Approximately INR9.7 billion of securities rated
Hong Kong, March 24, 2015 -- Moody's Investors Service has assigned definitive Baa3 (sf) ratings to
Sansar Trust March 2015, a domestic transaction backed by a static
pool of commercial vehicle loans originated by Shriram Transport Finance
Company Limited (STFCL, unrated) in India.
The complete rating action is as follows:
Issuer: Sansar Trust March 2015
.... INR 7,436,536,433 213
Series A1 PTCs, Baa3 (sf) Assigned
.... INR 2,308,482,207 213
Series A2 PTCs, Baa3 (sf) Assigned
213 Series A1 PTCs and 213 Series A2 PTCs (together, the notes)
are pari passu to each other.
The ratings address the expected loss posed to investors by the legal
final maturity. The structure allows for timely payment of interest
and repayment of principal of the rated notes by the legal maturity date.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
a significant impact on yield to investors.
RATINGS RATIONALE
This transaction is a securitization of a static pool of commercial vehicle
loans originated by STFCL in India. At closing, STFCL assigned
a pool of mostly pre-owned commercial vehicle loans, together
with its security interest over the underlying vehicles, to the
issuer.
The ratings on the notes will have some linkage to the credit quality
of the STFCL, because the issuer relies heavily on STFCL to continue
servicing the securitized pool -- with collections of loan
payments from borrowers in person across India -- to meet
its timely interest payments and scheduled principal amortization payments
to noteholders.
An operational disruption of STFCL would cause significant disruption
to the collection of loan payments by the trust and therefore affect payments
to noteholders.
Even though the issuer may appoint a successor servicer --
following certain servicer replacement events or default events --
the process of replacing the servicer is expected to be lengthy and costly,
with potential disputes with borrowers over loan payments.
When assigning the ratings, Moody's analysis focused,
among other factors, on (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;
(4) the probability of operational disruption upon originator default;
(5) the size of credit enhancement to support timely payments on the notes
against the risks 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 transaction's
following key strengths:
(1) The long and nationwide franchise, leading market position,
and experience of the originator in underwriting and servicing particularly
in the pre-owned commercial vehicle segment in India
(2) The high granularity of the pool with over 35,000 loans
(3) The favorable terms of the loans: equal monthly instalments
with loan-to-value ratios of less than 87% for used-vehicle
loans and less than 100% for new-vehicle loans
(4) The transaction has a static pool of loans. As a result,
the transaction is only exposed to the default risk of the loans in the
cut-off pool -- which have a weighted average tenor
of about 54 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 5% first-loss credit facility and the 6%
second-loss credit facility at closing; and (b) excess interest
collections from the pool -- after paying for the interest
on the notes in each period -- can be used to top up previously
drawn credit facilities to their original target amount
(6) The originator has a strong alignment of interest with noteholders:
According to minimum retention requirements from the Reserve Bank of India,
the originator has to retain 10% exposure in the deal.
Moody's has also considered the following key weaknesses in the transaction,
which lead to some linkage between the rating on the notes and the credit
quality of the originator:
(1) No back-up servicing arrangement was 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 over 35,000 obligors
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 of conducting the collection of loan payments from borrowers
in person should the originator default.
(2) Limited liquidity buffer: The trust can draw money from the
two credit facilities up to a total of 11% 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, as the full amount of the credit facilities may be used up
rapidly.
(3) Commingling risk with servicer's fund: The servicer will designate
staff for the collection of loan payments from borrowers every month,
and commingle such collections, mostly in cash or cheque,
with its own funds. Therefore, this amount will be subject
to commingling risk until the servicer transfers such collections to the
issuer's trust account on a day in the following month, which is
one business day prior to the notes' 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 to notify the borrowers
-- upon the activation of triggers -- that
their loans were assigned to the trust and that loan payments should be
paid to the trust. We have also incorporated two months of cash
commingling exposure in the transaction modeling.
MAIN MODEL ASSUMPTIONS
Moody's has assumed a mean loss rate of 4.5% and a coefficient
of variation of loss of 50.0% for the securitized pool.
These assumptions are made according to Moody's analysis of the characteristics
of such pools, their historical performance, and the current
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 January
2015. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
Factors that may cause an upgrade of the ratings include (1) reduced operational
and liquidity risks, including a significant improvement in the
credit profile of the servicer and an increase in the liquidity coverage
of the trust for a prolonged period of time; and (2) an improvement
in the securitized pool performance.
Factors that may cause a downgrade of the ratings include (1) increased
operational and liquidity risks, including a significant deterioration
in the credit profile of the servicer and the absence of mitigating actions
taken by the trustee; or (2) a deterioration of the securitized pool
performance.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range may indicate that the securitized pool's
credit quality is stronger or weaker than what Moody's had previously
anticipated.
STRESS SCENARIOS:
In rating auto loan ABS, default rate and coefficient of variation
of loss are two key inputs that determine the transaction cash flows in
the cash flow model. Parameter sensitivities for this transaction
have been tested in the following manner. Moody's tested nine scenarios
derived from a combination of mean loss rate and coefficient of variation
of loss: mean loss rate: 4.50% (base case),
4.80% (base case + 0.3%), and 5.1%
(base case + 0.6%), and coefficient of variation
of loss: 50% (base case), 55% (base case +
5%), and 60% (base case + 10%).
The model output would become Ba1 if (1) the mean loss rate assumption
becomes 5.1% (instead of the assumed 4.5%)
while keeping the coefficient of variation of loss assumption unchanged
at 50% or if (2) the mean loss rate assumption becomes 4.8%
(instead of the assumed based case 4.5%) and the coefficient
of variation of loss assumption becomes 60% (instead of the assumed
based case 50%).
Parameter sensitivities provide a quantitative/model indicated calculation
of the number of notches that a Moody's rated structured finance security
may vary if certain input parameters used in the initial rating process
differed. The analysis assumes that the transaction has not aged.
It is not intended to measure how the rating of the security might migrate
over time, but rather how the initial model output for the senior
notes might have differed if the two parameters within a given sector
that have the greatest impact were varied. Results are model outputs,
which are one of many inputs considered by rating committees, which
take quantitative and qualitative factors into account in determining
actual rating.
THE COMPANY
STFCL was established in India in 1979. It is a non-bank
financial corporates (NBFC) with a primary focus on financing pre-owned
commercial vehicles and has been registered as a deposit-taking
NBFC with the Reserve Bank of India since September 2000.
As of end-March 2014, STFCL had assets under management of
about INR538 billion (including about INR165 billion in loan assets securitized
and assigned) on an unconsolidated basis, 654 branches across India,
629 rural centers, and 18,122 employees.
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 did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments in this transaction.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF399244.
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 describes the stress scenarios it has considered for this
rating action in the section "Ratings Rationale" of this press
release.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Elaine Ng
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Jerome Cheng
Senior Vice President
Structured Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns first global ratings in securitisation to Shriram-sponsored auto loan ABS in India -- Sansar Trust March 2015
