TANJIRO CV TRUST MAY 2024

(Originator: IndoStar Capital Finance Limited)

‘CRISIL AAA (SO)’ for Series A1 SNs and ‘CRISIL A+ (SO)’ for Series A2 SNs converted from provisional ratings to final ratings

 

Rating Action

Tranche Name	Amount Rated (Rs.Crore)	Outstanding Amount (Rs.Crore)	Balance Tenure	Credit Collateral (Rs.Crore)	Ratings/Credit Opinions	Rating Action
Series A1 SNs	180.15	173.59	39	18.77	CRISIL AAA (SO)	Converted from Provisional Rating to Final Rating
Series A2 SNs	7.51	7.51	39	18.77	CRISIL A+ (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 ratings assigned to Series A1 Securitisation Notes (SNs) and Series A2 SNs issued by ‘TANJIRO CV TRUST MAY 2024 ’ to final ratings of 'CRISIL AAA (SO)' and ‘CRISIL A+ (SO)’ respectively. The SNs were issued under a securitisation transaction originated by IndoStar Capital Finance Limited (IndoStar; rated ‘CRISIL AA-/Negative/CRISIL A1+’).

 

This securitisation transaction is backed by receivables from vehicle loans originated by IndoStar. The rating is based on the credit support available to the PTCs, credit quality of underlying receivables, IndoStar’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 ratings to final ratings.

 

Executed documents:

• Amended and Trust Deed
• Deed of Assignment by way of securitisation
• Cash Collateral Agreement
• Collection and processing Agent’s Agreement
• Cash Collateral Power of Attorney
• General Power of attorney

 

Other Documents:

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

 

The transaction has a ‘Par with EIS’ structure. IndoStar has assigned the pool to ‘Tanjiro CV Trust May 2024’, a Trust settled by the transaction’s Trustee, i.e. IDBI Trusteeship Services Limited (ITSL), 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 Series A1 SNs and Series A2 SNs for amounts equalling 96.0% and 4.0%, respectively, of the initial pool principal as on the cut-off date. The Trustee has appointed IndoStar as the Servicer, and collections from the pool will be transferred to the Collection and Payout Account (CPA) on a monthly basis to make investor payouts as per the transaction’s waterfall mechanism.

 

Interest payments to Series A1 SNs are promised on a monthly basis. While Series A1 SNs are outstanding, 96% of the monthly pool principal billing and the entire prepayment collections are promised as monthly principal repayment to Series A1 SNs, while 4% of the monthly pool principal billing is expected but not promised as monthly principal repayment to Series A1 SNs. The cash collateral would be used to meet shortfalls in monthly promised interest and principal payouts to Series A1 SNs as set out in the waterfall mechanism.

 

Post redemption of Series A1 SNs, the entire monthly pool principal billing and prepayment collections are promised as monthly principal repayment to Series A2 SNs. Post redemption of Series A1 SNs, outstanding principal on the Series A2 SNs, if any, is also promised as principal repayment on the Series A2 SN’s legal final maturity date. Post redemption of the Series A1 SNs, the cash collateral would be available to meet shortfalls in the principal repayment of Series A2 SNs as set out in the waterfall mechanism. Series A2 SN investors are also expected to receive residual EIS amounts on a monthly basis, however, the rating on Series A2 SNs only addresses the likelihood of principal repayment, and not the payment of residual EIS amounts.

 

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

• Cash collateral of INR 18.77 crore (10.0% of the initial pool principal) for Series A1 SNs investor payouts and Series A2 SNs principal repayment
• Scheduled cashflow subordination aggregating to Rs 35.04 crore (18.7% of pool principal, assuming zero prepayments) for Series A1 SNs – including subordination of Series A2 SN principal of Rs 7.51 crore (4.0% of pool principal).

 

Subordination of scheduled excess interest spread of Rs 27.54 crore (14.7% of pool principal, assuming zero prepayments) for the principal repayment of Series A2 SNs.

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement available in the transaction structure
  • Cash collateral of INR 18.77 crore (10.0% of the initial pool principal) for Series A1 SNs investor payouts and Series A2 SNs principal repayment
  • Scheduled cashflow subordination aggregating to Rs 35.04 crore (18.7% of pool principal, assuming zero prepayments) for Series A1 SNs – including subordination of Series A2 SN principal of Rs 7.51 crore (4.0% of pool principal)
  • Subordination of excess interest spread of Rs 27.54 crore (14.7% of pool principal, assuming zero prepayments) for the principal repayment of Series A2 SNs
     
•          Payment track record of contracts in the pool
  • Loans in the pool have a weighted average seasoning of 8.6 months, during which 20.2% of the disbursed principal has been amortised prior to securitisation. All loans were current on repayment as of the pool cut-off date (30-April-2024) and had no instances of delinquency prior to securitisation.

