Sansar Dec 2024 Trust

(Originator: Shriram Finance Limited)
'Provisional CRISIL AAA (SO)' assigned to Series A1 PTCs, 'Provisional CRISIL BBB+ (SO)' assigned to Series A2 PTCs

 

Rating Action

Trust Name	Details	Pool Principal (Rs.Crore)	Rated Amount (Rs.Crore)	Original Tenure (Months)	Cash Collateral (Rs.Crore)	Ratings/ Credit Opinions@	Rating Action
Sansar Dec 2024  Trust	Series A1 PTCs	1720.47	1600.04	53	51.61	Provisional CRISIL AAA (SO)	Provisional Rating Assigned
	Series A2 PTCs		120.43	53		Provisional CRISIL BBB+ (SO)	Provisional Rating Assigned

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

.@A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures and is contingent upon occurrence of certain steps or execution of certain documents by the issuer, as applicable, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015 directive ‘Standardizing the term, rating symbol, and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies' by Securities and Exchange Board of India (SEBI) and April 27, 2021 circular ‘Standardizing and Strengthening Policies on Provisional Rating by Credit Rating Agencies (CRAs) for Debt Instruments’ by SEBI

 

Detailed Rationale

CRISIL Ratings has assigned its ‘Provisional CRISIL AAA (SO)’ rating to Series A1 Pass-Through Certificates (PTCs) and ‘Provisional CRISIL BBB+ (SO)’ rating to Series A2 PTCs to be issued by ‘Sansar Dec 2024 Trust’ under a securitisation transaction backed by receivables from loans originated by Shriram Finance Limited (SFL; rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’).

 

This securtisation transaction is backed by receivables from commercial and passenger vehicle loans originated by SFL. The ratings are based on the expected credit quality of the pool backing the transaction, the origination and servicing capabilities of SFL, credit enhancement available to the PTCs, the transaction’s payment mechanism, and soundness of the transaction’s legal structure.             

 

The transaction has a ‘Par with Excess Interest Spread (EIS)’ structure. Interest payments to Series A1 PTCs are promised on a monthly basis. Principal repayment to Series A1 PTCs, while expected a monthly basis, is promised only on an ultimate basis by the instrument’s legal final maturity date. The cash collateral would be used to meet shortfalls in monthly promised Series A1 PTCs interest payouts and for the ultimate principal repayment of Series A1 PTCs on the legal final maturity date as set out in the waterfall mechanism.

 

Post redemption of Series A1 PTCs, principal repayment to Series A2 PTC investors is expected on a monthly basis but promised only on an ultimate basis by the instrument’s legal final maturity date. Series A2 investors are expected to receive residual EIS amounts on a monthly basis, however, the rating on Series A2 PTCs only addresses the likelihood of principal repayment by the legal final maturity date, and not the payment of residual EIS amounts. Post redemption of the Series A1 PTCs, the cash collateral would be available to meet shortfalls in the ultimate principal repayment of Series A2 PTCs on the legal final maturity date as set out in the waterfall mechanism.

 

Investor payouts for Series A1 PTCs are supported by cash collateral, subordination of Series A2 PTC principal, and subordination of excess interest spread (EIS). Investor payouts for Series A2 PTCs are supported by cash collateral and subordination of excess interest spread (EIS). SFL will continue to service loan contracts in the pool as the servicing agent.

 

CRISIL Ratings has estimated base case shortfalls in the pool at 3.0%-5.0% 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 to support promised PTC payouts is as below:

 

• Cash collateral of Rs 51.61 crore (3.0% of pool principal) for Series A1 PTCs investor payouts and Series A2 PTCs principal repayment.
• Scheduled cashflow subordination aggregating to Rs 302.86 crore (17.6% of pool principal, assuming zero prepayments) for Series A1 PTCs – including subordination of Series A2 PTC principal of Rs 120.43 crore (7.0% of pool principal).
• Subordination of excess interest spread of Rs 182.43 crore (10.6% of pool principal, assuming zero prepayments) for the principal repayment of Series A2 PTCs

Key Rating Drivers & Detailed Description

Strengths:

•                   Credit enhancement available in the transaction structure.

