24.08.2015, 14:22
Fitch Affirms 3 STFCL ABS PTCs at 'BBB-sf'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed three pass-through certificates (PTCs) from three Indian ABS transactions. These transactions are backed by commercial-vehicle loans originated by Shriram Transport Finance Company Limited (STFCL), which also acts as a servicer for the transactions.
The rating actions are as follows:
STFCL CV Trust Feb 2013
INR688.2m Series A PTCs due July 2017: affirmed at 'BBB-sf'; Outlook Stable
STFCL CV Trust Sep 2013
INR1.8bn Series A PTCs due April 2018: affirmed at 'BBB-sf'; Outlook Stable
STFCL CV Trust Jan 2014
INR1.7bn Series A PTCs due August 2018: affirmed at 'BBB-sf'; Outlook Stable
KEY RATING DRIVERS
The affirmations reflect satisfactory asset performance and sufficient credit enhancement (CE) for the rated notes. For each transaction, CE has increased steadily from the closing dates, driven by the pass-through, sequential amortisation structure of the notes. As of July 2015, the CE was 82.8%, 48.1%, and 36.1% of the outstanding pool balance of STFCL CV Trust Feb 2013, STFCL CV Trust Sep 2013, and STFCL CV Trust Jan 2014 respectively. The portfolios remain diversified by geography and vehicle type, while the high number of obligors in each transaction ensures sufficient granularity in the portfolios.
Delinquency levels have been declining. For STFCL CV Trust Feb 2013, loans overdue by 90+ days as a percentage of the initial pool balances (90+dpd) increased in late 2013 and 2014 due to economic stress in India, and peaked at 3.44% in November 2014, but subsequently declined in the period up to June 2015 as a result of economic recovery. For both STFCL CV Trust Sep 2013 and STFCL CV Trust Jan 2014, the 90+dpd levels peaked in December 2014, at 2.74% and 2.19% respectively, but have also declined in the period up to June 2015.
The CE for all three transactions comprises a first-loss credit facility (FLCF) and a second-loss credit facility (SLCF). For STFCL CV Trust Feb 2013, the FLCF and SLCF are both with Axis Bank Limited (Axis; BBB-/Stable/F3). For STFCL CV Trust Sep 2013 and STFCL CV Trust Jan 2014, the CE takes the form of FLCFs with Canara Bank (Canara; BBB-/Stable/F3) and IDBI Bank Ltd. (IDBI; BBB-/Stable/F3) and an SLCF with ICICI Bank Ltd. (ICICI; BBB-/Stable/F3). For all three transactions, the FLCF is in the form of a fixed deposit in the name of the originator with a lien marked in favour of the trustee, while the SLCF is either a fixed deposit or a bank guarantee.
The FLCF for each transaction has been drawn on occasion as excess spread has been insufficient to absorb shortfalls in certain periods. However, the SLCF has never been drawn by the transactions given the adequacy of FLCF in all periods. The CE is also deemed sufficient for covering commingling risks of the servicer and the liquidity needed for the timely payment of the PTCs.
Taking the revised data from India's Central Statistical Office as the new reference, Fitch forecasts India's GDP growth to accelerate to 8.1% in the financial year ending 31 March 2016 (FY16) and 8.0% in FY17. The government's broad-based structural reform agenda has brought dynamism back to the economy. Fitch expects the policy initiatives to bring the investment climate in India closer in line with that of its peers. However, the fiscal position remains weak, with a general budget deficit of 7.2% of GDP for the combined central and state governments, and gross general government debt of 64.7% of GDP.
RATING SENSITIVITIES
Based on Fitch's sensitivity analysis, Fitch may consider downgrading the ratings to 'BB+sf' if the base-case default rate increases by 2.2x for STFCL CV Trust Jan 2014, and by 3.1x for STFCL CV Trust Sep 2013. Sensitivity tests on base-case default rates did not impact the PTC rating of STFCL CV Trust Feb 2013, while sensitivity tests on base-case recovery rates did not impact the PTC ratings for all three transactions. The sensitivity analysis assumes that the CE and other factors remain constant.
The ratings of the PTCs could be upgraded if the ratings of the banks holding the fixed deposits and the banks providing guarantees are upgraded to above 'BBB-', and if the portfolio performance remains sound, with adequate CE that can withstand stresses at above the 'BBB-sf' rating scenario.
