BEIJING, March 18, 2021-S&P Global (China) Ratings has assigned its preliminary AAA_spc(sf) ratings to the Class A-1, Class A-2, Class A-3 and Class A-4 notes (senior notes) to be issued by Huaneng Guicheng Trust Co., Ltd.(Huaneng Guicheng Trust) as trustee of the Zhaoyin Hejia 2021-1 Residential Mortgage Backed Securities. The notes are backed by loans that were originated by China Merchants Bank Corp. (CMB).

We assigned the preliminary ratings based on information as of March 9, 2021. We expect to assign and publish our final ratings when the trust becomes effective.

The preliminary ratings reflect our analysis of five pillars under S&P Ratings China--Structured Finance Methodology.

Credit Quality of the Securitized Assets: We analyzed the credit quality of the securitized pool based on each characteristic and attribute of every single loan in the pool compared with the archetype assumption at a pool, loan, or borrower level. We also consider the originator's operational framework, track record, and practices. We estimated the WA foreclosure frequency and loss severity for the portfolio to be 14.43% and 55.13% respectively under our AAA_spc(sf) rating stress scenario.

Payment Structure and Cash Flow Mechanics: Our cash flow analysis and stress testing combine both qualitative and quantitative assessments of the transaction, as well as other factors that may affect the cash flow. We model various combinations under default timing assumptions, prepayment rate assumptions, interest rate assumptions, different triggers and payment structures, stressed tax, fees and expenses assumptions. Zhaoyin Hejia 2021-1 Class A notes are expected to be able to withstand stresses commensurate with the ratings assigned to the notes, and still meet payment obligations in a timely manner. We estimated the final S&P Global (China) Ratings CE buffer to be greater than 7%.

Operational and Administrative Risk: The transaction’s direct debit payment mechanism will reduce CMB’s servicing workload. We believe the participants in this transaction are capable of fulfilling the duties and responsibilities stipulated in the agreement given their experience and past track record.

Counterparty Risk: Our assessment of counterparty risk takes into account payment interruption risk, account bank risk, commingling risk and set off risk etc. The transaction documents have incorporated various credit quality triggers to mitigate the abovementioned counterparty risk.

Legal and Regulatory Risk: This transaction is structured in accordance with China's Trust Law and China Asset Securitization scheme. We believe the SPT’s legal structure meets the principle of true sale and bankruptcy remoteness in securitization. Through our legal analysis, the borrower notification, advance registration notice, mortgage re-registration and other legal risks have been sufficiently mitigated by the arrangements stipulated in the transaction documents.

List of Preliminary Ratings:

A-1: AAA_spc(sf)

A-2: AAA_spc(sf)

A-3: AAA_spc(sf)

A-4: AAA_spc(sf)

Subordinated: Not rated

Methodology Applied:

S&P Ratings China--Structured Finance Methodology

Related Research:

Commentary: Understanding Our Approach to China Residential Mortgage-Backed Securities
Credit Quality Divergence of Domestic Banks Balanced by Government Support Amid COVID-19 | A Study on Credit Quality Differentiation of Domestic Banks in China
The Journey Ahead: A Look At China’s RMBS Sector (First Edition)

Models Applied:

SPG China Ratings RMBS Credit Model
SPG China Ratings Structured Finance Cash Flow Engine

Media Contacts:

Sharon Tang, Beijing, (86)10-6569-2988; sharon.tang@spgchinaratings.cn

Analyst Contacts:

Beibei Shi, CFA, Beijing; beibei.shi@spgchinaratings.cn

Jiarong Li, Beijing; jiarong.li@spgchinaratings.cn

Jieqiong Du, Beijing; jieqiong.du@spgchinaratings.cn