RPT-Fitch Rates STFCL CV Trust Sep 2013 'BBB-sf'; Stable Outlook
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Jan 20 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned a final rating to STFCL CV Trust Sep 2013 a€™s pass-through certificates (PTC) as follows:
INR6,037.4m Series A PTC due April 2018: a€˜BBB-sfa€™; 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 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, STFCa€™s origination, servicing, collection and recovery expertise, as well as the sound legal and financial structure of the transaction.
The CE comprises a first loss credit facility (FLCF) and a second loss credit facility (SLCF). The FLCF is in the form of fixed deposits held with the Hongkong and Shanghai Banking Corporation Limited (HSBC, AA-/Stable/F1+) in the name of the originator with a lien marked in favour of the trustee, IDBI Trusteeship Services Limited. The SLCF is an unconditional and irrevocable guarantee provided by ICICI Bank Limited (BBB-/Stable/F3).
The credit enhancement is sufficient to cover the commingling risk of the servicer and the liquidity for the timely payment of the 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 portfolioa€™s weighted average yield, were stressed in Fitcha€™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 denominated in rupees.
Seasoned Portfolio with 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 WA 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 instalment.
The PTCsa€™ rating would be lowered to a€˜BB+sfa€™ 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 rating of the guarantee bank providing the SLCF is upgraded to above a€˜BBB-a€™ and the portfolio performance remains sound, with adequate CE that can withstand stress at above a a€˜BBB-sfa€™ rating scenario. STFC assigned commercial vehicles loans to STFCL CV Trust Sep 2013, which in turn issued the PTCs. The PTC proceeds were used to fund the purchase of the underlying loans.
Link to Fitch Ratings' Report: STFCL CV Trust Sep 2013 - Appendix