Rating Rationale
August 08, 2023 | Mumbai
 
Sansar Trust July 2023 II
(Originator: Shriram Finance Limited)
‘CRISIL AAA (SO)’ for Series A1 PTCs converted from provisional rating to final rating
 
Rating Action
Trust Name Details Amount Rated (Rs.Crore) Outstanding Amount (Rs.Crore) Balance Tenure (No.of instalments) Credit Collateral (Rs.Crore) Ratings/Credit Opinions Rating Action
Sansar Trust July 2023 II Series A1 PTCs 805.00 805.00 60 30.30 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 assigned to Series A1 Pass-Through Certificates (PTCs) issued by ‘Sansar Trust July 2023 II’ to a final rating of 'CRISIL AAA (SO)' under a securitisation transaction backed by a pool comprising receivables from loans originated by SFL, including used and new commercial vehicles (CV) passenger vehicles (PV) and construction equipment (CE) originated by Shriram Finance Limited (SFL; rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’). The rating is based on the credit support available to the PTCs, credit quality of underlying receivables, SFL’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

  • Trust Deed
  • Deed of Assignment of receivables in the process of securitisation
  • Power of Attorney

 

Other Documents

  • Information Memorandum
  • Legal Opinion
  • Auditors Certificate
  • Representation and Warranties Letter
  • Trustee Awareness Letter

 

The transaction has a ‘Par with excess interest spread (EIS)’ structure. SFL has assigned the pool to ‘Sansar Trust July 2023 II’, a trust settled by Catalyst Trusteeship Limited (CTL) which will issue the Series A1 PTCs and Equity Tranche PTCs to investors. Investor payouts are supported by cash collateral in the form of fixed deposits; and subordination of cashflows.

 

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

  • Internal credit support in the form of scheduled cashflow subordination assuming zero prepayments aggregating to 174.97 crore (20.2% of initial pool principal) – including overcollaterisation in the form of equity tranche PTC principal of Rs 60.60 crore (7.0% of pool principal) for Series A1 PTCs
  • External credit enhancement of Rs 30.30 crore (3.5% of pool principal) as cash collateral which is in the form of fixed deposit.

 

Interest payments to Series A1 PTC holders are promised to be paid on a monthly basis; principal repayment is to be paid on an ultimate basis by the instrument’s final maturity date.

Key Rating Drivers & Detailed Description

Strengths:

  • Credit support available in the structure for PTCs
    • Cash collateral of Rs 30.30 crore (3.5% of pool principal) provides credit support to Series A1 PTC investor payouts. Series A1 PTCs also benefit from scheduled cashflow subordination aggregating to Rs 174.97 crore (20.2% of initial pool principal) – including overcollaterisation in the form of equity tranche PTC principal of Rs 60.60 crore (7.0% of initial pool principal).
  • Borrower diversification:
    • The pool has 16,100 contracts and is therefore fairly diversified; top 10 borrowers contribute to only 0.7% of the outstanding pool principal. 
  • All contracts are current as of pool cut-off date i.e., July 20, 2023. Additionally, all contracts in the pool have been current since origination.

 

Weakness:

  • Higher proportion of contracts with higher IRRs in the pool:
    • Contracts with higher IRRs have exhibited higher delinquencies at the portfolio level.
  • Potential effect of macro-economic 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 pool collection ratios.

Liquidity: Strong

The cash collateral available in the transaction is Rs. 30.30 crore (3.5% of the pool principal) which is in the form of 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.

 

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

Rating Sensitivity factors

Upward

  • None

 

Downward

  • Credit enhancement (based on both internal and external credit enhancements) falling below 1.8 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 securitisation transaction is backed by a pool of receivables from vehicle loans originated by SFL. The pool has a weighted average net seasoning of 10.3 months, with top 3 states (Karnataka, Tamil Nadu and Andhra Pradesh) cumulatively accounting for 40.0% of the pool principal. Average loan amount for pool loans was Rs 6.4 lakh. All the contracts were current on repayment as on the cut-off date (i.e. July 20, 2023) will no delinquencies since origination.

 

Rating Assumptions

To assess the base case shortfalls for the transaction, CRISIL Ratings has analysed the static pool information (with information on 90+DPD) on new and used vehicles loan portfolio of SFL for originations in the period FY2013 to FY2023 (with performance data until March 2023). CRISIL Ratings has also analysed the portfolio cuts based on Tenure, Ticket Size, State, IRR etc. and compared the pool with the portfolio on these parameters.