                     Cash collateral of Rs 51.61 crore (3.0% of pool principal) for Series A1 PTCs investor payouts and Series A2 PTCs principal repayment.

                     Scheduled cashflow subordination aggregating to Rs 302.86 crore (17.6% of pool principal, assuming zero prepayments) for Series A1 PTCs – including subordination of Series A2 PTC principal of Rs 120.43 crore (7.0% of pool principal).

                     Subordination of excess interest spread of Rs 182.43 crore (10.6% of pool principal, assuming zero prepayments) for the principal repayment of Series A2 PTCs.

 

•                   Borrower diversification and repayment track record of pool loans

−                     The pool has 64,396 contracts and is therefore, well diversified; top 10 loans contribute only 0.6% of the pool principal.

−                     The pool has a weighted average seasoning of 15.7 months considering the pool cut-off date of December 20, 2024. All loans were current on repayment as of the cut-off date.
 

•                   Legal soundness of the transaction structure

−                     The legal structure envisaged for the transaction entails bankruptcy remoteness of the pool of 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:

•                   Effect of potential macroeconomic headwinds:

                     Borrowers in the underlying pool could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, an increasing interest rate scenario, and moderation in demand on account of inflation and geo-political uncertainties. These factors may hamper the pool’s collection performance.

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

Liquidity: Strong for Series A1 PTCs, Adequate for Series A2 PTCs

For Series A1 PTCs: The cash collateral available in the transaction structure is Rs 51.61 crore (3.0% of the initial pool principal) which is in the form of a fixed deposit. Liquidity 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.

 

For Series A2 PTCs: Liquidity is adequate given that the credit enhancement (internal and external combined) in the structure is sufficient to cover losses exceeding 1.1 times the currently estimated base shortfalls.

Rating Sensitivity factors

Upward factors

• For Series A1 PTCs: None
• For Series A2 PTCs: Credit enhancement available in the structure adequately covering for 1.4 times the estimated base case shortfalls on the residual cashflows of the pool due to sustained healthy collections from the pool.
   

Downward factors

• For Series A1 PTCs: Credit enhancement available in the structure failing to cover 2.5 times the estimated base shortfalls on the residual cashflows of the pool due to weaker than expected collections from the pool.
• For Series A2 PTCs: Credit enhancement available in the structure failing to cover 1.2 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.

About the Pool

The securitisation transaction is backed by a pool of receivables from tractor, LCV, HCV, and PV loans (34.0%, 36.5% and 29.6% of initial pool principal respectively) originated by SFL. As of the pool cut-off date (20-Dec-2024), the pool loans had a weighted average seasoning of 15.7 months, a weighted average interest rate of 15.2%, a weighted average LTV ratio of 69.1%, a weighted average original tenure of 46.8 months, and an average original loan amount of Rs 3.9 lakh. The top 3 states (Karnataka 18.0%, Tamil Nadu 9.0% and Kerala 8.4%) contributed 35.5% 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 FY15 to FY24 (with performance until September 2024). CRISIL Ratings has also analysed the portfolio cuts based on original tenure, loan amount, state, 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 March 2024, the 90+ delinquency for SFL’s CV and PV portfolios were 3.6%, and 3.1% respectively, CRISIL has also considered the performance of rated securitisation transactions of SFL.   CRISIL Ratings has factored pool-specific characteristics, and potential changes to the pool during the replenishment period based on the eligibility criteria and replenishment termination events and estimated the base case peak shortfalls in the pool in the range of 3.0-5.0% of pool cash flows.   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	SFL	CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+	No effect.
Servicer	SFL	CRISIL AA+/CRISIL PPMLD 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	Mitsubishi UFJ Financial Group Bank	Not rated by CRISIL	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	Mitsubishi UFJ Financial Group Bank	Not rated by CRISIL	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	Catalyst Trusteeship Limited	Not rated by CRISIL	Negligible effect. As per the terms of the transaction, the Trustee can be replaced by the investors holding majority interest.

