(Repeat for additional subscribers)
May 8 (The following statement was released by the rating agency)
Fitch Ratings has revised the Outlook to Negative from Stable for four pass-through certificates (PTCs) from three Indian asset-backed securitisation (ABS) transactions:
- Indian Receivable Trust January 2013 A (Jan 2013 A),
- Indian Receivable Trust January 2013 B (Jan 2013 B), and
- Indian Receivable Trust February 2013 A (Feb 2013 A).
The transactions are backed by commercial-vehicle loans originated by Tata Motors Finance Limited (TMF), which also acts as a servicer for the transactions.
The ratings on the four PTCs are affirmed at 'BBB-sf'. The Outlooks have been revised to Negative following the significant deterioration in loan performance, which has exceeded Fitch expectations at the time of initial ratings. The rating actions are listed at the end of this rating action commentary.
KEY RATING DRIVERS
The Negative Outlooks reflect the rapid increase of loans that are 90+days past due (dpd) in the three securitisation portfolios. As at end-March 2014, the proportion of 90+dpd loans were as follows:
Jan 2013 A: 9.80%,
Jan 2013 B: 9.57%, and
Feb 2013 A: 11.59%.
The 90+dpd levels of the underlying pools have been higher than in Fitch's base case default assumptions set at closing. Fitch will closely monitor the asset performance of the three portfolios on an ongoing basis. Fitch expects the rise in 90+dpd levels to continue over the next six months as higher petrol prices and a lack of matching movement in freight rates squeeze the margins of Indian commercial-vehicle operators.
20%-50% of the outstanding loan balances in all three portfolios are from obligors who are first-time commercial-vehicle users. This reflects TMF's business strategy of supporting the commercial-vehicle sales of its parent, Tata Motor Ltd (TM; BB/Stable). TMF is able to obtain subvention from TM for defaulted loans with loss cover, however this process takes up to 18 months and because the PTCs are rated higher than TM, Fitch does not take such payments into account for the purposes of the rating. Fitch believes this unique business model partly explains why the three TMF portfolios' asset quality deviates from other Fitch-rated transactions, which have 90+dpd levels of less than 6% at end-March 2014.
The Negative Outlooks also reflect the uncertainty of Indian economy. Fitch affirmed India's Long-Term Foreign and Local Currency Issuer Default Ratings at 'BBB-' in April 2014. The agency forecasts India's real GDP growth to rise from 4.7% in FY14 (financial year ending on 31 March 2014) to 5.5% in FY15 and 6.0% in FY16. However, there is uncertainty in the Indian economy due to current parliamentary elections. A policy push that includes structural and governance reforms, fiscal consolidation and efforts to rein in inflationary pressures would likely happen once the next coalition starts implementing its economic policies. The average diesel price in four major Indian cities has also continued to increase, with the price in March 2014 14.5% higher than in in April 2013.
The rating affirmations reflect continuous build-up of credit enhancement (CE) for the rated notes due to steady amortisation of the static portfolios.
In each 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 IDBI Bank Limited (BBB-/Stable/F3), in the name of the originator with a lien marked in favour of the trustee. The SLCF is in the form of an irrevocable and unconditional guarantee provided by Axis Bank Limited (BBB-/Stable/ F3).
The SLCFs of the three transactions have never been drawn. The FLCF of Jan 2013 B was drawn in December 2013 and March 2014. The utilized amount of the FLCF in December 2013 was replenished by transaction excess spread in the following month. The FLCF of Feb 2013 A was used once in November 2013 and was topped up by the transaction excess spread in the following two months. The FLCF of Jan 2013 A has never been drawn.
The portfolio of Jan 2013 A has amortised to 65% of its initial balance. This has raised the CE to 22.9% of the series A PTC balance in March 2014, from 14.9% at closing. The 90+dpd and 180+dpd as percentages of the initial pool balance were 9.8% and 3.27% respectively at end-March 2014.
The portfolio of Jan 2013 B has amortised to 63% of its initial balance. This has raised the CE to 22.6% of the series A2 and A3 PTC balance in March 2014, from 14.3% at closing. The 90+dpd and 180+dpd as percentages of the initial pool balance were 9.57% and 2.28% respectively at end-March 2014.
The portfolio of Feb 2013 A has amortised to 68% of its initial balance. This has raised the CE to 21.4% of the series A PTC balance in March 2014, from 14.6% at closing. The 90+dpd and 180+dpd as percentages of the initial pool balance were 11.59% and 4.0% respectively at end-March 2014.
The high delinquency rate is putting significant pressure on excess spread and should the portfolio continue to deteriorate, the first loss facilities may see losses. Potential rating movements will depend on the interaction between defaults, delinquencies and transaction pay down.
Fitch will consider downgrading the ratings of the four PTCs if the cumulative 90+dpd level of a particular portfolio increases to more than 15% of its initial balance, and other risk factors remain constant. In such a scenario, the FLCF and SLCF CE levels may not yet be reduced but Fitch will use projections to ensure rated notes have sufficient ongoing protection to justify their ratings. The Outlook may be return to Stable if defaults and delinquencies stabilise and begin to subside.
All PTC ratings may be upgraded if the ratings of India and the bank counterparties are upgraded.
The full list of rating actions is as follows:
Indian Receivable Trust January 2013 A
INR1,981.4m Series A PTC due February 2017 affirmed at 'BBB-sf'; Outlook revised to Negative from Stable
Indian Receivable Trust January 2013 B
INR823.3m Series A2 PTCs due March 2015 affirmed at 'BBB-sf'; Outlook revised to Negative from Stable
INR495.3m Series A3 PTCs due February 2017 affirmed at 'BBB-sf'; Outlook revised to Negative from Stable
Series A1 PTCs was paid in full in March 2014.
Indian Receivable Trust February 2013 A
INR2,040.5m Series A PTC due March 2017 affirmed at 'BBB-sf'; Outlook revised to Negative from Stable