Industrial Development Bank Of India (IDBI)

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: These ratings are based on the underlying credit quality of the receivables emanating from L&T, NHPC and Iffco and the undertaking to be given by IDBI that it would compensate for any adverse impact on the underlying cash flows of the NHPC loan on account of a change in its medium-term lending rate (MTLR).

In addition, the ratings are based on the payment mechanism designed to ensure adequate liquidity comfort with regard to timely payment of the obligations on the PTC, the declaration of trust by IDBI, whereby it will hold the receivables in trust for the benefit of the PTC holders, as well as the strength of a set of warranties to be furnished by IDBI. This is the first collateralised loan obligation (CLO) programme undertaken by IDBI.

L&T and NHPC have an outstanding rating of ‘AA+’ from Crisil for their long-term debenture programmes while Iffco has an outstanding rating of ‘AA’ and IDBI has outstanding ratings of ‘AA+/ FAAA/ P1+’ for its debt instruments from Crisil.

The primary risk in the transaction for the Pool I, Pool II and Pool III PTCs is the risk of L&T, Iffco and NHPC respectively defaulting on the scheduled repayment obligations. In the specific instance of the NHPC loan, the interest rate applicable is the IDBI MTLR, which is variable. Nevertheless, IDBI has promised to make good any deficiencies arising on account of shortfalls in the loan receivables due to any change in its MTLR. Thus, the interest rate risk on the Series III PTCs is borne by IDBI.

The payment mechanism for the transaction envisages a lag-period of five business days for the PTC payouts vis-a-vis the underlying loan repayment dates. This, in Crisil’s opinion, is an adequate timeframe to factor in liquidity comfort to compensate for technical delays, if any, in the payment of the PTC obligations and to ensure that the latter are made in a timely manner.

The legal opinion to be furnished to Crisil would state that the declaration of trust on the underlying loan receivables by IDBI is legally enforceable, the legal structure of the transaction is insulated from the bankruptcy of IDBI and that the transaction complies with local laws.