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Rating Action:

Moody's takes rating action on 10 PTCs issued by nine Sansar Trust ABS transactions

19 May 2020

Singapore, May 19, 2020 -- Moody's Investors Service (" Moody's "), has downgraded and maintained on review for downgrade the ratings of six Pass Through Certificates (PTCs); maintained on review for downgrade the ratings of two PTCs; and confirmed the ratings of two PTCs issued by nine Sansar Trust asset-backed securities (ABS) transactions. These transactions are sponsored and serviced by Shriram Transport Finance Company Limited (Shriram).

The rating downgrades are prompted by an increase in the transactions' operational risk given the deterioration in the credit quality of Shriram.

Today's rating action also concludes the review on all PTCs that were placed on review for downgrade on 24 December 2019 due to the risk of payment default upon the bankruptcy of the sponsor. Please refer to this rating action on 24 December 2019 for more information: https://www.moodys.com/research/Moodys-places-PTCs-from-four-Indian-ABS-sponsors-on-review--PR_415523

Moody's notes that nine of the 10 PTC ratings in today's rating action have been under review for downgrade since 1 April 2020 because of the increased risk of loan performance deterioration and reduced loan collections caused by the lockdown in India, and the payment moratorium for term loans announced by the Reserve Bank of India. Please refer to this rating action on 1 April 2020 for more information: https://www.moodys.com/research/Moodys-maintains-19-PTCs-under-review-for-downgrade-places-two--PR_421549.

Today's rating action also concludes the review for downgrade initiated in April 2020 for Series A3 PTCs issued by Sansar Trust March 2019.

On 17 May 2020, the Indian government announced that the lockdown will be extended to 31 May 2020. As the risk of loan performance deterioration persists due to the extension of lockdown and the payment moratorium, Moody's has maintained the remaining eight PTC ratings on review for downgrade. Moody's understands from Shriram that it is planning to amend the PTC payment schedule so that the temporary drop in loan collections will not cause an event of default under the terms of the PTCs. During the review period, Moody's will monitor the performance of the PTCs and the impact on the cash reserves in the transaction. Should a transaction restructuring take place, Moody's will evaluate the updated transaction structure.

Shriram is a non-bank financial institution in India. The transactions are backed by static pools of commercial vehicles and passenger vehicle loans.

The complete list of rating actions is as follows:

Issuer: Sansar Trust June 2017 II

....Series A Pass Through Certificates, Confirmed at Baa2 (sf); previously on Dec 24, 2019 Baa2 (sf) Placed Under Review for Possible Downgrade

Issuer: Sansar Trust December 2017 II

....Series A2 PTCs, Baa2 (sf) Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

Issuer: Sansar Trust Mar 2018

....Series A PTCs, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

Issuer: Sansar Trust June 2018 II

....Series A2 PTCs, Baa3 (sf) Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa3 (sf) Remained On Review for Possible Downgrade

Issuer: Sansar Trust September 2018 III

....Series A PTCs, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

Issuer: Sansar Trust Nov 2018 II

....Series A PTCs, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

Issuer: Sansar Trust March 2019

....Series A3 PTCs, Confirmed at Baa2 (sf); previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

....Series A4 PTCs, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

Issuer: Sansar Trust May 2019 II

....Series A PTCs, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Placed Under Review for Possible Downgrade

Issuer: Sansar Trust June 2019 IV

....Series A PTCs, Downgraded to Baa3 (sf) and Remains On Review for Possible Downgrade; previously on Apr 1, 2020 Baa2 (sf) Remained On Review for Possible Downgrade

RATINGS RATIONALE

The downgrade of six PTC ratings to Baa3 (sf) is prompted by an increase in the transactions' operational risk given the deterioration of Shriram's credit quality. The deterioration is driven by the rising stress on Shriram's assets and liabilities. A sharp contraction in India's economic activity will hurt borrowers' incomes, leading to higher loan delinquencies and defaults. Also, tight funding conditions will hurt Shriram's ability to raise new funding, leading to pressure on its liquidity.

Shriram is the sponsor and servicer of the Sansar Trust ABS transactions. The performance of these transactions is heavily dependent on the servicing of the underlying asset pools as servicing involves the collection of loan payments in person from borrowers, with payments predominantly made in cash. Therefore, any disruption to Shiram's servicing operations would adversely impact loan collections and therefore the transactions' performance. The deterioration in Shriram's credit profile increases the risk of servicer disruption arising from a potential default of Shriram.

The confirmation of the Baa2 (sf) rating on PTCs issued by Sansar Trust June 2017 II and Series A3 PTCs issued by Sansar Trust March 2019 takes into consideration the high level of credit enhancement available to these PTCs, which mitigates the increased operational risk and the exposure to a deterioration in the performance of the underlying asset pool due to the extended lockdown in India. PTCs issued by Sansar Trust June 2017 II have 82% credit enhancement that can cover over 12 months of principal and interest payments due on the PTCs, assuming no loan collections over the period. Series A3 PTCs issued by Sansar Trust March 2019 are fully covered by the cash collateral available in the transaction.

Moody's has maintained on review for downgrade the Baa2 (sf) rating on PTCs issued by Sansar Trust December 2017 II and the Baa3 (sf) rating on PTCs issued by Sansar Trust June 2018 II, given the ongoing risk of loan performance deterioration due to the extension of the lockdown. The PTCs issued by Sansar Trust December 2017 II have 37% credit enhancement that offsets the increased operational risk arising from Shriram's riskier credit profile. The Baa3 (sf) rating of PTCs issued by Sansar Trust June 2018 II is consistent with the higher operational risk.

Today's rating action also concludes review for downgrade initiated in December 2019. This is prompted by the change in the ownership of the cash collateral used as credit facilities, which provide credit enhancement and liquidity to the PTCs.

The cash collateral in each transaction has been moved to a bank account in the name of the securitization trust. The trustee will be able to draw on it in a timely manner when the securitization trust account is insufficiently funded to cover the required payments on the PTCs.

Prior to the change in cash collateral ownership, the bank accounts holding the cash collateral were in the name of the sponsor. Even though the cash collateral was held in trust for the benefit of the trustee and the lien over the bank account was in favor of the trustee, in the event of a bankruptcy of the sponsor, the ability of the trustee to draw on the cash collateral in a timely fashion could have been hindered by the administrator's verification process to ensure the cash collateral belongs to the transaction trustee.

Moody's analysis has considered the effect of the coronavirus outbreak on the Indian economy and the effects that the announced government measures, put in place to contain the virus, will have on the performance of the commercial vehicle loans.

The contraction in economic activity in the second quarter will be severe and the overall recovery in the second half of the year will be gradual. However, there are significant downside risks to Moody's forecasts in the event that the pandemic is not contained, and lockdowns have to be reinstated. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1225845. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that would lead to a downgrade of the ratings include a deterioration in the credit quality of the sponsor, a deterioration in loan portfolio performance, a substantial decrease in collections, and a substantial decrease in available credit enhancement.

Factors that would lead to an upgrade of the ratings include an improvement in the credit quality of the sponsor, an improvement in loan portfolio performance, and a significant build-up in credit enhancement available to the PTCs.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

Moody's either did not receive or take 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.

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. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rated entity has not informed Moody's whether the issuer is publicly disclosing all relevant information about the product.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Surbhi Khandelwal
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

Marie Lam
Associate Managing Director
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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