A comparison of the transactions' representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and links given under Related Research below.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
DATA ADEQUACY
Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by STFCL compared to STFCL'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.
The rating actions are as follows:
STFCL CV Trust Feb 2013
INR688.2m Series A PTCs due July 2017: affirmed at 'BBB-sf'; Outlook Stable
STFCL CV Trust Sep 2013
INR1.8bn Series A PTCs due April 2018: affirmed at 'BBB-sf'; Outlook Stable
STFCL CV Trust Jan 2014
INR1.7bn Series A PTCs due August 2018: affirmed at 'BBB-sf'; Outlook Stable
KEY RATING DRIVERS
The affirmations reflect satisfactory asset performance and sufficient credit enhancement (CE) for the rated notes. For each transaction, CE has increased steadily from the closing dates, driven by the pass-through, sequential amortisation structure of the notes. As of July 2015, the CE was 82.8%, 48.1%, and 36.1% of the outstanding pool balance of STFCL CV Trust Feb 2013, STFCL CV Trust Sep 2013, and STFCL CV Trust Jan 2014 respectively. The portfolios remain diversified by geography and vehicle type, while the high number of obligors in each transaction ensures sufficient granularity in the portfolios.
Delinquency levels have been declining. For STFCL CV Trust Feb 2013, loans overdue by 90+ days as a percentage of the initial pool balances (90+dpd) increased in late 2013 and 2014 due to economic stress in India, and peaked at 3.44% in November 2014, but subsequently declined in the period up to June 2015 as a result of economic recovery. For both STFCL CV Trust Sep 2013 and STFCL CV Trust Jan 2014, the 90+dpd levels peaked in December 2014, at 2.74% and 2.19% respectively, but have also declined in the period up to June 2015.
The CE for all three transactions comprises a first-loss credit facility (FLCF) and a second-loss credit facility (SLCF). For STFCL CV Trust Feb 2013, the FLCF and SLCF are both with Axis Bank Limited (Axis; BBB-/Stable/F3). For STFCL CV Trust Sep 2013 and STFCL CV Trust Jan 2014, the CE takes the form of FLCFs with Canara Bank (Canara; BBB-/Stable/F3) and IDBI Bank Ltd. (IDBI; BBB-/Stable/F3) and an SLCF with ICICI Bank Ltd. (ICICI; BBB-/Stable/F3). For all three transactions, the FLCF is in the form of a fixed deposit in the name of the originator with a lien marked in favour of the trustee, while the SLCF is either a fixed deposit or a bank guarantee.
The FLCF for each transaction has been drawn on occasion as excess spread has been insufficient to absorb shortfalls in certain periods. However, the SLCF has never been drawn by the transactions given the adequacy of FLCF in all periods. The CE is also deemed sufficient for covering commingling risks of the servicer and the liquidity needed for the timely payment of the PTCs.
Taking the revised data from India's Central Statistical Office as the new reference, Fitch forecasts India's GDP growth to accelerate to 8.1% in the financial year ending 31 March 2016 (FY16) and 8.0% in FY17. The government's broad-based structural reform agenda has brought dynamism back to the economy. Fitch expects the policy initiatives to bring the investment climate in India closer in line with that of its peers. However, the fiscal position remains weak, with a general budget deficit of 7.2% of GDP for the combined central and state governments, and gross general government debt of 64.7% of GDP.
RATING SENSITIVITIES
Based on Fitch's sensitivity analysis, Fitch may consider downgrading the ratings to 'BB+sf' if the base-case default rate increases by 2.2x for STFCL CV Trust Jan 2014, and by 3.1x for STFCL CV Trust Sep 2013. Sensitivity tests on base-case default rates did not impact the PTC rating of STFCL CV Trust Feb 2013, while sensitivity tests on base-case recovery rates did not impact the PTC ratings for all three transactions. The sensitivity analysis assumes that the CE and other factors remain constant.
The ratings of the PTCs could be upgraded if the ratings of the banks holding the fixed deposits and the banks providing guarantees are upgraded to above 'BBB-', and if the portfolio performance remains sound, with adequate CE that can withstand stresses at above the 'BBB-sf' rating scenario.
A comparison of the transactions' representations, warranties and enforcement mechanisms (RW&Es) to those of typical RW&Es for this asset class is available by accessing the reports and links given under Related Research below.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
DATA ADEQUACY
Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by STFCL compared to STFCL'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.
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