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May 19 (The following statement was released by the rating agency)
Fitch Ratings has affirmed four pass-through certificates (PTCs) from four Indian ABS transactions, namely Aeon Trust 2012, Aeon Trust II 2012, Aeon Trust 2013 and Shri Trust - B - 2013. These transactions are backed by commercial-vehicle loans originated by Sundaram Finance Limited (SFL), which also acts as a servicer for the transactions. The rating actions are listed at the end of this rating action commentary.
KEY RATING DRIVERS
The affirmations reflect satisfactory asset performance and sufficient credit enhancement (CE) for the rated notes. For each transaction, CE has increased from the closing date, driven by the steady amortisation of the static portfolios. As these pools amortised, most portfolio characteristics have not changed materially from when the transactions closed. The pools have become more diversified geographically as loans in previously concentrated states rapidly amortised. The weighted average seasoning has increased to levels above 30 months; loans have become increasingly concentrated in more recent vintages; and the proportion of loans for new commercial vehicles has increased to well above 90%.
Delinquency levels have been kept low by SFL's satisfactory origination standards and efficient servicing capabilities.
For all four transactions, the CE is in the form of a fixed deposit, and they have not been utilised since closing as excess spread has been sufficient to absorb charge-offs to date.
In 2014, delinquencies are generally expected to increase for Fitch-rated asset-backed securitisation (ABS) transactions in India. This is due to India's economic slowdown, which has been exacerbated by the recent depreciation of the Indian rupee, rising fuel prices, and political uncertainty. However, the impact from such stress on these four transactions is likely to be limited compared with other rated transactions given the relatively high weighted average seasoning and SFL's satisfactory origination and servicing standards. In addition, the notes can withstand stresses well above base-case levels, and CE is likely to build up rapidly due to the fast amortisation of the underlying portfolios. Together, they create sufficient buffers for the transactions against India's economic uncertainties.
Fitch considers a downgrade to be unlikely for all four transactions. For Aeon Trust 2012, given the current CE of 100%, a rating downgrade is considered unlikely.
For Aeon Trust II 2012, based on the current CE of 76.7%, an increase in the base-case default rate by 4.3x to 13.0%, while keeping other risk factors constant, may result in a one-notch downgrade of the PTCs to 'BB+sf'. For Aeon Trust 2013 and Shri Trust - B - 2013, based on the current CE of 28.6% and 29.2% respectively, an increase in the base-case default rate by 2.7x to 8.0%, while keeping other risk factors constant, may result in a one-notch downgrade of the PTCs to 'BB+sf'.
Initial key rating drivers and rating sensitivity are described further in the new issue reports for Aeon Trust 2012 dated 8 February 2012 and Aeon Trust II 2012 dated 10 April 2012.
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.
The full list of rating actions is as follows:
Aeon Trust 2012
INR149.7m Series A PTCs due February 2016: affirmed at 'BBB-sf'; Outlook Stable
Aeon Trust II 2012
INR146.6m Series A PTCs due August 2016: affirmed at 'BBB-sf'; Outlook Stable
Aeon Trust 2013
INR692.6m Series A2 PTCs due February 2017: affirmed at 'BBB-sf'; Outlook Stable Series A1 PTCs paid in full on 17 February 2014
Shri Trust - B - 2013
INR678.8m Series A PTCs due February 2017: affirmed at 'BBB-sf'; Outlook Stable