rate (%)	Maturity Date*	Size of the issue (Rs Cr.)	Complexity level	Rating assigned	Cash collateral (Rs crore)
INE0VXO15019	Series A PTCs	30-Apr-2024	8.5% (p.a.p.m.)	22-Sep-2030	425.7	Highly Complex	CRISIL AAA (SO)	27.68^@
NA	Second Loss Facility	30-Apr-2024	Not Applicable	22-Sep-2030	6.39	Highly Complex	CRISIL A (SO) Equivalent	21.29

1 crore = 10 million

*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

@Includes a second loss facility of Rs.6.39 crore

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

Series A PTCs

407.88

CRISIL AAA (SO)

09-05-24

Provisional CRISIL AAA (SO)

Second Loss Facility

6.39

CRISIL A (SO) Equivalent

09-05-24

Provisional CRISIL A (SO) Equivalent

All amounts are in Rs.Cr.

Criteria Details

Links to related criteria

Meaning and applicability of SO and CE symbol

Evaluating risks in securitisation transactions - A primer

CRISILs rating methodology for ABS transactions

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