Product Quantum (Rs. Cr) Long Term Rating Short Term Rating
Pass Through Certificates (PTCs) 8.62 Provisional | ACUITE BBB+ | SO | Assigned -
Total Outstanding 8.62 - -
 
Rating Rationale

A­cuité has assigned the long-term rating of ‘ACUITE PROVISIONAL BBB+(SO)’ (read as ACUITE Provisional Triple B Plus (Structured Obligation) to the Pass Through Certificates (PTCs) of Rs. 7.76 Cr. proposed to be issued by Polaris 03 2024 (Trust) under a securitisation transaction originated by VELICHAM FINANCE PRIVATE LIMITED (VFPL) (The Originator). The PTCs are backed by a pool of unsecured MSME loans with principal outstanding of Rs. 8.62 Cr.

The rating addresses the timely payment of interest and ultimate payment of principal on monthly payment dates in accordance with the transaction documentation. The transaction is structured at par.

The rating is based on the strength of cash flows from the selected pool of contracts; the credit enhancement is available in the form of
(i) Subordinated Equity tranche with investment by the originator of 2.50 percent of the pool principal;
(ii) Cash collateral of 7.50 percent of the pool principal; 
(iii) Over collateral of 7.50 percent of the pool principal; and
(iv) Excess Interest Spread of 12.56 percent of the pool principal.

The rating of the PTCs is provisional and shall be converted to final rating subject to the execution of the following documents:
1. Trust Deed
2. Deed of Assignment
3. Servicing Agreement
4. Legal Opinion
5. Final Term Sheet
6. Any other documents relevant to the transaction

About the Originator
­Chennai based Velicham Finance Private Limited (VFPL) is an NBFC engaged in extending loan against property (LAP) towards MSME borrowers and income generation loans. Velicham Finance Private Limited (VFPL) has its genesis with Bharathi Women Development Centre (BWDC), which was established in December 1987 as a Society by Mr. Nagarajan Muthukrishnan, who is the Managing Director of Velicham Finance Private Limited (VFPL). The company operates in Tamil Nadu, Puducherry and Kerala with a network of 28 branches as on March 31, 2023.
 
Assessment of the pool
­VFPL had Assets under management of Rs. 164.63 Cr. as on February 29, 2024. The current pool being securitised comprises 5.24 percent of the total AUM. The underlying pool in the current Pass Through Certificate (PTC) transaction comprises of unsecured MSME loans extended towards 631 borrowers, with an average ticket size of Rs. 1.81 lakhs, minimum ticket size of Rs. 0.75 lakhs and maximum of Rs. 5 lakhs, indicating moderate granularity. The current average outstanding per borrower stands at Rs. 1.37 lakhs. The weighted average original tenure for the pool is 25.16 months. The pool has weighted average seasoning of 7.21 months (minimum 4 months seasoning and maximum of 13 months seasoning). Hence, the pool is moderately seasoned. All the loans under the pool are current as on pool cut-off date. The pool’s geographical concentration is high. 100.00 percent of the borrowers are concentrated in Tamil Nadu. The top 10 borrowers of pool constitute 4.72 percent of the pool principal o/s.
 
Credit Enhancements (CE)
­The rating is based on the strength of cash flows from the selected pool of contracts; the credit enhancement is available in the form of
(i) Subordinated equity tranche with investment by the originator of 2.50 percent of the pool principal;
(ii) Over collateral of 7.50 percent of the pool principal;
(iii) Cash collateral of 7.50 percent of the pool principal; and
(iv) Excess Interest Spread of 12.56 percent of the pool principal.
 
Transaction Structure
­The rating addresses the timely payment of interest and ultimate payment of principal on monthly payment dates in accordance with the transaction documentation. The transaction is structured at par.
 
Legal Assessment
­The provisional rating is based on a draft term sheet. The conversion of rating from provisional to final, shall include, besides other documents, the legal opinion to the satisfaction of Acuité. The legal opinion shall cover, adherence to RBI guidelines, true sale, constitution of the trust, bankruptcy remoteness and other related aspects.
 
