― In our opinion, thanks to potential government support, the indicative issuer credit quality of the toll road issuers in our sample is generally strong, ranking at the forefront among corporate sectors.

― In our view the business risk profiles of toll road operators vary due to the differences in economic development of their catchment areas, the market share and irreplaceability of their network in the regions they cover, and the scale and efficiency of their own road networks.

― However, companies in this sector have similar financial risk profiles, most of which are at aggressive or highly leveraged levels, due to heavy capital investment, long payback periods and large ongoing capital expenditure. Notwithstanding that, their refinancing pressures are limited.

― We expect most of the provincial-level state-owned operators in the sample to receive a critical level of local government support, due to toll roads’ status as important transport infrastructure that can boost local economic development, and the generally limited number of toll road operators within a region.

S&P Global (China) Ratings has assigned its preliminary AAA_spc(sf) rating to the Senior Notes of the Jianxin 2020-7 Non-performing Asset Backed Securities transaction to be issued by China Construction Bank Trust Co., Ltd. (CCB Trust) and originated by China Construction Bank Corp (CCB).

We assigned the preliminary rating based on information as of November 17, 2020. We expect to assign and publish our final rating when the trust becomes effective.

Based on recovery data provided by CCB between July and October 2020, the actual recovery of the asset pool performed well. As of the end of October 2020, total recovered cash accounted for 80.1% of the senior notes to be issued.

 

The preliminary rating reflects our opinions according to the analysis of five pillars under S&P Ratings China--Structured Finance Methodology:

 

Credit Quality of the Securitized Assets: We analyzed the originator’s operation model, non-performing loan management policy, collection ability and historical experience, static pool and related data performance, securitized asset features and actual recovery performance. We estimated the recovery rate for the portfolio to be 13.65% under our AAA_spc(sf) rating stress scenario.

 

Payment Structure and Cash Flow Mechanics: Based on the 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 CCB has rich experience in managing NPL securitization products. We believe the bank’s IT infrastructure and operation 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. Besides, 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: We believe the special purpose trust’s legal structure meets the principle of true sale and bankruptcy remoteness in securitization. Through our legal analysis, risks related to borrower notification, 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 Notes: AAA_spc(sf)

 

Methodology Applied:

• S&P Ratings China--Structured Finance Methodology

 

Related Research:

• Commentary: Understanding Our Approach to China Consumer Asset-Backed Securities
• Commentary: Mega Banks – Strong Enough to Withstand COVID-19: 2020 Outlook for Chinese Mega Banks
• FAQs on Banks’ Nonperforming Assets and Securitization

 

Media Contacts:

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

 

Analyst Contacts:

Beibei Shi, CFA, Beijing; beibei.shi@spgchinaratings.cn

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

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