BEIJING, May 26, 2021-S&P Global (China) Ratings has assigned its preliminary AAA_spc(sf) ratings to the Class A1, Class A2 (Class A notes) and Class B notes (Class A and Class B notes as Senior notes) of Shanghe 2021 Phase I Green Retail Auto Loan Asset-backed Securities, to be originated by SAIC Finance. This issuance is SAIC Finance’s first ABS transaction where the asset pool is 100% NEV mortgage loans.

We assigned the preliminary rating based on information as of May 14, 2021. We expect to assign and publish our final rating when the trust becomes effective. 

The preliminary rating reflects our opinions according to the analysis of five pillars under S&P Ratings China--Structured Finance Methodology. 

Credit Quality of the Securitized Assets: We analyzed the originator's operational framework, risk management and track record, historical static and dynamic pool data, aggregated and securitized assets, and other qualitative and quantitative factors to derive our base-case assumptions which are further refined by forward-looking considerations. We have formed a base-case assumption of a default rate (1.10%) and recovery rate (5.00%). After applying the specific stress multiples and recovery haircut, the stressed default and recovery rate are 5.50% and 2.50% under our AAA_spc(sf) rating stress scenario.

Payment Structure and Cash Flow Mechanics: We model various combinations under default timing assumptions, prepayment rate assumptions, different triggers and payment structures, tax, fees and expenses assumptions. The Senior 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 of the Class A notes and Class B notes to be greater than 4% and 0% respectively.

Operational and Administrative Risk: The direct debit payment mechanism will reduce SAIC Finance’s operational risk to some extent. 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 legal structure of the special purpose trust (SPT) meets the principle of true sale and bankruptcy remoteness in securitization. Through our legal analysis, borrower notification, collateral re-registration and other legal risks have been mitigated by the arrangements stipulated in the transaction documents. 

List of Preliminary Ratings:  

Class A1:  AAA_spc(sf)  

Class A2:  AAA_spc(sf)  

Class B:  AAA_spc(sf)  

Subordinated:  Not rated

Methodology Applied:  

S&P Ratings China--Structured Finance Methodology    

Related Research:  

Commentary: Understanding Our Approach to China Consumer Asset-Backed Securities  
Turning a Corner: China Corporate Outlook 2021
The Journey Ahead: A Look At China’s Auto ABS Sector 2021 Edition 

Model Applied:  

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

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

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