 

CRISIL Ratings has also analysed performance of rated securitisation transactions, and the performance of SFL’s portfolio. As of Mar 2023, 90+dpd for the used CV and new CV portfolio are 2.8% and 5.1% respectively.

 

CRISIL Ratings has also factored in pool-specific characteristics and estimated the base case peak shortfalls in the pool in the range of 4.0-6.0% of pool cash flows.

 

  • CRISIL Ratings has assumed a stressed monthly prepayment rate of 0.3 to 1.3% in its analysis for the vehicle segment.
  • 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+’.
  • CRISIL Ratings has adequately factored in the risks arising on account of counterparties (refer to counterparty details)
  • 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 and seller

SFL

Rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/CRISIL A1+’

 

No effect.

 

Servicer

SFL

Rated ‘CRISIL AA+/CRISIL PPMLD AA+/Stable/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 servicer). However, CRISIL Ratings does not envisage the requirement for replacement.

Collection & Payout Account

State Bank of India

Rated ‘CRISIL AAA/CRISIL AA+/Stable’

Negligible effect. Account bank can be changed without impacting the rating.

First loss facility in the form of Fixed Deposit

ICICI Bank Limited

Rated ‘CRISIL AAA/CRISIL AA+/Stable’

Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.

Trustee

CTL

Not rated by CRISIL

Negligible effect. Can be replaced at minimal cost.

 

About the Originator

Following the consummation of the merger of Shriram City Union Finance (SCUF) and demerged undertaking of Shriram Capital Limited with 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 85.02% stake in the same. Pursuant to the consummation of the transaction, Shriram Capital and SCUF cease to exist.

 

STFCL, incorporated in 1979, was registered with RBI as a deposit-taking, asset-financing non-banking financial company. STFCL provides financing for vehicles such as CVs (both pre-owned and new), tractors, and passenger vehicles.

 

SCUF, was incorporated in 1986 and predominantly operates 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: STFCL Standalone

As on/for the period ending / year ending

Unit

Sep-22

Mar-22

Mar-21

Total assets

Rs. Cr.

155,209

1,42,106

1,29,761

Total income (net of interest expenses)

Rs. Cr.

5,452

9,540

8,382

PAT

Rs. Cr

2,032

2,708

2,487

Gross NPA

%

6.90

7.07

7.06

Overall capital adequacy ratio

%

22.48

22.97

22.50

Adjusted Gearing

Times

4.6

4.5

5.0

Return on managed assets (annualised)

%

2.7

2.0

2.0

 

Key Financial Indicators: SCUF Consolidated

As on/for the period ending/year ending

Unit

Sep-22

Mar-22

Mar-21

Total Assets

Rs. Cr.

48,144

44,558

37,866

Total income (net of interest expenses)

Rs. Cr.

2,575

4,264

3,821

Profit after tax

Rs. Cr.

739

1,165

1,078

Gross NPA (Gross Stage-3)

%

5.3

5.7

5.9

Adjusted gearing

Times

3.7

3.7

3.4

Return on assets

%

3.1

2.8

3.0

 

Key Financial Indicators – SFL Consolidated (CRISIL Ratings estimates)

As on/for the period ending/year ending

Unit

Mar-23

2021

Total assets

Rs. Cr.

2,10,600

NA

Total income (net of interest expenses)

Rs. Cr.

17,577

NA

Profit after tax

Rs. Cr.

6,020

NA

Gross NPA (Gross Stage-3)

%

6.0*

NA

Adjusted Gearing

Times

3.8

NA

Return on assets

%

3.0

NA

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

 

Past rated pools

CRISIL Ratings has ratings outstanding on 24 securitisation transactions originated by SFL. CRISIL 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 instrument

Date of allotment

Coupon rate (%)

Maturity date*

Issue size (Rs.Crore)

Complexity level

Rating assigned

INE0QTL15013

Series A1 PTCs

07-Aug-2023

8.75

17-Aug-2028

805.00

Highly Complex

CRISIL AAA (SO)

*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

Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs LT 805.0 CRISIL AAA (SO) 07-08-23 Provisional CRISIL AAA (SO)   --   --   -- --
All amounts are in Rs.Cr.
Criteria Details
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions
Meaning and applicability of SO and CE symbol

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