BEIJING, July 27, 2021-S&P Global (China) Ratings has assigned its preliminary AAAspc(sf) ratings to the Class A-1 and Class A-2 (Class A notes or Senior notes) to be issued by Zhonghai Trust Co., Ltd. (ZH TRUST) as trustee of the Gongyuanleju 2021-4 Residential Mortgage Backed Securities. The notes are backed by loans that were originated by Industrial and Commercial Bank of China (ICBC).
We assigned the preliminary ratings based on information as of July 19, 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 18.25% and 53.02% respectively under our AAAspc(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. Gongyuanleju 2021-4 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 3%.
Operational and Administrative Risk: The direct debit payment mechanism will reduce ICBC’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, borrower notification risk, priority notice registration risk, mortgage re-registration risk and other legal risks have been sufficiently mitigated by the arrangements stipulated in the transaction documents.
List of Preliminary Ratings:
A-1: AAAspc(sf)
A-2: AAAspc(sf)
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 2021 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:
Enjie Zhang, Beijing; enjie.zhang@spgchinaratings.cn
Jieqiong Du, Beijing; jieqiong.du@spgchinaratings.cn
Jiarong Li, Beijing; jiarong.li@spgchinaratings.cn
