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Rating Action:

Moody's assigns Baa3 (sf) to Series A PTCs issued by Platinum Trust December 2018, Cholamandalam-sponsored Auto Loan ABS in India

25 Jan 2019

Singapore, January 25, 2019 -- Moody's Investors Service has assigned a definitive Baa3 (sf) rating to the Series A pass-through certificates (PTCs) issued by Platinum Trust December 2018 (the Issuer).

The certificates are backed by a static pool of commercial vehicle (CV) and tractor loans originated by Cholamandalam Investment and Finance Company Limited (Cholamandalam) in India.

The complete rating action is as follows:

Issuer: Platinum Trust December 2018

.... INR6,176,666,888.00 Series A Pass-through Certificates, Baa3 (sf) Assigned

RATINGS RATIONALE

This transaction is a securitization of a static pool of CV (80.5% comprising small, light, heavy and multi-utility vehicles) and tractor loans (19.5%) originated by Cholamandalam in India.

At closing, Cholamandalam assigned a pool of these loans, together with its security interest over the underlying vehicles to the Issuer. The trust issued one series of PTCs, namely, Series A PTCs.

The pool is geographically diversified, because it is spread across 17 states and the top three states contribute 35.68% of the initial pool principal. The average loan ticket size is INR620,000 with a weighted-average loan-to-value of 81.9%. The pool has a weighted-average seasoning of 11.4 months, with a principal amortization of 23.7%.

The rating on the PTCs will exhibit some linkage to the credit quality of Cholamandalam, because the Issuer relies heavily on Cholamandalam to continue servicing the securitized pool to meet its interest payments and scheduled principal amortization payments to PTC-holders.

Cholamandalam's servicing involves the collection of loan payments — in person and in cash — from the borrowers, who are in turn located across India. Accordingly, any disruption to Cholamandalam's operations would significantly disrupt the collection of loan payments and would negatively impact the trust's own payments to PTC holders.

Even though the Issuer may appoint a successor servicer following certain servicer replacement events or default events, this process of replacement will likely prove lengthy and costly, with potential disputes with borrowers over loan payments.

In assigning the rating, Moody's analysis focused — among other factors — on the following:

(1) The characteristics of the securitized pool;

(2) The historical performance of similar types of loans originated by the originator;

(3) The credit quality of the originator/servicer;

(4) The probability of operational disruption upon originator default;

(5) The size of liquidity facilities and credit enhancement to support timely payments on the PTCs, against the risk of defaults and arrears in the securitized pool and/or the originator;

(6) The readiness of the trustee to carry out remedial actions to minimize commingling risk and potential set-off risk following a servicer replacement or default event;

(7) The macroeconomic environment; and

(8) The legal and structural integrity of the transaction.

Moody's considered, among other things, the following five key strengths of the transaction:

(1) The experience of the originator in underwriting and servicing the underlying loans in India.

(2) The high granularity of the pool with more than 13,000 loans.

(3) The favorable terms of the loans, with equal monthly instalments and a weighted-average seasoning of 11.4 months, with principal amortization of 23.7%.

(4) The transaction has a static pool of loans. As a result, it is only exposed to the default risk of the loans in the cut-off pool — which have a weighted-average remaining tenor of about 34.5 months — and to the operational risk of the servicer during the life of the portfolio.

(5) The transaction benefits from two main sources of credit enhancement: (a) the 3.0% first-loss credit facility in the form of fixed cash deposits and the 5.2% second-loss credit facility in the form of a bank guarantee at closing; and (b) excess interest collections from the pool — after payment of the interest on the notes in each period — which can be used to top up previously drawn credit facilities to their original target amount.

Moody's has also considered the transaction's three key weaknesses below, which, in some cases, could lead to linkage between the rating on the PTCs and the credit quality of the originator:

(1) A back-up servicing arrangement was not set up at closing. Servicing of the transaction may be subject to disruption if the originator/servicer fails to perform when needed. A servicing disruption would negatively impact collections because the transaction has more than 13,000 loans located in various parts of India, and there is a limited number of viable replacement servicers in India capable of covering such a geographic spread and conducting the collection of loan payments from borrowers in person and in cash, should the originator default.

(2) Commingling risk with the servicer's fund: The servicer will designate staff for the collection of loan payments from borrowers every month, and commingle such collections with its own funds. This amount will therefore be subject to commingling risk until the servicer transfers such collections to the issuer's trust account on a specified date in the following month, which is on the PTCs' monthly payment date. Moody's has considered in its analysis the credit quality of the servicer and the readiness of the trustee — or its designated agent — in notifying the borrowers that their loans were assigned to the trust and that loan payments should be paid to the trust. Moody's has also incorporated two months of cash commingling exposure in the transaction modeling.

(3) Limited liquidity buffer: The trust can draw money from two credit facilities up to a total of 7.5% of the initial portfolio amount when there is a shortage of funds to pay interest payments and scheduled principal amortization payments to noteholders. In a scenario where the servicer is not performing, and the trust is not able to receive any loan payments from the borrowers or the servicer for a prolonged period, this amount of initial liquidity coverage appears weak, because the full amount of the credit facilities may be used up rapidly to cover both interest and principal payments.

MAIN MODEL ASSUMPTIONS:

Moody's has assumed a mean loss rate of 4.30% and a coefficient of variation of loss of 61% for the securitized pool. These assumptions are made according to Moody's analysis of the characteristics of such pools, their historical performance, as well as Moody's view on India's social and macroeconomic environment and risks, as reflected in its long-term local currency country ceiling of A1.

RATINGS METHODOLOGY:

The principal methodology used in this rating was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Credit Rating for Platinum Trust December 2018 was assigned in accordance with Moody's existing methodology entitled "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS", dated 6 October 2016. Please note that on 14 November 2018, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for rating securitizations backed by auto loans and leases. If the revised Methodology is implemented as proposed, the Credit Rating on Platinum Trust December 2018 may be neutrally affected. Please refer to Moody's Request for Comment, titled "Proposed Update to Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS," for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

Factors that could lead to a rating upgrade include: (1) a significant increase in the level of credit enhancement that is sufficient to mitigate the expected significant increase in losses pertaining to loans requiring in-person collections, in a scenario where there is disruption in servicing, upon a default of Cholamandalam; (2) a reduction in the operational risk in the transaction arising from a further improvement in Moody's assessment of the credit profile of the servicer; and/or (3) an improvement in performance of the securitized pool compared to Moody's initial expectations.

Factors that could lead to a rating downgrade include: (1) an increase in the operational risk in the transaction arising from a deterioration in Moody's assessment of the credit profile of the servicer; and/or (2) a significant deterioration of the securitized pool performance beyond Moody's assumptions.

THE COMPANY:

Cholamandalam Investment and Finance Company Limited is a Tamil Nadu-based non-banking finance company, operating in the commercial vehicle finance segment and home equity loans. The company has a strong presence across India. At 30 September 2018, it operated 885 branches across 27 states/union territories — 879 vehicle finance branches and 177 home equity branches, with 171 constituting common branches — and assets under management totaling more than INR477 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Moody's took into account one or more third party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action and used the Due Diligence Assessment(s) in preparing the rating. This had a neutral impact on the rating.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dipanshu Rustagi
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Jerome Cheng
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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