Fitch assigns in-principle ratings of 'AA-(sri)' to HDFC Bank

Fitch Ratings Lanka has assigned an in-principle rating of AA-(sri) to the Pass Through Certificates (PTC) Series A (Rs 506.4 mn) to be issued by a Special Purpose Vehicle (SPV) called Home Loan Securitisation Trust 2005, under the residential mortgage backed securities (RMBS) programme of HDFC Bank Lanka.

AA-(sri) ratings indicate a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

At the onset of the transaction, a Special Purpose Vehicle (SPV), trust would be settled by Nithya Partners, for purchase of the receivables from the seller. After acquiring the receivables, the SPV will issue Pass Through Certificates (PTCs).

There will be two types of PTCs issued: Senior Series A PTCs, which are subscribed to by investors and Subordinate Series B PTC which is subscribed to by the Seller. A trustee, Deutsche Bank, shall be appointed by the trust to monitor the performance of the transaction, while the seller shall be appointed as the servicer for collection of the receivables and for managing the security interest on behalf of the Investors in the SPV.

The transaction involves the securitisation of a pool of 3,387 residential mortgage loans with aggregate outstanding principal balance on the cut off date of January 31 November 30, 2004 of Rs 722.2 mn. Structurally, the transaction has a par structure, wherein the pool principal outstanding corresponds to the PTC principal. The senior Series A PTCs would receive the scheduled principal during the first 108 months of the transaction, with the subordinate Series B PTCs receiving its entire principal thereafter.

All prepayments and proceeds from repossessed assets would be allocated to reduce the senior Series A PTC balance prior to being allocated to the subordinate Series B PTCs. The final credit enhancement for the series is in the form of a cash collateral amounted to 12.5% of the senior pool principal and the entire excess interest spread (EIS).

The transaction also incorporates a fast pay mechanism, whereby all excess spread would be used to accelerate repayment of the PTC A principal The expected ratings reflect the credit quality of the underlying assets, the origination and servicing capabilities of the HDFC Bank Lanka, the financial and legal structure of the issuance and the available credit enhancement in the form of cash collateral and the excess spread available to protect senior Series A investors.