BEIJING, October 29, 2021- S&P Global (China) Ratings has assigned its preliminary rating AAA_spc(sf) to Silver Arrow Benz Leasing 2021-2 Asset Backed Notes (SABL 2021-2 ABN) Senior Notes to be issued by China Foreign Economy and Trade Trust. The transaction was originated Mercedes-Benz Leasing Co. Ltd. (MBLC).

We assigned the preliminary ratings based on information as of October 26, 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 (1.40%) and recovery rate (15.00%). After applying the stress multiple, recovery haircut as well as extra stress for final installments, return of leased vehicles and residual value loss caused by returned vehicles, the WA loss rate is 16.49% 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 asset cash flows 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 equal to 0%.

Operational and Administrative Risk: The direct debit payment mechanism will reduce MBLC’s operational risk to some extent. Although there is no back-up servicer, the general reserve 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 etc. The transaction documents have incorporated various credit quality triggers to mitigate the abovementioned counterparty risk.

Legal and Regulatory Risk: We believe the legal structure of the special purpose trust (SPT) meets the principle of true sale and bankruptcy remoteness in securitization. This transaction is exposed to risk related to dispute over ownership and disposal of leased vehicles, as well as the originator’s bankruptcy risk. We believe the abovementioned risks have been mitigated by the existing arrangements stipulated in the transaction documents to some extent.

List of Preliminary Ratings:

Senior: 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:

Enjie Zhang, Beijing;    enjie.zhang@spgchinaratings.cn

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

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