BEIJING, July 10, 2023- S&P Global (China) Ratings has assigned its preliminary rating AAA_spc(sf) to Xingqing 2023-1 Consumer Loan Asset Backed Securities (Xingqing 2023-1) Class A-1 and Class A-2 (Class A notes), and assigned preliminary rating AA_spc(sf)+ to Class B notes (Class A notes and Class B notes as Senior notes). The notes will be issued by China Industrial International Trust (CIIT)，and the transaction was originated by Industrial Consumer Finance Co., Ltd.(ICFC).

We assigned the preliminary ratings based on information as of May 8, 2023. 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 (5.00%) and recovery rate (5.00%). After applying the specific stress multiple and recovery haircut, the stressed default and recovery rate are 27.50% and 0.00% under our AAA_spc(sf) rating stress scenario, and the stressed default and recovery rate are 24.75% and 0.00% under our AA_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 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 2%.   

Operational and Administrative Risk: The direct debit payment mechanism will reduce ICFC’s operational risk to some extent. Although there is no back-up servicer, the liquidity reserve account set aside to cover taxes, senior fees and senior notes’ interest payments of next period, once the originator no longer has required rating of S&P China Ratings, providing 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 and commingling 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 and other legal risks have been mitigated by the arrangements stipulated in the transaction documents. 

List of Ratings:

Class A-1: AAA_spc(sf)

Class A-2: AAA_spc(sf)

Class B: AA_spc(sf)+

Methodology Applied:

• S&P Ratings China--Structured Finance Methodology

Related Research:

• Commentary: Understanding Our Approach to China Consumer Asset-Backed Securities
• The Post-Covid Recovery | China Outlook 2023

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

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

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