Fitch Affirms Six Indian ABS Transactions at ‘BBB-sf’; Removes RWN; Outlook Stable

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(The following statement was released by the rating agency) Fitch Ratings-Hong Kong-24 December 2020: Fitch Ratings has affirmed six Indian asset-backed securities (ABS) transactions at ‘BBB-sf’ and has removed the transactions from Rating Watch Negative (RWN), on which they had been placed since February 2020. The Outlook is Stable. The transactions are securitisations of Indian auto-loan receivables. The affirmation and Stale Outlook follow the completion of a restructuring process to address cash-collateral inaccessibility and payment interruption risk as well as the easing of macroeconomic stress and a probable improvement in the operational environment from the lows of the pandemic-related lockdown period. Sansar Trust Dec 2018 III —-A ; Long Term Rating; Affirmed; BBB-sf; Rating Outlook Stable Sansar Trust September 2018 II —-A ; Long Term Rating; Affirmed; BBB-sf; Rating Outlook Stable Sansar Trust Dec 2017 —-A ; Long Term Rating; Affirmed; BBB-sf; Rating Outlook Stable Sansar Trust Aug 2017 —-A ; Long Term Rating; Affirmed; BBB-sf; Rating Outlook Stable SANSAR TRUST FEB 2019 V —-A ; Long Term Rating; Affirmed; BBB-sf; Rating Outlook Stable Indian Receivable Trust Dec 18 A —-A ; Long Term Rating; Affirmed; BBB-sf; Rating Outlook Stable KEY RATING DRIVERS Completion of Restructuring Process: The transactions have completed restructuring to extend the final legal maturity and allow more time for loan collection and recovery. The transactions were rated on a timely interest and principal basis at closing and now have a timely interest and ultimate payment structure, which provides greater liquidity support. Cash collateral was also transferred to an account opened in the name of the trust to address inaccessibility risk should the originator default. The transactions were placed on RWN since February 2020 due to the significant macroeconomic stress caused by prolonged lockdowns to contain the coronavirus; the risk of tighter available liquidity and credit enhancement to protect noteholders should underlying borrowers be granted and accept payment holidays due to the pandemic; and the risk of cash collateral inaccessibility should the originator default. Recovery from Pandemic-Related Stress: The Stable Outlook is based on Fitch’s view that pandemic-related stress has fallen from the peak of the crisis, though some stress is likely to remain. The collection rate has improved since India eased its lockdown in May 2020, returning to near pre-crisis levels for most transactions. Fitch forecasts GDP growth to contract by 9.4% in the financial year ending March 2021 (FY21) (+1.1pp from our September forecast), but to recover by 11.0% in FY22 and 6.3% in FY23. The operational environment of the commercial-vehicle sector is likely to improve from the 2020 lows as economic activity gradually resumes, however, we still expect borrowers to face higher stresses in 2021 compared with the pre-pandemic period. Lower Obligor Default Risk: Fitch expects delinquencies to remain high through to 2H21. Net cumulative 90+ days past due (dpd) arrears of Indian auto-loan securitisations have been stable since the moratorium, but we expect these to rise by 1.25x-1.50x from our initial base-case assumptions in 2021, due to the lagged effect of macroeconomic stress. Fitch raised its base-case default-rate assumptions for all outstanding transactions as a percentage of outstanding pool balances by 1.75x-2.00x in June 2020, and these remain higher than what we assumed at closing. We treat 90+ dpd arrears as defaulted receivables in our analysis. We assume a recovery rate of 50% of the defaulted amount and a prepayment rate of 6% a year for each transaction. Our other base-case assumptions are as follows: We assume Indian Receivable Trust Dec18 A’s default rate at 7.50% of the outstanding 0-90 dpd loan balance, with a ‘BBB-sf’ rating-stress multiplier and ‘BBB-sf’ stress recovery haircut of 2.57x and 26.70%, respectively. Net cumulative 90+ dpd was 2.01% of the original note balance as of the November 2020 payout report. We assume Sansar Trust Aug 2017’s default rate at 4.31% of the outstanding 0-90 dpd loan balance, with a ‘BBB-sf’ rating-stress multiplier and ‘BBB-sf’ stress recovery haircut of 2.57x and 26.70%, respectively. Net cumulative 90+ dpd was 0.52% of the original note balance as of the November 2020 payout report. We assume Sansar Trust Dec 2017’s default rate at 4.68% of the outstanding 0-90 dpd loan balance, with a ‘BBB-sf’ rating-stress multiplier and ‘BBB-sf’ stress recovery haircut of 2.57x and 26.7%, respectively. Net cumulative 90+ dpd was 0.62% of the original note balance as of the November 2020 payout report. We assume SANSAR TRUST September 2018 II’s default rate at 5.89% of the outstanding 0-90 dpd loan balance, with a ‘BBB-sf’ rating-stress multiplier and ‘BBB-sf’ stress recovery haircut