Fitch Ratings-Hong Kong-23 June 2016: Fitch Ratings has assigned expected ratings to pass-through certificates (PTCs) from Platinum Trust June 2016. The issuance consists of notes backed by commercial-vehicle loans originated by Cholamandalam Investment and Finance Company Limited (CIFCL), which also acts as the servicer for the transaction. The ratings are as follows:
INR2.175bn Series A1 PTCs due March 2018: 'BBB-(EXP)sf'; Outlook Stable
INR0.915bn Series A2 PTCs due September 2020: 'BBB-(EXP)sf'; Outlook Stable
The ratings address timely payment of interest and principal in accordance with the payout schedules in the transaction documents. The scheduled payouts will be net of distribution taxes on the income distributed by the trust to the PTC holders. The final ratings are contingent upon the receipt of final documents conforming to information already received.
Key rating drivers
The ratings and Outlook reflect adequate external credit enhancement (CE) of 10.0% of the initial principal balance, and CIFCL'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 comprises a first-loss credit facility (FLCF). The FLCF will be in the form of fixed deposits with a bank rated 'BBB-/F3' by Fitch in the name of the originator with a lien marked in favour of the trustee.
The CE is deemed sufficient to cover the servicer's commingling risks, payment-interruption risks, and the liquidity for timely payment of the PTCs.
Fitch affirmed India's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-' in December 2015. Fitch expects India's real GDP growth to pick up to 7.7% in the financial year ending 31 March 2017 (FY17) and 7.9% in FY18.
Fitch has factored this macroeconomic outlook into its analysis and its base-case default-rate assumptions. The default rate, default timing, prepayment rate, recovery rate and time to recovery, together with the portfolio's weighted-average yield, were stressed in Fitch's 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 loans from 18 Indian states. The collateral pool will be assigned to the trust at par; and as of 31 May 2016, it had an aggregate outstanding principal balance of INR3.09bn and consisted of 4,749 loans to 4,627 obligors. The collateral pool had a weighted average (WA) original loan-to-value ratio of 87.3%, a WA seasoning of 17.3 months and a WA yield of 14.6%. As of the cut-off date, loans in the securitised pool were mostly current, with no overdue loans. Fitch gave some credit to WA seasoning of 17.3 months of the underlying loans.
Expected rating sensitivities
Based on Fitch's sensitivity analysis, Fitch may consider downgrading the ratings on the transaction to 'BB(EXP)sf' if the base-case default rate increases by 30%, or to 'BB+(EXP)sf" if the base-case recovery rate declines by 30%. The sensitivity analysis assumes that the CE and other factors remain constant.
The ratings may be upgraded if the rating of the credit collateral bank holding the FLCF deposits is upgraded to above 'BBB-' and the portfolio performance remains sound, with adequate CE that can withstand stress at above a 'BBB-sf' rating scenario.
At closing, CIFCL will assign commercial-vehicle and tractor loans to the issuer, which in turn will issue the PTCs. The PTC proceeds will be used to fund the purchase of the underlying loans.
Due Diligence Usage
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by CIFCL compared to CIFCL's credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.
Fitch reviewed the results of the agreed-upon procedures (AUP) conducted on the portfolio. The AUP reported no material errors that would impact Fitch's rating analysis.
Included as an appendix to the report are a description of the representations, warranties, and enforcement mechanisms.
Tags: Fitch Ratings