Sansar Oct 2024 Trust (Originator: Shriram Finance Limited)
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 .@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 A- (SO)’ rating to Series A2 PTCs to be issued by ‘Sansar Oct 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 secured MSME, heavy and light commercial vehicles (HCV andLCV), passenger vehicles (PV) and equipment (CE) 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. |
Key Rating Drivers & Detailed Description Strengths:
− Cash collateral of Rs 54.12 crore (2.5% of pool principal) for Series A1 PTCs investor payouts and Series A2 PTCs principal repayment. − Scheduled cashflow subordination aggregating to Rs 626.21 crore (28.9% of pool principal, assuming zero prepayments) for Series A1 PTCs – including subordination of Series A2 PTC principal of Rs 216.48 crore (10.0% of pool principal). − Subordination of excess interest spread of Rs 409.73 crore (18.9% of pool principal, assuming zero prepayments) for the principal repayment of Series A2 PTCs.
− The pool has a weighted average seasoning of 13.3 months considering the pool cut-off date of October 20, 2024. All loans were current on repayment as of the cut-off date.
− 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
− 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.
These aspects have been adequately factored in its rating analysis by CRISIL Ratings |
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 54.12 crore (2.5% 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. The cash collateral is sufficient to cover promised interest payouts for the first 4 months even if the collection efficiency of the pool drops to 0%.
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
Downward factors:
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About the Pool The securitisation transaction is backed by a pool of receivables from MSME, PV, HCV and CE loans (53.1%,19.8%,11.7%, 66.% of initial pool principal respectively) originated by SFL. As of the pool cut-off date (20-Oct-2024), the pool loans had a weighted average seasoning of 13.3 months, a weighted average interest rate of 17.6%, a weighted average LTV ratio of 67.9%, a weighted average original tenure of 50.8 months, and an average original loan amount of Rs 5.4 lakh. The top 3 states (Tamil Nadu Telangana, and Andhra Pradesh) contributed 46.2% of the initial pool principal. All the underlying pool loans were current on repayment as on the cut-off date.
Counterparty details
Additional disclosures for Provisional ratings: The provisional rating is contingent upon execution and receipt of the following documents:
Executed documents:
Other documents:
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 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
*Gross Stage-3 estimated on combined basis for SFL and SHFL Key Financial Indicators: SFL Standalone
^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 |
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 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. |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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