BEIJING, July 29, 2021- S&P Global (China) Ratings has assigned its preliminary rating AAA_spc(sf) to the Toyota Glory 2021 Phase II Retail Auto Loan Credit Asset-backed Securities (Toyota Glory 2021-2) Class A notes to be issued by China Foreign Economy and Trade Trust Co. The notes are backed by auto loans that were originated by Toyota Motor Finance (China) Company Limited (TMF).

We assigned the preliminary ratings based on information as of July 16, 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 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 of 1.10% and recovery rate of 15.00%. After applying the specific stress multiple and recovery haircut, the stressed default and recovery rates are 5.50% and 7.50% respectively under our AAA_spc(sf) rating stress scenario.

Payent 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 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 4%.

Operational and Administrative Risk: The transaction’s direct debit payment mechanism will reduce TMF’s operational risk to some extent. Although there is no back-up servicer, the liquidity reserve account can provide liquidity support to the transaction. 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, the 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 A: AAA_spc(sf)

Methodology Applied:

S&P Ratings China--Structured Finance Methodology

Related Research:

Commentary: Understanding Our Approach to China Consumer Asset-Backed Securities

The Road to Recovery: China Corporate Mid-Year Outlook 2021

The Journey Ahead: A Look At China’s Auto ABS Sector 2021 Edition

Models 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, Beijing;     beibei.shi@spgchinaratings.cn

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

Siyue Zhu, Beijing; april.zhu@spgchinaratings.cn