Vivriti Alpha Debt Fund

(AMC: Vivriti Asset Management Private Limited)

CRISIL Ratings assigns credit opinion equivalent of ‘CRISIL AA+ (SO)' to capital protection available to Class A unit-holders in Vivriti Alpha Debt Fund

 

Rating Action

Rs.450.00 Crore* Vivriti Alpha Debt Fund - Class A

CRISIL AA+ (SO) Equivalent (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.

Note: Credit opinion represents the capital protection available to Class A unit-holders

*Indicates maximum possible commitment from Class A unit-holders without exercise of green shoe option (up to 90% of the target fund size of Rs. 500 crore). The actual size of Class A is yet to be finalised

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned credit opinion equivalent of ‘CRISIL AA+ (SO)' to capital protection available to Class A unit-holders in the above-mentioned scheme of Vivriti Vihaan Trust, a category II Alternative Investment Fund (AIF). Vivriti Asset Management Pvt Ltd (VAMPL) is the investment manager of the scheme. As informed by the investment manager, the scheme will also be addressed as ‘Vivriti Wealth Optimiser Fund’.

 

The credit opinion indicates the degree of certainty regarding repayment, by the scheme maturity[1], of the total capital contribution made to the scheme by Class A unit-holders and our analysis indicates that the capital protection available to Class A unit-holders is commensurate with credit quality of CRISIL AA+ (SO) rated instruments.

 

All distributions, gross of taxes, made to the Class A unit-holders till the final maturity1 of the scheme, i.e. the investment proceeds[2] and redemption proceeds[3] at or prior to the maturity of the scheme1 have been considered as capital repayment for the purpose of this evaluation. While the gross quarterly distributions are considered as capital repayment for this analysis, the same might not be treated similarly for tax computations and hence, the actual cash flows realised by the Class A unit-holders can be materially different depending on tax incidence. Further, the investors should note that any tax incidence has not been factored in our analysis. The rating/credit opinion is not a comment on either the scheme’s net asset value at the time of maturity or returns achievable by the Unit-holders.

 

On a quarterly basis, distribution proceeds from investments as reduced by fund expenses, management fees and reserves for expenses and liabilities shall be simultaneously allocated and distributed to Class A unit-holders and Class B unit-holders. Redemption distribution to Class B unit-holders are subordinated to Class A unit-holders and provide support to Class A unit-holders in case of principal shortfall.

 

CRISIL Ratings' evaluation of capital protection for Class A unit-holders in this scheme is based on CRISIL Ratings’ expectation of the credit quality of the underlying investments by the scheme, portfolio composition of the scheme in terms of maturity profile, yield and concentration, structural features and credit support available to Class A unit-holders. CRISIL Ratings will review the portfolio periodically to re-evaluate the capital protection available to Class A unit-holders.

[1] Cashflows received from the underlying investments by the scheme maturity considered in CRISIL Ratings’ analysis. Payouts to investors will happen as per timelines in line with the scheme terms.

[2] Proceeds from return on investment or capital gains, as reduced by amounts attributable to fund expenses and management fees

[3] Proceeds by way of principal repayments, capital repayments, pre-payments and redemption from the portfolio investments and temporary investments (including proceeds from sale of investments), as reduced by amounts attributable to fund expenses and management fees

Key Rating Drivers & Detailed Description

Strengths:

• Support available to Class A unit-holders
  • Redemption distributions to Class B unit-holders who will contribute a minimum of 10% of the paid up capital are subordinated to the redemption distributions to Class A unit-holders and provide support to the capital repayment of Class A unit-holders.
  • The underlying investments are expected to earn healthy yield during the term of the scheme providing additional support to the capital contribution of the Class A unit-holders.
• Credit quality of the investments
  • The scheme will invest only in entities rated A- or higher. Additionally, at least 40% of the investment will be in entities rated A or higher
• Liquidity mismatch

• The scheme will not invest in instruments maturing after maturity date of the scheme

 

Weaknesses:

• Concentration of investments
  • There is concentration risk in the structure with maximum exposure to any entity or group allowed at 10% and to any sector at 30% of the total invested amount
• Investment in Principal Protected Market Linked Debentures (PP-MLD)
  • The scheme is expected to have majority investments in PP-MLDs. The quarterly interest payouts to Class A unit-holders and Class B unit-holders might be limited as PP-MLDs are bullet instruments.
• Limited time for recovery

• The initial term of the fund is three and a half years from the date of the final closing. In case of any event which affects the performance of the investments, there will be limited time for recovery because of the short tenure of the scheme

Liquidity: Strong

The credit opinion indicates the degree of certainty regarding repayment, by the scheme maturity, of the total capital contribution made to the scheme by Class A unit-holders. Given that there is no defined repayment schedule for Series A unit-holders’ capital, the capital protection available to the unit-holders would not be materially impacted by temporary liquidity challenges. 

