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March 28 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned a rating to STFCL CV Trust Jan 2014’s pass-through certificates (PTC) as follows:
INR4,196.8m Series A PTC due August 2018: ‘BBB-sf’; 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 document has specified that the variation in the scheduled payouts on account of deductions for the distribution tax shall not amount to any PTC event of default.
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:
The rating and outlook reflect adequate external credit enhancement (CE) of 14.8% of the initial principal balance, STFC’s origination practices, servicing experience, and expertise in collection and recovery of commercial-vehicle loans in India. The transaction is supported by a sound legal and financial structure. The CE comprised a first-loss credit facility (FLCF) and a second-loss credit facility (SLCF). The FLCF and SLCF are fixed deposits with Canara 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 may subsequently be replaced by an unconditional and irrevocable guarantee provided by a bank rated at least ‘BBB-’ and ‘F3’ by Fitch.
The credit enhancement is deemed sufficient to cover the commingling risks of the servicer and the liquidity for the timely payment of PTCs.
India’s economic situation has been factored into the analysis. The 2012 vintage showed more delinquencies at over 90 days past due than earlier and subsequent vintages. This was the result of unfavourable economic conditions during 2012. The agency has considered the heightened economic risks 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 cash flow model to assess the sufficiency of cash flow for timely payment at the current rating level.
No interest-rate or foreign-currency risks exist in the transaction, since both the assets and the PTCs are fixed-rate and are denominated in rupees. The transaction comprises a seasoned portfolio with a moderate loan-to-value ratio, compared with past securitisations of the originator. The collateral pool was assigned to the trust at par, and as of 31 January 2014 had an aggregate outstanding principal balance of INR4,196.8m and consisted of 10,273 loans to 9,997 obligors. The collateral pool had a weighted average (WA) loan-to-value ratio of 66.7%, a WA seasoning of 8.8 months and a weighted average yield of 15.7%. Used commercial-vehicle loans accounted for about 97% of the pool with the rest being new commercial-vehicle loans. Loans in the securitised pool were all current, and were diversified with the largest obligor by outstanding loan representing 0.05% of the total pool. The pool also features some degree of diversification by asset type, with loans for heavy-utility vehicles (HUV) representing the most concentrated type at 40.1% of the pool. Light commercial-utility vehicles (LUV), small utility-vehicles (SUV), and equipment vehicles accounted for 27.6%, 6.1%, and 26.2% respectively of the total pool.
Based on Fitch’s sensitivity analysis, the base-case default rate would need to increase by at least 23% from the current rate, or the base-case recovery rate to decline by at least by 37%, before a rating downgrade to BB+ would be considered. The sensitivity analysis assumes 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 under a rating scenario of above ‘BBB-sf’.
STFC has assigned commercial vehicles loans to STFCL CV Trust Jan 2014, which in turn issued the PTCs. The PTC proceeds were used to fund the purchase of the underlying loans.
An appendix to the press release, describing the representations, warranties, and enforcement mechanisms, has been published today.