SHRI TRUST BG 2025

(Originator: Sundaram Finance Limited)

‘Crisil AAA (SO)' for Series A PTCs 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 PTCs	373.81	365.6	57	29.53	Crisil AAA (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 rating to final rating of ‘Crisil AAA (SO)’ issued by ‘Shri Trust BG 2025’ under a securitisation transaction by receivables from new and used medium and heavy commercial vehicles (MHCV), intermediate, light, and small commercial vehicles (ILSCV), construction equipment and material handling equipment (CE & MHE) originated by Sundaram Finance Ltd (SFL; rated ‘Crisil AAA/Stable/Crisil A1+’).

 

The ratings are based on credit support available to PTCs, credit quality of the underlying pool receivables, SFL’s origination and servicing capabilities, 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

• Amended and restated Trust Deed
• Deed of assignment of receivables in the process of securitisation
• Power of attorney

 

Other Documents

• Auditor’s Certificates
• Legal Opinion
• Originator’s Representations and Warranties Letter
• Information Memorandum
• Trustee Letter

 

Payment Structure: The transaction has a ‘Par with EIS’ structure. SFL shall assign the loan pool to ‘SHRI Trust BG 2025’, a Trust settled by the transaction’s Trustee, in exchange for a purchase consideration amounting to 100.0% of the initial pool principal as on the cut-off date. The Trust has issued the PTCs to investors, where scheduled payouts to investors have been arrived at assuming a staggered basis of transfer of collections by the servicer, i.e. of all receivables comprising the principal amount due in a particular month (say, month M), 80% of the said principal amount shall be credited to the collection and payout account on the ascertained date of month M+1, and 20% of the said principal amount shall be deposited in the collection and payout account on the ascertained date of month M+2.

 

Series A PTC holders are promised timely interest payments on a monthly basis. Principal repayment, while expected on a monthly basis, is promised only on an ultimate basis by the Series A PTC’s final maturity date.

 

The investor payouts for Series A PTCs are supported by cash collateral and subordination of excess interest spread (EIS). On a monthly basis, the cash collateral can be used to make the promised interest payments to Series A PTCs in case of a shortfall in collections from the pool. On the Series A PTC’s final maturity date, the cash collateral can also be used to make the promised principal repayment in case of a shortfall in collections from the pool.  All prepayment collections will be utilised for accelerated redemption of the Series A PTCs.

 

Adequacy of credit enhancement:

Credit enhancement available in the transaction structure to support promised PTC payouts is as below:

 

• External credit enhancement from a cash collateral amounting to Rs. 29.53 crore (7.9% of securitised pool principal) which is expected to be maintained as fixed deposits with a bank and lien-marked in favour of the Trustee.
• Internal credit enhancement from subordination of scheduled EIS amounting to Rs 12.77 crore (3.42% of pool principal securitised, as of the pool cut-off date, assuming zero prepayments).

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement available in the structure:
  • Series A PTCs are supported by external credit enhancement from a cash collateral amounting to Rs. 29.53 crore (7.9% of securitised pool principal) and internal credit enhancement from subordination of scheduled EIS amounting to Rs 12.77 crore (3.42% of pool principal securitised; assuming zero prepayments).

• Repayment track record of pool borrowers:

• The pool has a weighted average seasoning of 9.96 months considering the pool cut-off date of November 30, 2024. All loans were current on repayment as of the cut-off date

 

Weakness:

• Borrower concentration:

• The pool is concentrated with top 10 borrowers accounting for 10.61% of pool principal securitised as of the cut-off date.

• Potential effect of macro-economic headwinds:

• Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Moderation in demand on account of inflation and geo-political uncertainties can lead to volatilities in cashflow generation capability of the borrowers. These factors may hamper pool collection ratios.

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

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

None, given the credit ratings on the Series A PTCs are currently at the highest level

 

Downward factors

• Credit enhancement available in the structure failing to cover 2.50 times the estimated base shortfalls on the residual cashflows of the pool due to weaker than expected collections from the pool.
• A sharp downgrade in the rating of the servicer/originator.
• Non-adherence to key transaction terms envisaged at the time of assigning the rating.

Quality of the asset pool and strength of cashflows

The securitisation transaction is backed by a pool of receivables from MHCV, ILSCV and CE (including material handling equipment) loans of 57.7%, 32.7%, and 9.6% of securitised pool principal respectively originated by SFL. As of the pool cut-off date (30-Nov-2024), the pool loans had a weighted average seasoning of 9.96 months, a weighted average interest rate of 10.1%, a weighted average LTV ratio of 86.7%, a weighted average original tenure of 48.6 months, and an average original loan amount of Rs 39.16 lakh. The top 3 states (Tamil Nadu, Maharashtra, and Karnataka) contributed 47.1% 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 Ratings has analysed the 90+ delinquency performance of static pools of SFL’s new and used vehicle loan originations over the period FY17 to FY24 (with performance until September 2024). Crisil Ratings has also analysed the portfolio cuts based on original tenure, loan amount, interest rate etc. and compared the pool with the portfolio on these parameters. Crisil Ratings has also analysed the dynamic portfolio delinquencies of SFL’s portfolio across various portfolio segments. As of September 2024, the 90+ delinquency for SFL’s ILSCV, MHCV and CE portfolios was 1.5%, 1.4% and 1.3% respectively, Crisil has also considered the performance of rated securitisation transactions of SFL.   Crisil Ratings has also factored in pool specific characteristics and estimated the base case shortfalls in the pool in the range of 3.0 to 4.0% of pool cash flows.   Crisil Ratings has also assumed a monthly prepayment of 0.2%-0.5% in its credit enhancement calculation. 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. Crisil Ratings does not envisage any risk arising on account of commingling of cash flows since its short-term rating on the servicer is ‘Crisil A1+’.

