BEIJING, November 16, 2022- S&P Global (China) Ratings has assigned its preliminary rating AAA_spc(sf) to Zhongyu 2022-3 Non-Performing Asset Backed Securities (Zhongyu 2022-3) Senior Notes to be issued by China Jingu International Trust Co., Ltd (Jingu Trust). The transaction was originated by Bank of China (BOC).

We assigned the preliminary ratings based on information as of November 4, 2022. 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 model, NPL management policy, collection ability and historical collection experience, static pool and related data performance, securitized asset features and actual recovery performance. We estimated the recovery rate for the portfolio to be 8.75% under our AAA_spc(sf) rating stress scenario.    

Payment Structure and Cash Flow Mechanics: Based on our cash flow analysis and stress testing, we expect senior notes to be able to pay principal and interest on time and in full under the current notes’ rating, transaction structure and related assumptions. Our analysis and stress scenarios for the transaction include various combinations such as recovery amount, recovery timing, interest rate and expenses. Under our most stressed scenario, the final S&P Global (China) Ratings CE buffer is 0%. 

Operational and Administrative Risk: The servicer BOC has rich experience in managing credit card NPL securitization products. We believe the bank’s IT infrastructure and operational model are capable of fulfilling the duties and responsibilities stipulated in the agreement. Although there is no back-up servicer on this transaction, the transaction will set aside a cash reserve to provide liquidity support. The transaction is exposed to collection agency due diligence risk, but 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, risks related to borrower notification, collateral re-registration, statute of limitation on recovering credit card debt, conflict of interest and other legal risk have been sufficiently mitigated by the arrangements stipulated in the transaction documents.   

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

Pressure and Challenges Ahead | China Mid-Year Credit Quality Trends 2022

FAQs on Banks’ Nonperforming Assets and Securitization

Media Contacts:

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

Analyst Contacts:

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

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

Kaiyan Li, Beijing;      kaye.li@spgchinaratings.cn