Fitch Assigns Expected Rating to Platinum Trust September 2016
INR3.0bn Series A notes due 19 March 2021: 'BBB-(EXP)sf'; Outlook Stable
KEY RATING DRIVERS
The rating and Outlook reflect adequate external credit enhancement (CE) of 10.0% of the initial principal balance, and CIFCL's origination practices, servicing experience and expertise in collection and recovery of commercial-vehicle and tractor loans in India. The transaction is supported by a sound legal and financial structure.
The rating addresses timely payment of interest and principal in accordance with the payout schedules in the transaction documents. The scheduled payouts will be net of tax deducted at source on the income distributed by the trust to the PTC holders. The final rating is contingent upon the receipt of final documents conforming to information already received.
The CE is proposed to be in the form of a first-loss credit facility (FLCF) and a second-loss credit facility (SLCF), if any. The FLCF will be in the form of fixed deposits with a bank rated 'BBB-/F3' by Fitch in the name of the originator with a lien marked in favour of the trustee. The SLCF may be either fixed deposits with a bank rated 'BBB-/F3' by Fitch in the name of the originator with a lien marked in favour of the trustee, or an unconditional and irrevocable guarantee provided by a bank rated 'BBB-/F3' by Fitch.
The CE is deemed sufficient to cover the servicer's commingling risks, payment-interruption risks and the liquidity for timely payment of the PTCs.
Fitch affirmed India's Long-Term Foreign - and Local-Currency Issuer Default Ratings at 'BBB-' in July 2016. Fitch expects India's real GDP growth to pick up to 7.7% in the financial year ending 31 March 2017 (FY17) and 7.9% in FY18.
Fitch has factored this macroeconomic outlook into its analysis and its base-case default-rate assumptions. The default rate, default timing, prepayment rate, recovery rate and time to recovery, together with the portfolio's weighted-average yield, were stressed in Fitch's cash flow model to assess the sufficiency of cash flow for timely payment at the current rating level.
No interest-rate or foreign-currency risks exist in the transaction, since both the assets and the PTCs are fixed-rate and are denominated in rupees.
At the cut-off date 31 August 2016, the total collateral pool consisted of a seasoned portfolio with loans from 19 Indian states. The collateral pool will be assigned to the trust at par. It had an aggregate outstanding principal balance of INR3.0bn and consisted of 6,928 loans to 6,620 obligors. The maximum obligor concentration was 0.21%. The collateral pool had a weighted average (WA) original loan-to-value ratio of 88.6%, a WA seasoning of 20.6 months and a WA yield of 13.7%. Loans in the securitised pool were mostly current, with no overdue loans. Fitch gave some credit to WA seasoning of the underlying loans.
EXPECTED RATING SENSITIVITIES
Based on Fitch's sensitivity analysis, Fitch may consider downgrading the rating on the transaction to 'BB+(EXP)sf' if the base-case default rate increases by 10%, or to 'BB+(EXP)sf' if the base-case recovery rate declines by 30%. The sensitivity analysis assumes that the CE and other factors remain constant.
The rating may be upgraded if the ratings of the credit collateral banks holding the FLCF and SLCF deposits and the guarantee bank providing the SLCF are upgraded to above 'BBB-' and the portfolio performance remains sound, with adequate CE that can withstand stress at above a 'BBB-sf' rating scenario.
At closing, CIFCL will assign commercial-vehicle and tractor loans to the issuer, which in turn will issue the PTCs. The PTC proceeds will be used to fund the purchase of the underlying loans.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.
Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.
Prior to transaction closing, Fitch conducted a review of a small targeted sample of CIFCL's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.
Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
The information below was used in the analysis:
- Loan-by-loan final pool data provided by CIFCL as at 31 August 2016.
- Transaction documentation provided by CIFCL as at 23 September 2016.
- 5-12 years of static monthly net default data of loans by CIFCL up to June 2016.
- 5-7 years of prepayment, recovery and roll-rate data of loans by CIFCL up to June 2016.
The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.