Singapore, June 05, 2017 -- Moody's Investors Service has today upgraded the ratings assigned
to 13 outstanding auto ABS transactions backed by static pools of commercial
vehicle loans originated by Shriram Transport Finance Company Limited
(STFCL, unrated) in India (Baa3 positive). The ratings assigned
to pass-through certificates (PTCs) of ten auto ABS transactions
have been upgraded to Baa2 (sf) from Baa3 (sf) and, of three auto
ABS transactions, to Baa1 (sf) from Baa3 (sf).
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF453563
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Moody's upgrade of all outstanding auto ABS transactions originated
by STFCL was prompted by a lowering of the operational risk assessment
related to these transactions and, specific to three transactions
which have been upgraded to Baa1 (sf), due to a significant increase
in the available credit enhancement benefiting the PTCs and the good performance
observed in the three transactions relative to Moody's assumptions.
Moody's assessment of lower operational risk in all outstanding
auto ABS transactions originated by STFCL centered on Moody's assessment
of the improved credit profile of STFCL. The performance of Indian
auto ABS transactions depends on the ongoing servicing of securitized
loan portfolios by the originator. In particular, STFCL's
servicing of the portfolios backing these transactions involves the collection
of loan payments in person from borrowers who are located across India,
with repayments predominantly made in cash for a significant proportion
of these portfolios. Accordingly, any disruption to STFCL's
servicing operations would adversely impact the collection of loan payments
and, in turn, would negatively impact the trust's own payments
to PTC investors. The improved credit profile assessment of STFCL
directly reduces the likelihood -- and thus the risk --
of servicer disruption arising from a potential default of STFCL.
As a result, the ratings on PTCs of ten outstanding auto ABS transactions
have been upgraded to Baa2 (sf) from Baa3 (sf).
In addition to the improved assessment of STFCL's credit profile,
Moody's has upgraded to Baa1 (sf) from Baa3 (sf) the ratings assigned
to PTCs of Sansar Trust March 2015, Sansar Trust March 2015 II and
Sansar Trust Sep 2015 due to the significant increase in credit enhancement
available following the pay down of the PTCs. As of the May 2017
payout, the level of credit enhancement supporting the PTCs increased
to 61.5%, 63.2% and 35.3%,
respectively, of the outstanding pool balance. This level
of credit enhancement supports the upgrade of the ratings to Baa1 (sf),
because there is sufficient mitigation to the expected significant increase
in losses on loans requiring in-person collections in a scenario
where a default of STFCL leads to a disruption in the servicing of loans.
In addition, the increase in credit enhancement provided by the
credit facilities in the three transactions has improved liquidity support
from approximately three months' coverage of scheduled principal
and interest due on the PTCs at closing of the transactions to between
five and eight months' coverage of scheduled principal and interest
after the most recent payout. The increase in liquidity coverage
further mitigates the payment disruption risk arising from a scenario
where there is disruption in servicing upon STFCL's default.
Finally, Moody's has observed that the portfolios backing
the three transactions have continued to exhibit low rates of delinquency
above 90+ days, even during the period immediately following
the demonetization by the Indian government of certain high-denomination
currency notes in November 2016. As of the May 2017 payout,
the 91-180 day and 180+ day delinquency rates as a percentage
of the outstanding pool balances of the three deals stood at 3.3%
and 2.8%, respectively. The good performance
of the portfolios backing these transactions relative to Moody's
assumptions further supports the upgrade of the ratings on these three
transactions to Baa1 (sf).
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors that may lead to a ratings upgrade of the ten transactions upgraded
to Baa2 (sf) today 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
STFCL; (2) a further reduction in the operational risk in the transactions
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 may lead to a ratings downgrade of all 13 transactions include
(1) an increase in the operational risk in the transactions 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.
RATING METHODOLOGY
The principal methodology used in these ratings 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.
Please note that on 22 March 2017, Moody's released a Request for
Comment, in which it has requested market feedback on potential
revisions to its Approach to Assessing Counterparty Risks in Structured
Finance. If the revised Methodology is implemented as proposed,
the ratings on these auto ABS transactions are not expected to be affected.
Please refer to Moody's Request for Comment, titled "Moody's Proposes
Revisions to Its Approach to Assessing Counterparty Risks in Structured
Finance," for further details regarding the implications of the
proposed Methodology revisions on certain Credit Ratings.
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 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 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.
Vincent Tordo
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
