Sansar June 2024 Trust (Originator: Shriram Finance Limited) ‘CRISIL AAA (SO)’ for PTCs converted from provisional rating to final rating
Rating Action
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 *Including replenishment period (6 months) and amortization period (66 months). Actual maturity will depend on the level of collection shortfalls in the pool, the level of prepayments in the pool, occurrence of triggers during replenishment and amortisation period, and exercise of the clean-up call option |
Detailed Rationale CRISIL Ratings has converted its provisional ratings assigned to Pass-Through Certificates (PTCs) issued by ‘Sansar June 2024 Trust’ to final ratings of 'CRISIL AAA (SO)'. The PTCs were issued under a securitisation transaction backed by vehicle loans originated by Shriram Finance Limited (SFL; rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’).
This securitisation transaction is backed by receivables from a pool of commercial vehicle, passenger vehicle and construction equipment loans. 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.
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 ratings were assigned. Hence, CRISIL Ratings has converted the provisional ratings to final ratings.
Legal Documents
Other Documents
The PTCs are issued under a replenishment structure with door-to-door tenure of 72 months. Of this, the first 6 months serve as the replenishment period followed by the amortisation period of 66 months. During the replenishment period, monthly interest payments are promised to PTC investors. Residual cash flows from the pool during this period will be used to replenish the pool with fresh loan assets that meet pre-defined eligibility criteria. There would be no amounts flowing back to the originator during the replenishment period.
During the amortisation period, PTC investors are promised interest payments and principal repayments on a monthly basis. The residual cash flows will be used to make accelerated principal repayments to PTC investors until the cash collateral amount is equal to 18.5% of the outstanding PTC principal. The cash collateral can be utilised for making the promised interest payments during the replenishment period, and for making both promised interest payments and principal repayments during the amortisation period.
The transaction structure provides for certain trigger events, defined at the time of issuance of PTCs. Should any of the pre-defined trigger events occur during the replenishment period, the replenishment would stop and the amortisation period will come into effect. In case of any trigger event occurring during the amortisation period, surplus cash flows from the pool would be used for accelerated redemption of PTC principal.
Investor payouts for PTCs are supported by cash collateral and subordination of excess interest spread (EIS). SFL will continue to service loans in the pool as the servicing agent. |
Key Rating Drivers & Detailed Description Strengths:
− Cash collateral of Rs 192.07 crore (12.75% of initial pool principal) − Subordination of excess interest spread (EIS). For the initial pool, assuming PTC amortisation from the first month, the scheduled EIS amounts to Rs 201.47 crore (13.4% of the initial pool principal). − Pool can also benefit from potential overcollateralization build-up prior to amortisation considering utilisation of EIS to purchase new loan assets during the replenishment period.
− The initial pool had 39,276 loans and is therefore, fairly diversified; top 10 borrowers contributed to only 0.1% of the initial pool principal. − All contracts in the initial pool were current as of pool cut-off date i.e., 31-May-2024.
− 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.
Weakness: − Pool comprises contracts having high ticket size and high interest rates that have exhibited higher delinquencies in the used-asset segment at the portfolio level. − Potential changes in the pool during replenishment period; however, these changes are controlled within certain boundary conditions established through well-defined eligibility criteria for new loans added to the pool and replenishment termination events to prevent excessive build-up of risks in the pool.
− The pool’s collection performance could be hampered in a challenging macroeconomic environment and would remain susceptible to factors like increasing fuel costs, increasing interest rates, and demand moderation owing to inflation and geo-political uncertainties.
These aspects have been adequately factored by CRISIL Ratings in its rating analysis. |
Liquidity: Strong The cash collateral available in the transaction structure is Rs 192.07 crore (12.75% 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. |
Rating Sensitivity factors
Downward factors
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About the Pool The securitisation transaction is backed by a replenishing pool of receivables from passenger vehicle, commercial vehicle and construction equipment loans (54.2%, 38.7% and 7.0%, respectively, of the initial pool principal) originated by SFL. As of the pool cut-off date (31-May-2024), the initial pool loans had a weighted average seasoning of 8.2 months, a weighted average interest rate of 17.9%, a weighted average LTV ratio of 71.8%, a weighted average original tenure of 42.1 months, and an average original loan amount of Rs 4.6 lakh. The top 3 states (Karnataka, Tamil Nadu and Andhra Pradesh) contributed 40.2% of the initial pool principal.
Eligibility criteria for the pool loans to be added in monthly replenishments are listed below:
Replenishment termination events:
Counterparty details
About the Originator Following the consummation of the merger of Shriram City Union Finance Limited (SCUF) and demerged undertaking of Shriram Capital Limited with Shriram Transport Finance Company Limited (STFCL), the company has been renamed to Shriram Finance Limited (SFL). Shriram Housing Finance Limited (SHFL) continues to operate as a subsidiary of SFL which holds around 84.2% stake in the SHFL. Pursuant to the consummation of the transaction, Shriram Capital Limited 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 loans, gold loans, housing loans and others (auto and personal loans). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Key Financial Indicators
*Gross Stage 3 estimated on combined basis for SFL and SHFL ^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 May-2024 payouts, with 90+ delinquency remaining at or below 3.5% of the initial pool principal. |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@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 instrument tenure includes a replenishment period of up to 6 months and amortization period of 66 months. |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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