Senior Series Pass Through Certificates (PTCs) issued by VE Trust 8 (with UTI Bank Limited as the trustee) have received CRISIL's provisional rating of 'AAA(so)' (Triple A structured obligation). The rating will become valid 90 days after the required documentation is submitted to CRISIL. The 'AAA(so)' rating indicates the highest degree of certainty regarding timely payment of financial obligations on the instruments. These PTCs are backed by receivables from utility vehicle and car loan contracts originated by Mahindra and Mahindra Financial Services Ltd (Mahindra Finance).

This is the first instance where put options have been offered to a set of PTC holders by an independent third party, in a retail asset securitisation transaction. The Series A PTCs have a series of six-monthly put options provided by IDBI, which enhances their liquidity and marketability. They also have a floating rate of interest linked to NSE MIBOR. A 'prepayment absorbing' fixed rate PTC, Series P, has been designed to absorb the prepayments in the pool. The structure envisages an embedded interest rate swap for converting fixed rate cash flows into floating rate cash flows. The floating rate and fixed rate PTCs are pari-passu, and together comprise the Senior PTCs. Series A PTC holders derive the triple benefits of prepayment protection, a floating rate of interest and high levels of liquidity.

The ratings assigned to the PTCs are based on:

• The strength of the cash flows from the pool.
  
• Mahindra Finance's origination and servicing capabilities.
  
• The payment mechanism designed to ensure full and timely payment.
  
• The credit enhancement stipulated for the senior PTCs.
  
• The legal opinion — to be furnished to CRISIL — regarding the true sale of receivables to the trust, and bankruptcy remoteness of receivables from Mahindra Finance.

The pool consists of 6,464 loan contracts with receivables aggregating to Rs1,418.50 million. The pool is selected from Mahindra Finance's utility vehicle and car portfolio and consists of current contracts or contracts overdue for less than one month on the cut-off date. The pool has a favourable seasoning profile (minimum four months and average 10 months). It is geographically well diversified.

During the last two-and-a-half years, CRISIL has rated seven securitisation transactions originated by Mahindra Finance. Most of the pools have exhibited a fair collection performance and moderate utilisation of credit enhancements, highlighting Mahindra Finance's adequate servicing capabilities.

Mahindra Finance is engaged in retail financing of utility vehicles and tractors manufactured by Mahindra & Mahindra Ltd (M&M). The company has financed cars since FY03, by leveraging its 251-branch distribution network. Mahindra Finance is one of the larger asset financing companies in India with average funds deployed of Rs18.65 billion as on March 31, 2004. It has outstanding ratings of 'AA+', 'FAA+' and 'P1+' on its various debt obligations from CRISIL. The company reported a net profit (PAT) of Rs676.2 million for FY04 (Rs443.5 million).