of 2.57x and 26.7%, respectively. Net cumulative 90+ dpd was 0.45% of the original note balance as of the November 2020 payout report. We assume Sansar Trust Dec 2018 III’s default rate at 7.05% of the outstanding 0-90 dpd loan balance, with a ‘BBB-sf’ rating-stress multiplier and ‘BBB-sf’ stress recovery haircut of 2.57x and 26.7%, respectively. Net cumulative 90+ dpd was 0.49% of the original note balance as of the December 2020 payout report. We assume SANSAR TRUST FEB 2019 V’s default rate at 6.83% of the outstanding 0-90 dpd loan balance, with a ‘BBB-sf’ rating-stress multiplier and ‘BBB-sf’ stress recovery haircut of 2.57x and 26.7%, respectively. Net cumulative 90+ dpd was 0.67% of the original note balance as of November 2020 payout report. Sufficient Cash Flow to Withstand Assumed Stress: We tested the transaction cash flow under our stress scenarios to assess its sufficiency for timely payment of interest and ultimate payment of principal at the ‘BBB-sf’ rating level. We subtracted commingling-risk exposure from the starting collateral balance of the underlying pools. Credit enhancement provides protection against tighter liquidity and credit losses. The transactions had higher model-implied ratings than the notes’ current ratings, which are capped at the ‘BBB-‘ rating trigger of the credit collateral banks holding the first- or second-loss credit facility. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: The ratings are capped at ‘BBB-sf’ due to the account-bank rating trigger of ‘BBB-‘, and hence are unlikely to be upgraded. Factors that could, individually or collectively, lead to negative rating action/downgrade: The ratings of Indian Receivable Trust Dec18 A, Sansar Trust Aug 2017 and Sansar Trust Dec 2017’s notes remain unchanged even if the base-case default rate increases by 50% and the recovery rate decreases by 50% simultaneously. The ratings of SANSAR TRUST September 2018 II’s notes may be downgraded to ‘BB+sf’ if the base-case default rate increases by 50% and the recovery rate decreases by 50% simultaneously. The ratings of Sansar Trust Dec 2018 III’s notes may be downgraded to BBsf’ if the base-case default rate increases by 50% and to ‘BB+sf’ if the base-case default rate increases by 25% and the recovery rate decreases by 25% simultaneously. The ratings may be downgraded to ‘BB-sf’ if the base-case default rate increases by 50% and the recovery rate decreases by 50% simultaneously. The ratings of SANSAR TRUST FEB 2019 V’s notes may be downgraded to BB+sf’ if the base-case default rate increases by 25% and to ‘BBsf’ if the base-case default rate increases by 50%. The ratings may be downgraded to ‘BB+sf’ if the base-case default rate increases by 25% and the recovery rate decreases by 25% simultaneously. The ratings may be downgraded to ‘B+sf’ if the base-case default rate increases by 50% and the recovery rate decreases by 50% simultaneously. The above sensitivity analysis assumes credit enhancement and other factors remain constant. Fitch acknowledges the uncertainty about the future path of coronavirus-related containment measures, and has therefore considered a more severe economic downturn scenario than currently contemplated in its base-case scenario. However, we consider the stress incorporated in our base-case default rate and rating sensitivities as sufficient buffer against the potential increase in defaults under the downside scenario. Therefore, we believe the rating sensitivities above capture the coronavirus downside risks sufficiently. Best/Worst Case Rating Scenario International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAAsf’ to ‘Dsf’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third-party assessment of the asset portfolio as part of its ongoing monitoring. Prior to the transactions closing, Fitch reviewed a small targeted sample of the origination files of Shriram Transport (NS:) Finance Company Limited and Tata Motors (NS:) Finance Limited and found the information contained in the reviewed files to be adequately consistent with the originators’ policies and practices and the other information provided to the agency about the asset portfolios. Overall, Fitch’s assessment of the information on the asset pools relied upon for the agency’s rating analysis, according to its applicable rating methodologies, indicates that it is adequately reliable. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/esg Contacts: Surveillance Rating Analyst Jason Chiu, Senior Analyst +852 2263 9959 Fitch (Hong Kong) Limited 19/F Man Yee Building 60-68 Des Voeux Road Central Hong Kong Committee Chairperson Atsushi Kuroda, Senior Director +81 3 3288 2692 Media Relations: Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: [email protected] Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: [email protected] Additional information is available on www.fitchratings.com Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). 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