 

Additional disclosures for Provisional ratings:

The provisional rating is contingent upon execution and receipt of the following documents:

 

Executed documents:

• Trust Deed
• Deed of Assignment
• First Loss Credit Facility Agreement
• Power of Attorney

 

Other documents:

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

 

Additional documents, if any, executed for the transaction should also be provided along with the above documents. The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument. The final rating assigned post conversion shall be consistent with the available documents. In case of non-receipt of the duly executed transaction documents within the above-mentioned timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.

 

Rating that would have been assigned in absence of the pending documentation:

In the absence of documentation considered while assigning provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.

 

Risks associated with provisional nature of credit rating:

A prefix of 'Provisional' to the rating symbol indicates that the rating is contingent upon execution of certain documents by the issuer, as applicable. In case the documents received deviate significantly from the expectations, CRISIL Ratings may take appropriate action including placing the rating on watch or a rating change, depending on status of progress on a case-to-case basis. In the absence of the pending documentation, the rating on the instrument would not have been assigned ab initio.

 

About the Originator

Following the consummation of the merger of SCUF and demerged undertaking of Shriram Capital Limited with SFL (erstwhile STFCL), the company has been renamed to Shriram Finance Ltd (SFL). Shriram Housing Finance Ltd (SHFL) continues to operate as a subsidiary of SFL which holds around 84.2% stake in the former. Pursuant to the consummation of the transaction, Shriram Capital and SCUF cease to exist.

 

SFL, incorporated in 1979, was registered with RBI as a deposit-taking, asset-financing non-banking financial company and predominantly provides financing for vehicles such as CVs (both pre-owned and new), tractors, and passenger vehicles. Erstwhile SCUF (now merged into SFL) was incorporated in 1986 and operated in the retail financing segment with a focus on small enterprise loans, two-wheeler financing, gold loans, housing loans and others (auto and personal loans).

Key Financial Indicators:
SFL consolidated

As on/for year ending	Unit	Jun 24	Mar-24	Mar-23	Mar-22^
Assets under Management (AUM)	Rs. Cr.	2,47.841	2,38,624	1,93,730	1,27,041
Total income (net of interest expenses)	Rs. Cr.	5,481	20,891	17,577	9,540
Profit after tax	Rs. Cr.	2,031	7,399	6,020	2,721
Gross NPA (Gross Stage-3)*	%	5.2	5.2	6.0	7.0
On-book gearing	Times	3.8	3.9	3.8	4.4
Return on managed assets	%	3.2**	3.1	3.0	2.0

*Gross Stage-3 estimated on combined basis for SFL and SHFL

^Pre-merger

**annualised

 

Key Financial Indicators: SFL Standalone

As on/for year ending	Unit	Mar-24	Mar-23	Mar-22^
Assets under Management (AUM)	Rs crore	221,668	185,683	127,041
Total income (net of interest expenses)	Rs crore	20,191	17,257	9,540
Profit after tax	Rs crore	7,190	5,979	2,708
On-book gearing	Times	3.8	3.6	4.4
Return on managed assets	%	3.2	3.4	2.0

^Pre-merger

 

Performance of previously rated transactions

CRISIL Ratings has ratings outstanding on instruments issued under 20+ securitisation transactions backed by SFL-originated loans. CRISIL Ratings is receiving monthly performance reports pertaining to these transactions. The cumulative collection efficiency in the underlying pools for these transactions range from ~93% to ~100% as of July-2024 payouts, with 90+ delinquency remaining at or below 5.0% of the initial pool principal.

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)
NA	Series A1 PTCs	30-Dec-24	8.40% p.a.p.m.	25-Jun-29	1600.04	Highly complex	Provisional CRISIL AAA (SO)	51.61
NA	Series A2 PTCs	30-Dec-24	Variable (residual EIS)	25-Jun-29	120.43	Highly complex	Provisional CRISIL BBB+ (SO)	51.61

#Indicates legal final maturity date for the instrument. Actual maturity date will 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.

@The rating on Series A2 PTCs only addresses the likelihood of principal repayment by the legal final maturity date, and not the payment of residual EIS amounts.

*ISIN details are currently unavailable