Rating Sensitivity factors

Upward factors:

• Substantially better than expected performance of the investments
• Substantially better than currently anticipated recovery post default from the underlying investments both in terms of time to recovery and amount recovered

 

Downward factors:

• Substantially worse than expected performance of the investments
• Substantially worse than currently anticipated recovery post default from the underlying investments both in terms of time to recovery and amount recovered
• Maximum exposure in any entity is more than 10% of the maximum contribution at any point in time
• Maximum exposure in any sector is more than 30% of the maximum contribution at any point in time

 

Rating Assumptions

To assess the total payouts to Class A unit-holders, CRISIL Ratings has factored in the following:

• CRISIL Ratings has assumed correlation of 0.1 – 0.4 for entities in the same industry
• Post default recovery rate of 0-30% has been considered for different industries

 

Based on the potential investment universe and assumptions based on correlation, post-default recovery and yields, multiple scenarios were considered for portfolio construction. Portfolio quality in each of the scenario was assessed using Monte Carlo simulations incorporating default probabilities, cash flows, correlations and recovery rate assumptions. With sufficiently large number of trials, portfolio shortfall distribution was generated under each scenario and these were evaluated to arrive at the final credit opinion.

 

Other key parameters factored

Scheme is allowed to invest in debt instruments and covered bonds or credit enhanced bonds. Investments by the fund will be sector agnostic and diversified.

• Minimum proportion of contribution by Class B unit-holders to be 10% of the total commitment called.
• Annual operating expenses not to exceed 0.10% p.a. (including GST) of total aggregate outstanding capital contributions.
• Annual management fees, for different classes and corresponding capital contribution, payable to the investment manager.
• All the investments made by scheme should be in instruments rated A- or higher
• Majority investments to be made in PP-MLD instruments
• Atleast 50% of the commitment should be deployed within 3 months of the final closing and the balance within 6 months of the final closing
• No investments in instruments with maturity later than the maturity date of the scheme.
• The scheme shall not have more than 10% investment in single entity or group
• The scheme shall not have more than 30% investment in any sector
• Minimum weighted average yield of 10.25% XIRR from the underlying investments for the tenure of the fund

 

Waterfall Mechanism

On a quarterly basis, the distribution proceeds (called investment proceeds) will be paid out in the following order of priority:

 

1. Operating expenses up to maximum of 0.10% p.a. (including GST) of the total aggregate outstanding capital contributions received by the scheme
2. Annual management fees, for different classes and corresponding capital contribution, payable to the investment manager
3. Simultaneous distribution (pari-passu) to Class A unit-holders and Class B unit-holders till the yield is paid to Class A unit-holders and Class B unit-holders based on their respective hurdle rate. The returns are calculated on a cumulative basis

 

Residual amount would be then simultaneously allocated and distributed at the end of the term of the fund in the following manner:

• 50% to Class A unit-holders in the proportion to their respective Outstanding Capital Contribution
• 50% to Class B unit-holders in the proportion to their respective Outstanding Capital Contribution

 

Redemption Proceeds will be paid out in the following order of priority

1. Operating expenses up to maximum of 0.10% p.a. (including GST) of the total aggregate outstanding capital contributions received by the scheme
2. Annual management fees, for different classes and corresponding capital contribution, payable to the investment manager.
3. Redemption of Capital Contribution made by Class A unit-holders, to the extent of Pro-rata share in the anticipated redemption amount (including overdue if any), on a cumulative basis
4. Redemption of Capital Contribution made by Class B unit-holders, to the extent of Pro-rata share in the anticipated redemption amount (including overdue if any), on a cumulative basis

 

About the AMC

Vivriti Asset Management Private Limited [wholly owned subsidiary of Vivriti Capital Private Limited (VCPL)], set up in February 2019, manages fixed income funds. The company has 35 employees across sales, fund management, credit, products, operations, legal, compliance, and other support functions.

 

Vivriti AMC currently runs four funds, as follows –

 

1. Samarth Bond Fund (SBF): Category-II closed-ended fund with 6 years tenor, providing debt to financial institutions that extend last-mile finance to individuals and small businesses. The fund declared its final close in Mar’21.
2. India Impact Bond Fund (IIF): Category-II closed-ended fund with 3 years tenor, investing in causes furthering UN Sustainable Development Goals (UN SDG)
3. Short Term Bond Fund (STBF): Category-II closed-ended fund with 3 years tenor, investing in debt of financial institutions to generate superior risk-adjusted return over prevailing short duration bond funds
4. Vivriti Emerging Corporate Bond (VECBF): Category -II closed-ended fund with 3.5 years tenor, investing in debt of high growth emerging companies, diversified across sectors. 

 

Vivriti Asset Management’s Investment Committee comprises of 2 Executive Directors and an Independent Member, and its Board is chaired by an Independent Director.

 

Key Financial Indicators

As on/for the period ended March 31 Unit 2021 2020 Total Assets Rs. Cr. 27.7 10.1 Total income Rs. Cr. 2.8 0.7 Profit after tax Rs. Cr. Negative Negative Gross NPA % NA NA Overall capital adequacy ratio  % NA NA Return on average assets % NA NA

 

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size^ (Rs.Cr)	Complexity Level	Rating Assigned
NA	Vivriti Alpha Debt Fund – Class A	28-Mar-2022$	NA	NA&	450	Highly complex	CRISIL AA+ (SO) Equivalent

 ^$Indicates the Initial Closing date for the fund. Investment manager is yet to hold Initial Closing.

^&Term of the fund shall be initial period of 3 (three) years and 6 (six) months from the date of the Final Closing. At the end of this Term, the term of the fund may be extended by 2 (two) additional 1 (one) year periods each, by the Investment Manager with the approval of two-third majority of the Contributors

^{^}Indicates maximum possible commitment from Class A unit-holders without exercise of green shoe option (up to 90% of the target fund size of Rs. 500 crore). The actual size of Class A is yet to be finalized