Brief description:

Asset securitization refers to using the cash flow generated by the underlying assets in the future as repayment support, carrying out credit enhancement through structured design, and issuance on this basis The process of asset-backed securities (ABS). To put it simply, any assets with sustained and stable future cash flow can be packaged and used for financing. There are the following types of asset securitization, supervised by different regulatory agencies:

Auto loan securitization is a typical type of asset securitization. I will mainly introduce this business.

Auto loan ABS continues to explode in 2017. It is expected that the total issuance of auto loan ABS throughout the year will exceed 100 billion yuan, accounting for nearly 20% of the total issuance of inter-bank credit asset securitization products. Next, I will analyze in detail how automobile companies securitize automobile mortgage loan assets!

1. The principles of auto finance and auto asset securitization

Auto mortgage loan securitization (hereinafter referred to as "auto loan ABS") refers to the auto loan that is legally owned by the originator. Its mortgage rights and ancillary security interests are used as the basic assets, and the cash flow generated is used as the basis for repayment. Through transaction structure settings and credit enhancement measures, they are transformed into securities that can be sold and circulated in the financial market. The originator will screen a portfolio of auto loans suitable for securitization based on a series of criteria (such as the borrower's age, credit history, vehicle type, etc.). From the perspective of product regulatory agencies, since the sponsors are all financial institutions, auto loan securitization products are all securitization products under the supervision of the China Banking Regulatory Commission, using special purpose trusts as SPVs.

Auto finance companies usually issue auto loans in three steps: personal loan application, loan application approval, and loan application acceptance.

(1) After the customer first confirms his intention to purchase and loan a certain car model, he fills out the loan application form and submits relevant documents.

(2) The company’s loan review team will review the loan application (telephone interviews, home visits, etc.) and issue review opinions.

(3) After the approval authority approves the loan application, the dealer will work with the customer to handle the relevant vehicle procedures and sign a financial contract to complete the loan.

2. Motives for automobile companies to securitize assets of automobile finance companies

Automobile companies have narrow financing channels, single source of funds, and relatively high capital costs, which are the main motivations for issuing ABS. , in addition, the securitization and sale of auto loans can also play a good role in bankruptcy isolation.

According to the relevant provisions of my country's current "Administrative Measures for Auto Finance Companies", domestic auto finance companies mainly raise funds through the following methods: (1) Absorbing deposits from domestic shareholders with a term of more than 3 months ; (2) Transfer and sale of car loan business; (3) Loans and inter-bank lending from banks. From the first perspective, since the cash flow of shareholders such as auto finance companies is often insufficient, low-cost, long-term financial support from shareholder units is relatively limited. Bank loans are currently the main financing method for domestic auto finance companies, but loan interest rates are often high and the interest spreads are relatively limited, making the profit margins of auto finance companies smaller. Therefore, auto loan securitization is helpful for auto finance companies to break financing bottlenecks.

Many auto finance companies are Sino-foreign joint ventures or wholly foreign-owned enterprises. In foreign countries, asset securitization is the main financing channel for auto finance companies. Moreover, due to the impact of capital adequacy ratio, auto finance companies also use asset securities. Motives for converting business out of the table.

3. Auto Loan Asset Securitization Issuance

In 2008, Shanghai General Motors issued my country’s first auto loan asset-backed securities—Tongyuan 2008 First Phase Personal Auto Mortgage The issuance scale of loan asset-backed securities is 1.993 billion yuan.

In 2012, SAIC-GM Financial launched Tongyuan's first phase of personal auto mortgage loan asset-backed securities in 2012, with an issuance scale of nearly 2 billion yuan. During this period, the issuance of auto loan ABS was not active. It was not until 2014 that major auto finance companies began to launch auto loan ABS, and the scale of auto loan ABS continued to expand. The total issuance of auto loan ABS in 2014 was 7.796 billion yuan. In 2015, the total issuance of auto loan ABS further increased to 33.745 billion yuan, an increase of nearly 2.9 times. The total issuance of auto loan ABS in 2016 was 58.719 billion yuan, an increase of 174% compared with the same period last year.

In the first half of 2017, the total issuance of auto loan ABS was 48.861 billion yuan, an increase of 16.922% from 28.874 billion yuan in the same period of 2016, and continued to maintain rapid growth. It is estimated that the total issuance of auto loan ABS in 2017 is expected to exceed 100 billion yuan, accounting for nearly 20% of the total issuance of inter-bank credit asset securitization products.

4. Analysis of basic assets of auto loan ABS

Auto loans have the characteristics of small single amount, high interest rate, mortgage, and moderate term, which are more suitable for securitization. The specific performance of assets is as follows:

1. The single amount of basic assets is small and the number of transactions is large. Since the borrowers of auto loans are mainly individual consumers, the single amount is small and the number of loans is large. Judging from the issued auto loan securitization products, the number of underlying assets is about 10,000-50,000, so the default of a single loan has a small impact on the entire underlying asset pool.

2. The regional distribution of basic assets is relatively wide, but the industry concentration is high. Auto loan borrowers are generally distributed across the country, with a high degree of regional dispersion. Auto loan contracts are highly standardized and homogeneous. Auto loans are based on automobile consumption and are greatly affected by the automobile industry and sales prices. In particular, automobile products are updated rapidly and the depreciation rate of automobiles is relatively high. high.

