Fitch Assigns Expected Ratings to Indian Receivable Trust September 2016 - C
Indian Receivable Trust September 2016 - C
INR2.8bn Series A1 notes due March 2018: 'BBB-(EXP)sf'; Stable Outlook
INR1.7bn Series A2 notes due December 2020: 'BBB-(EXP)sf'; Stable Outlook
KEY RATING DRIVERS
The ratings and Outlook reflect adequate external credit enhancement (CE) of 14.5% of the initial principal balance as well as TMFL's origination practices, servicing experience and expertise in collection and recovery of commercial-vehicle 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 will be a combination 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 and a guarantee from a financial institution 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 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 (WA) yield, were stressed in Fitch's ABS 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 PTCs are fixed-rate and denominated in rupees.
The transaction comprises a seasoned portfolio, with loans from 28 Indian states. The collateral pool will be assigned to the trust at par; and as of the 31 August 2016 cut-off date, it had an aggregate scheduled outstanding principal balance of INR4.5bn as of 31 August 2016 and consisted of 4,786 loans to 4,039 obligors. The maximum obligor concentration is 1.17%. Typically, in applying Fitch's Global Consumer ABS Rating Criteria, the agency will expect the portfolio to consist of more than 10,000 obligors with one contract per obligor and the maximum obligor concentration is less than 0.05%. Fitch deems the characteristics of this portfolio as compatible with the Global Consumer ABS Criteria given that 93.5% are loans provided to individuals. The CE provided in the transaction adequately covers the loss from obligors that each account for more than 0.05% of the current principal outstanding. The collateral pool had a WA original loan/value ratio of 87.8%, a WA seasoning of 15.5 months and a WA yield of 13.7%. All loans in the securitised pool were current as of the cut-off date. Fitch gave some credit to WA seasoning of the underlying loans.
EXPECTED RATING SENSITIVITIES
Based on Fitch's sensitivity analysis, the agency may consider downgrading the rating on the transaction to 'BB(EXP)sf' if the base-case default rate increases by 30% or to 'BB+(EXP)sf" if the base-case recovery rate declines by 30%. The sensitivity analysis assumes the CE and other factors remain constant.
The rating may be upgraded if the ratings of the credit collateral banks holding the deposits and guarantee providers are upgraded to above 'BBB-' and the portfolio performance remains sound, with adequate CE that can withstand stress above a 'BBB-sf' rating scenario.
TMFL will assign commercial-vehicle loans to the issuer at closing, 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 conducted a review of 15 sample loan files focusing on the underwriting procedures conducted by TMFL compared with TMFL's credit policy at the time of underwriting. Fitch checked the consistency and plausibility of the information and no material discrepancies were noted that would affect Fitch's rating analysis.
Fitch reviewed the results of the agreed-upon procedures (AUP) conducted on the portfolio. The AUP reported no material errors that would affect Fitch's rating analysis.
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 data provided by TMFL as at 31 August 2016
- Transaction documentation provided by TMFL and Standard Chartered Bank as at 23 September 2016.
- Static pool data for over seven years up to March 2016
- Prepayment data for over six years up to August 2016
- Recovery data for nine years 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.