Key Risks

Counterparty Risks
­The pool has average ticket size of Rs. 1.81 lakhs, minimum ticket size of Rs. 0.75 lakhs and maximum of Rs. 5 lakhs. Considering the vulnerable credit profile of the borrowers, the risk of delinquencies/defaults are elevated. These risks of delinquencies are partly mitigated, considering the efficacy of the originator’s origination and monitoring procedures.
Concentration Risks
­The pool is concentrated, i.e. underlying assets in the pool are in nature of unsecured MSME loans extended towards 631 individual borrowers, hence the geographic concentration risk exists. However top 10 borrowers constitutes 4.72 percent of the pool principal O/s.
Servicing Risk
­Since this first initial PTC transaction for the originator. Also, the vintage of the originator in this portfolio is low. Therefore, the servicing risk for the transaction remains high.
Regulatory Risk
­­­­­­­In the event of a regulatory stipulation impacting the bankruptcy remoteness of the structure, the payouts to the PTC holders may be impacted.
Prepayment Risk
­­­­The pool is subject to prepayment risks since rate of interest is significantly high and borrowers may be inclined to shift to low cost options (based on availability). Further, the asset class being housing loans, the risk of prepayment remains high. In case of significant prepayments, the PTC holders will be exposed to interest rate risks, since the cash flows from prepayment will have to be deployed at lower interest rates.
Commingling Risk
­The transaction is subject to commingling risk since there is a time gap between last collection date and transfer to payout account.
Key Rating sensitivity
­­­If the stress factor for the transaction is increased by 5 percent, the rating of the transaction would not get impacted
 
All Covenants (Applicable only for CE & SO Ratings)
­The facilities comprising the pool shall be identified on the basis of the following criteria:
  • No facility comprising the pool is classified as a "non-performing asset" for the purposes of the directions and guidelines of the RBI.
  • Loans should not have been restructured or rescheduled;
  • Compliance with "know your customer" norms specified by the RBI
  • The pool should comply with the Minimum Holding Period requirements prescribed under the Securitisation Directions.
  • No facility comprising the pool is overdue as on the Pool Cut Off Date.
Servicer's events of default will, inter alia, include:
  • Failure to remit the collections;
  • Bankruptcy of the Servicer;
  • Failure of 2 successive discretionary audits testing the ability of the Servicer to meet the standards with respect to collection standards, management, governance, internal systems and processes, and data integrity, as may be required by the Trustee; and
  • Downgrade in the rating of the Originator/Servicer/ First Loss Credit Enhancer by 1 notch
  • Such other events as may be set out in the servicing agreement.
 
All Assumptions
­Acuité has arrived at a base case delinquency estimate basis its analysis of the company's historical delinquencies and further applied appropriate stress factors to the base loss figures to arrive at the final loss estimates. The loss estimate also consider the risk profile of the particular asset class, the borrower strata, economic risks, collection efficiency over the past several months as well as the credit quality of the originator. Acuité also has simulated the potential losses to an extent by applying sensitivity analysis.
 
Liquidity Position
Adequate
­The liquidity position in the transaction is adequate. The cash collateral available in the transaction amounts to 7.50 percent of the pool principal. The PTC payouts will also be supported by an internal credit enhancement in the form of subordinated equity tranche (2.50 percent of pool principal), over collateral (7.50 percent of pool principal and excess interest spread (12.56 percent of pool principal)
 
Outlook
­Not Applicable
 
Key Financials - Originator
­
Particulars Unit FY23
(Actual)		 FY22
(Actual)
Total Assets Rs.
Cr.		 67.95 35.08
Total Income* Rs.
Cr.		 10.83 4.81
PAT Rs.
Cr.		 2.47 1.01
Networth Rs.
Cr.		 13.80 9.07
R e t u r n       
on        
A v e r a g e   
Assets (RoAA)		 (%) 4.79 3.84
Return on Net Worth (RoNW) (%) 21.56 12.59
T  o  t   a  l    
Debt/Tangible
Net      Worth
(Gearing)		 Times 3.77 2.73
Gross NPA’s (%) 0.11 0.12
Net NPA’s (%) 0.05 0.03
* Total income equals to Net interest income plus other income
 
 
Any other information
­None
 
Status of disclosure of all relevant information about the Obligation being Rated
­Non Public
 

Supplementary disclosures for Provisional Ratings

Risks associated with the provisional nature of the credit rating
­­In case there are material changes in the terms of the transaction after the initial assignment of the provisional rating and post the completion of the issuance (corresponding to the part that has been issued) Acuité will withdraw the existing provisional rating and concurrently assign a fresh final rating in the same press release, basis the revised terms of the transaction.
Rating that would have been assigned in absence of the pending steps/ documentation
­In the absence of the pending steps/documents the PTC structure would have become null and void, and Acuité would not have assigned any rating
Timeline for conversion to Final Rating for a debt instrument proposed to be issued
­The provisional rating shall be converted into a final rating within 90 days from the date of issuance of the proposed debt instrument. Under no circumstance shall the provisional rating continue upon the expiry of 180 days from the date of issuance of the proposed debt instrument.
Note on complexity levels of the rated instrument
­­In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
 
Applicable Criteria
• Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm
• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm
• Securitized Transactions: https://www.acuite.in/view-rating-criteria-48.htm
• Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm
Rating History :
­Not Applicable
 
Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum
(Rs. Cr.)		 Complexity Level Rating
Not Applicable Not avl. / Not appl. Pass Through Certificate Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 8.62 Highly Complex Provisional | ACUITE BBB+ | SO | Assigned

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