RPT-Fitch rates STFCL CV Trust Sep 2013 'BBB-sf'(EXP)/stable
(Repeat for additional subscribers)
Sept 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned an expected rating to STFCL CV Trust Sep 2013's pass-through certificates (PTC) as follows:
INR6,037.4m Series A PTC due April 2018: 'BBB-sf(EXP)'; Stable Outlook The rating addresses timely payment of interest and principal in accordance with the payout schedule in the transaction document. The scheduled payout will be net of the distribution tax on the income distributed by the trust to the PTC holders. The final ratings are contingent upon the receipt of final documents conforming to information already received.
The transaction is a static securitisation of Indian rupee-denominated commercial vehicle loans originated by Shriram Transport Finance Company Limited (STFC), which is also the servicer.
Key Rating Drivers:
Adequate credit enhancement: The rating and outlook are based on credit enhancement (CE) of 14.8% of the initial principal balance, STFC's origination, servicing, collection and recovery expertise, as well as the sound legal and financial structure of the transaction.
The CE will comprise a first-loss credit facility (FLCF) and a second-loss credit facility (SLCF). The FLCF is expected to be in the form of fixed deposits - with a bank rated at 'BBB-' and 'F3' by Fitch - in the name of the originator with a lien marked in favour of the trustee. The SLCF is expected to be in the form of fixed deposits with a bank rated at 'BBB-' and 'F3' initially and subsequently the SLCF may be replaced by an unconditional and irrevocable guarantee provided by a bank rated at 'BBB-' and 'F3' by Fitch.
The credit enhancement is sufficient to cover the commingling risk of the servicer and the liquidity for the timely payment of PTCs.
Stressed economic conditions factored in: The 2012 vintage showed more delinquencies that were over 90 days past due compared with earlier vintages as a result of unfavorable economic conditions during 2012, which continued into 2013. The agency has considered the stressed economic conditions in India in its base case default rate assumption. The default rate, recovery rate and time to recovery, together with the portfolio's weighted average yield, were stressed in Fitch's APAC ABS cashflow model to assess the sufficiency of cashflow for timely payment at the current rating level.
No interest-rate or foreign-currency risks: The transaction is not exposed to interest-rate or foreign-currency risks because both the assets and the PTCs are fixed-rate and are denominated in rupees.
Seasoned portfolio with a moderate loan-to-value ratio: The collateral pool to be assigned to the trust at par had an aggregate outstanding principal balance of INR6,037m and consisted of 15,897 loans as of 31 August 2013. The collateral pool has a weighted average (WA) loan-to-value ratio of 67.8%, a WA seasoning of nine months and a weighted average yield of 15.4%. Used commercial vehicle loans accounted for about 90% of the pool with the rest being new commercial vehicle loans. Loans that were 1-30 days past due accounted for 3.1% of the pool, and 2.9% of the pool had overdue amounts valued at over 5% of the monthly installment.
The PTCs' rating would be lowered to BB+ if the base case default rate reaches 1.24x of the current rate, assuming that the CE and other factors remain constant.
The rating could be upgraded if the ratings of the credit collateral bank holding the FLCF 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, STFC will assign commercial vehicles loans to STFCL CV Trust Sep 2013, which in turn will issue the PTCs. The PTC proceeds will be used to fund the purchase of the underlying loans.
Link to Fitch Ratings' Report: STFCL CV Trust Sep 2013 - Appendix
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