OREANDA-NEWS. Fitch Ratings has assigned a final rating to Shri Trust J 2016's pass-through certificates (PTCs). The issuance consists of notes backed by commercial-vehicle and tractor loans originated by Sundaram Finance Ltd (SFL). The rating is as follows:

Shri Trust J 2016

INR4.0bn Series A PTCs due September 2020: 'BBB-sf'; Outlook Stable

The rating addresses 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.

KEY RATING DRIVERS

The rating and outlook reflect adequate external credit enhancement (CE) and SFL's origination practices, servicing experience and expertise in collection and recovery of commercial-vehicle loans in India. The transaction is supported by sound legal and financial structures.

For this transaction, the CE comprises a first-loss credit facility, which is in the form of fixed-deposits with Axis Bank Ltd. (BBB-/Stable/F3) in the name of the originator with a lien marked in favour of the trustee.

The CE is deemed sufficient to cover the commingling risks of the servicer and liquidity for the timely payment of the PTCs. As of June 2016, Shri Trust J 2016 had CE of 11.64% of the outstanding pool balance.

Fitch affirmed India's Long-Term Foreign - and Local-Currency Issuer Default Ratings at 'BBB-' in July 2016. 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 denominated in rupees.

The transaction comprises a seasoned portfolio, with loans from 16 Indian states. The collateral pool was assigned to the trust at par, and as of 31 January 2016, it had an aggregate outstanding principal balance of INR4.0bn and consisted of 4,982 loans to 4,488 obligors. The collateral pool had a weighted average (WA) original loan-to-value ratio of 81.4%, a WA seasoning of 11.3 months and a WA yield of 12.1%. As of the cut-off date, loans in the securitised pool were mostly current, with no loans more than 60 days past due. Fitch gave some credit to WA seasoning of 11.3 months of the underlying loans.

RATING SENSITIVITIES

Based on Fitch's sensitivity analysis, Fitch may consider downgrading the rating on the notes in Shri Trust J 2016 to 'BBsf' if the base-case default rate increases by 30%, or 'BB+sf" if the base-case recovery rate declines by 30%. The sensitivity analysis assumes CE and other factors remain constant.

The rating may be upgraded if the rating of the credit collateral bank holding the first-loss credit facility 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, SFL assigned commercial-vehicle and tractor loans to Shri Trust J 2016, which in turn issued the PTCs. The PTC proceeds were used to fund the purchase of the underlying loans in each transaction.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY

Fitch conducted a file review of 20 sample loan files focusing on the underwriting procedures conducted by SFL compared to SFL'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 conducted on the portfolio. The agreed-upon procedures reported no material errors that would impact Fitch's rating analysis.