Description

Modification of financial covenants for Aye Finance Ltd debt securities, relaxing PAR>90 ratio limits from 8% to 12% until March 2026, then 10% thereafter.

Summary

Aye Finance Ltd has modified financial covenants in its Debenture Trust Deed and Key Information Document. The PAR>90 ratio (Portfolio at Risk greater than 90 days plus write-offs to Gross Loan Portfolio) has been relaxed from the existing 8% threshold to 12% until March 31, 2026, and subsequently to 10% from April 1, 2026 onwards until final settlement.

Key Points

  • Modification applies to Clause 10.3(a)(iv) of Debenture Trust Deed and Section 6.2.2(a)(iv) of Key Information Document
  • Existing covenant: PAR>90 ratio not to exceed 8%
  • New covenant (Phase 1): PAR>90 ratio not to exceed 12% until March 31, 2026
  • New covenant (Phase 2): PAR>90 ratio not to exceed 10% from April 1, 2026 until Final Settlement Date
  • PAR>90 ratio = (PAR>90 + write-offs for trailing 12 months) / Gross Loan Portfolio × 100

Regulatory Changes

Amendment to financial covenants in debt security documentation, providing temporary relief followed by permanent but less stringent covenant levels compared to original terms.

Compliance Requirements

  • Aye Finance Ltd must maintain PAR>90 ratio below 12% until March 31, 2026
  • From April 1, 2026, the company must maintain PAR>90 ratio below 10%
  • Ratio calculation based on trailing 12-month PAR>90 and write-offs against Gross Loan Portfolio
  • Debenture holders and trustees should monitor compliance with modified covenants

Important Dates

  • Until March 31, 2026: PAR>90 ratio threshold of 12% applicable
  • From April 1, 2026: PAR>90 ratio threshold reduced to 10% (permanent)
  • Final Settlement Date: End date for covenant applicability

Impact Assessment

The covenant relaxation suggests Aye Finance Ltd may be experiencing higher delinquencies or write-offs than originally anticipated. The 50% increase in the threshold (from 8% to 12%) provides significant operational breathing room but may signal asset quality deterioration. Debenture holders face increased credit risk. The phased approach (12% then 10%) indicates expectation of improved portfolio quality over time, though still above the original 8% threshold. Investors should monitor the company’s actual PAR>90 performance and assess whether this reflects temporary stress or structural portfolio quality issues.

Impact Justification

Significant relaxation of financial covenant for debt securities holders, indicating potential credit quality concerns but provides operational flexibility to issuer