Fitch Assigns Final Ratings to Shri Trust K 2016
OREANDA-NEWS. Fitch Ratings has assigned final ratings to Shri Trust K 2016's pass through certificates (PTCs). The issuance consists of notes backed by commercial-vehicle and tractor loans originated by Sundaram Finance Ltd (SFL). The ratings are as follows:
INR4.724bn Series A1 PTCs due March 2018: 'BBB-sf'; Outlook Stable
INR1.276bn Series A2 PTCs due August 2020: 'BBB-sf'; Outlook Stable
The split in notes from the expected rating issued on 28 January 2016 addresses the difference between Series A1 and A2. The ratings address timely payment of interest and principal in accordance with the payout schedules in the transaction documents. The scheduled payouts will be net of distribution taxes on the income distributed by the trust to the PTC holders.
KEY RATING DRIVERS
The ratings and outlooks reflect adequate external credit enhancement (CE) and SFL's origination practices, servicing experience and expertise in collection and recovery of commercial-vehicle loans in India. The transaction is supported by sound legal and financial structures.
For this transaction, the CE comprises a first-loss credit facility, which is in the form of fixed-deposits with Axis Bank Ltd. (BBB-/Stable/F3) in the name of the originator with a lien marked in favour of the trustee.
The CE is deemed sufficient to cover the commingling risks of the servicer and liquidity for the timely payment of the PTCs. As of March 2016, Shri Trust K 2016 had current CE of 10.78% of the outstanding pool balance.
Fitch affirmed India's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-' in December 2015. Fitch expects India's real GDP growth to pick up to 7.7% in the financial year ending 31 March 2016 (FY16) and 7.9% in FY17.
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 Global Consumer 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 the PTCs are fixed-rate and denominated in rupees.
The transaction comprises a seasoned portfolio, with loans from 16 Indian states. The collateral pool was assigned to the trust at par, and as of 31 December 2015, it had an aggregate outstanding principal balance of INR6.0bn and consisted of 10,120 loans to 9,656 obligors. The collateral pool had a weighted average (WA) original loan-to-value ratio of 78.1%, a WA seasoning of 10.6 months and a WA yield of 13.2%. As of the cut-off date, loans in the securitised pool were mostly current, with no loans more than 60 days past due. Fitch gave some credit to WA seasoning of 10.6 months of the underlying loans.
Based on Fitch's sensitivity analysis, Fitch may consider downgrading the note ratings in Shri Trust K 2016 to 'BBsf' if the base-case default rate increases by 30%, or 'BB+sf" if the base-case recovery rate declines by 30%. The sensitivity analysis assumes CE and other factors remain constant.
The note ratings may be upgraded if the rating of the credit collateral bank holding the first-loss credit facility deposits is 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, SFL assigned commercial-vehicle and tractor loans to Shri Trust K 2016, which in turn issued the PTCs. The PTC proceeds were used to fund the purchase of the underlying loans in each transaction.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by SFL compared to SFL's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.
Fitch reviewed the results of the agreed-upon procedures conducted on the portfolio. The agreed-upon procedures reported no material errors that would impact Fitch's rating analysis.