 

Weakness:

• Potential effect of macroeconomic headwinds
  • The underlying borrowers’ cashflows could come under pressure due to a challenging macroeconomic environment. Headwinds such as increased fuel costs, a rising interest rate scenario, and moderation in demand on account of inflation may hamper the pool’s collection performance.

CRISIL Ratings has adequately factored these aspects in its rating analysis

Liquidity: Strong for Series A1 SNs and Series A2 SNs

Liquidity position is strong given that the credit enhancement (internal and external combined) in the structure is above 1.5 times the estimated base shortfalls on the residual pool cash flows.

Rating Sensitivity factors

Upward factors

• For Series A1 SNs: None.
• For Series A2 SNs: Credit enhancement (based on both internal and external credit enhancements) exceeding 1.7 times the estimated base case shortfalls.

 

Downward factors

• For Series A1 SNs: Credit enhancement (based on both internal and external credit enhancements) falling below 2.0 times the estimated base case shortfalls.
• For Series A2 SNs: Credit enhancement (based on both internal and external credit enhancements) falling below 1.5 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 used and new vehicle loans originated by IndoStar. As of the pool cut-off date (30-April-2024), the pool loans had a weighted average seasoning of 8.6 months, a weighted average interest rate of 18.3%, a weighted average LTV ratio of 74.3%, a weighted average original tenure of 41.3 months, and an average original loan amount of Rs 6.4 lakh. The top 3 states (Tamil Nadu, Madhya Pradesh and West Bengal) contributed 34.8% 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 has analysed static pool delinquency information on vehicle loans originated by IndoStar over the period Oct-2017 to Dec-2023 (with performance data till Mar-2024), in addition to write-offs and ARC sales from the vehicle loan portfolio. CRISIL has also analysed the performance of previously rated IndoStar-originated securitisation transactions, along with the collection efficiency and dynamic delinquency performance of IndoStar’s vehicle finance portfolio.   CRISIL Ratings has also factored in pool-specific characteristics, including seasoning, LTV levels, IRRs, and past track record of borrowers forming part of the pool. Based on these, CRISIL has estimated base case shortfalls in the pool at 6.0% - 8.0% of cash flows.   In addition, CRISIL Ratings has factored in the following:   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	IndoStar	CRISIL AA-/Negative/CRISIL A1+	No effect.
Servicer	IndoStar	CRISIL AA-/Negative/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	ICICI Bank Limited	CRISIL AAA/CRISIL AA+/Stable	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	ICICI Bank Limited	CRISIL AAA/CRISIL AA+/Stable	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	ITSL	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.

 

About the Originator

IndoStar, incorporated in July 2009, is registered with the Reserve Bank of India as a systemically important, non-deposit taking non-banking financial company. The company was founded and incorporated by private equity players (Everstone, Goldman Sachs, Baer Capital Partners, ACPI Investment managers, and CDIB International) with an initial capital of around Rs 900 crore. In May 2020, Brookfield invested Rs 1,225 crore and became the largest shareholder and co-promoter. As on date, Brookfield holds 56.20% stake, followed by the Everstone group) at 18.8%. Everstone Group have completed the sale of 14.21% of the total paid-up equity share capital of the Company through an Offer for Sale, to comply with the minimum public shareholding requirements as per SEBI. Pursuant to the same, Everstone Group’s holding stands at 18.8% and public shareholding in the company increased to 25% w.e.f. 05th May 2023.

 

IndoStar started business as a wholesale financier in fiscal 2011 and entered the SME finance (loans against property) segment in fiscal 2015. In fiscal 2018, the company started offering vehicle finance and housing finance (through wholly owned subsidiary, IndoStar Home Finance Pvt Ltd). In fiscal 2019, IndoStar acquired the CV finance business of IIFL Finance Ltd. The company plans to focus on used CV financing and affordable housing finance

Key Financial Indicators

For the period ended March 31 (consolidated)	Unit	2024	2023
Total assets	Rs crore	11,121	9,122
Total income (net of interest)	Rs crore	710	599
PAT	Rs crore	116	225
GS3 assets	%	4.1	6.8
Gearing	%	2.3	1.8
Return on average assets	%	1.1	2.4

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Performance of previously rated transactions

CRISIL Ratings has ratings outstanding on instruments issued under 5 securitisation transactions backed by IndoStar-originated loans. CRISIL Ratings is receiving monthly performance reports pertaining to these transactions. The cumulative collection efficiency in the underlying pools for transactions where payouts had commenced range from ~97% to ~99% as of Mar-2024 payouts, with 90+ delinquency below 2.5% 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)
INE0XIE15017	Series A1 SNs	04-Jun-2024	9.45% p.a.p.m.	16-Sep-2027	180.15	Highly complex	CRISIL AAA (SO)	18.77
INE0XIE15025	Series A2 SNs	04-Jun-2024	Variable (residual EIS)	16-Sep-2027	7.51	Highly complex	CRISIL A+ (SO)	18.77

#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 SNs only addresses the likelihood of principal repayment by the legal final maturity date, and not the payment of residual EIS amounts