 

About the company- Originator/Servicer profile

Sundaram Finance, the flagship company of the TSF group, commenced operations in 1954, as a wholly owned subsidiary of Madras Motor and General Insurance Company Ltd, a member of the TVS group of companies. The company was listed in 1972, when TVS sold its stake and is registered with the RBI as a deposit-taking NBFC and is classified by the RBI as Investment and Credit company.

 

The company had a nationwide network of 709 branches and 7460 employees (including off-roll employees) as on September 30, 2024. SFL’s AUM primarily consisted of commercial vehicles (45.5%), car loans (23.8%), construction equipment (10.4%), tractors (7.2%) and other loans (13.1%) as on September 30, 2024.

 

The group also has presence in housing finance, asset management, and non-life insurance segments. The housing finance business was conducted through a joint venture (JV) with BNP Paribas (49.9% equity stake; through BNP Paribas Personal Finance, a wholly-owned subsidiary). Post-acquisition of 49.9% stake from BNP Paribas Personal Finance in Sundaram Home, the HFC became a wholly-owned subsidiary in September 2019. The asset management business is conducted through Sundaram Asset Management Company Ltd, a wholly-owned subsidiary of Sundaram Finance. Insurance business is carried through a 50% stake in Royal Sundaram General Insurance Company Ltd (RSGI), with the other large shareholder being a Ageas International NV which holds a 40% stake.

 

For fiscal 2024, Sundaram Finance reported total income and net profit of Rs 5,494 crore and Rs 1,454 crore, respectively, against Rs 4,110 crore and Rs.1,088 crore, respectively, for the previous fiscal.

 

Further, for the first half ended September 30, 2024, it reported total income and net profit of Rs 3,088 crore and Rs. 648 crore, respectively, against Rs 2,572 crore and Rs 648 crore, respectively, for the corresponding period of the previous fiscal.

 

The group reported total income and net profit of Rs 7,285 crore and Rs 1,422 crore, respectively, for the fiscal 2024, against Rs 5,544 crore and Rs 1,282 crore, respectively, for the corresponding period of previous fiscal.

Key Financial Indicators (Standalone)

As on / for the six months ended September 30	Unit	2024	2023
Total income (excluding interest expense)	Rs. Cr.	1521	1415
Profit after tax	Rs. Cr.	648	648
Gross Stage 3	%	1.62	1.86
Gearing	Times	4.1	4.6
Return on assets	%	2.5	3.0

 

As on / for the year ended March 31	Unit	2024	2023
Total assets	Rs. Cr.	50,988	41,059
Total income (excluding interest expense)	Rs. Cr.	2,919	2,330
Profit after tax	Rs. Cr.	1,454	1,088
Gross Stage 3	%	1.26	1.66
Gearing	Times	4.3	4.2
Return on assets	%	3.2	2.8

 

Quality and experience of servicer: SFL will continue to service loans assigned to this trust. SFL has originated several securitisation transactions. Servicing has been done, and reports have been shared across all these transactions in a timely manner

 

Risks and concerns for investors and mitigating factors: Based on Crisil Ratings’ assessment, the total credit enhancement available in the transaction (internal – in the form of EIS; and external – in the form of cash collateral) together can mitigate against shortfalls in collection from the pool even after stressing them commensurate with the rating assigned to the PTCs. Crisil Ratings has adequately factored key risks  in the transaction including Credit & Market (as highlighted in rating assumptions section), Counterparty and Legal risks. Legal risks are assessed based on detailed analysis of transaction documentation. Risk factored from counterparties are mentioned in the table below:

 

Counterparty details 

Capacity	Counterparty	Rating	Effect on transaction rating in case of non-performance
Originator	SFL	'Crisil AAA/Stable/Crisil A1+'	No effect.
Servicer	SFL	'Crisil AAA/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	State Bank of India	'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	State Bank of India	'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	SBICAP Trustee Company 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.

 

A summary of key terms of servicer contract

 

The key points on the role of the servicer covered as part of the transaction documents are as below:

 

• The Trustee acting for and on behalf of the investors shall appoint, the servicer for the purpose of collecting, receiving and managing payment of the Receivables into the Collection and Payment Account for the purpose of managing, collecting and receiving the receivables, holding the underlying security and carry out other roles and roles and responsibilities as specified under the transaction document.

 

• The servicer shall receive servicing fees which shall be paid by the trustee in accordance with the Waterfall Mechanism as per the transaction documents.

 

• The servicer shall collect the receivables from the underlying borrowers and deposit the collected amounts in the collection and payment account in a timely manner as per the terms of the transaction documents.

 

• The servicer shall submit to the trustee all the data and reports in the manner and as per the timelines as specified under the transaction documents.
•  
• The occurrence of certain events as per the terms of the transaction documents shall be construed as a Servicer Event of Default.

 

Provision for appointment of back-up servicer: The Trustee (acting on the instructions of the investors) as per the terms of the Servicer Agreement and upon the occurrence of Servicer’s Event of default, shall retain the right to appoint an alternate servicer

 

Performance of previously rated transactions

Crisil Ratings has ratings outstanding on eight PTCs issued under one other securitisation transaction backed by SFL-originated loans. Crisil Ratings is receiving monthly performance reports pertaining to this transaction. The cumulative collection efficiency in the underlying pool for this transaction was ~99% as of Feb-2025 payouts, with 0+ overdue is 0.0% of the initial pool principal

Any other information: Not Applicable