3. The underlying assets include mortgages. Although the security of the foundation is guaranteed to a certain extent, there are certain operational and legal risks in practice. Due to the large number of underlying assets, most auto loan securitization products do not undergo mortgage transfer and change registration. Instead, the securities originator is registered as the nominal mortgagee in the government registration department. Therefore, there is an inability to fight against bona fide third parties. risk.

4. The underlying asset income is high and the term is moderate. Car loans are consumer loans and are used for automobile consumption. The loan interest rate is relatively high, generally around 5-15, and the term is generally around 3 years.

5. The cash flow of underlying assets is greatly affected by the prepayment rate and default rate of automobile loans.

5. Analysis of transaction structure of auto loan ABS products

Compared with the structure of general credit asset securitization, the transaction structure of auto loan securitization is not special. Its structure is as follows:

1. Credit enhancement measures

Setting of priority/subordinate structure

Hierarchical structure is an important measure for credit enhancement of ABS products. Auto loan ABS Products also tend to undergo internal enhancements through a priority hierarchy.

Credit enhancement measures can be divided into internal and external. External credit enhancement measures are supported by guarantees provided by external third parties or the original equity holders themselves, or balance replenishment clauses; internal credit enhancement measures include liquidity reserve accounts, hierarchical structural arrangements, and higher priority based on product structure designs. Securities provide credit support. In addition, overcollateralization means that fewer securities are issued than assets, which is more common in car loan products. Products issued by banks are not overcollateralized.

Over-collateralization first appeared because the yield rate of the entire asset pool was very low. It was not that the loans it issued were so low, but that when many dealers marketed customers for car loans, they used manufacturer interest discounts to enable car buyers to get a lot of money. The low car purchase interest rate means that the loan itself is a very low or even zero-interest loan. When entering the pool, the weighted average income of the entire pooled assets will be very low. The more direct method is to directly enter the pool according to the contract interest rate, but there will be contract issues. The weighted average asset interest rate is lower than the income plus cost of the issuance. If an inversion occurs, what should we do? The product can be supported by an extra piece of assets, and all excess assets will be used to support interest payments on senior securities. Its calculation will determine the current total issuance cost required for each asset.

For example, if the priority income is 5.5, plus the intermediary structure fee, it is about 6. If the interest rate of this asset in the pool is 7, there is no problem, but if it is 4, then each period is calculated as 4 The cash flow is discounted according to 6. The difference between the discounted amount and the original amount is the amount of over-collateralization. After converting each asset in this way, the difference in the asset package is added up to become the total amount of over-collateralization. This is It is a calculation method for static over-collateralization. There is a phenomenon of static over-collateralization. During the duration of the project, because the over-collateralization ratio has not changed much and the domestic asset package default rate is very low, theoretically over-collateralization will absorb the losses caused by default earlier, but the losses are too low. It can be ignored. The proportion of over-collateralization will continue to increase with the amortization of priority during this period, providing greater support for senior securities. This has also caused many mid-range car loan products to track their ratings after one year. There is often a jump in time, because on the one hand, the priority ratio is reduced, and on the other hand, the subprime plus over-collateralization increases the support for the bottom layer. Therefore, the intermediate level of car loan products is very valuable for investment.

Excess interest spread

Due to the high interest rates of car loans, some can reach levels above 10, deducting the average issuance cost and interest rate of 4-5, it can form a higher Excess spread. Therefore, excess interest spread has become a more important credit enhancement measure in auto loan ABS.

Over-collateralization

Over-collateralization refers to the balance of the asset pool exceeding the principal amount of the asset-backed securities. The recovery money generated from the excess loan assets will be used to make up for the loan default. losses and insufficient interest collection due to low-interest loans.

Setting of reserve accounts

Auto loan ABS products generally enhance the protection of principal and income payments of asset-backed securities by setting up liquidity reserve accounts and commingled reserve accounts.

Trigger mechanism arrangements

The transaction structure of auto loan ABS will include some trigger arrangements. Once the loan servicer (automobile company) is reduced to a certain rate by any rating agency Or when accelerated repayment events, default events, etc. occur, the trigger mechanism will be activated.

Because inter-bank products are not supported by external credit, once the product is issued, all investors’ income comes from the asset pool itself. What needs to be done in product design is to protect priority investors to the greatest extent. . All auto loan ABS product triggering events can be classified into several categories:

1. Deterioration of assets. When collections deteriorate, we will agree that, for example, if the cumulative default rate exceeds 1.5, the distribution order will be changed to the order of accelerated repayment. In this case, there will no longer be a distinction between A1 and A2, pass-through and amortization, and repayment will be proportional in the same order. allocation to protect the highest priority investors to the greatest extent. If a default event is triggered, follow the procedures for a default event.

2. Changes in the credit of the institution, including problems with the loan service institution (automobile company), problems with the fund custody institution, or problems with the trustee, this situation will trigger new mechanisms accordingly. If the loan service institution (automobile company) fails, it will be a big problem because all the assets are managed by it and there is no professional institution in the country to take over. Then you can only find a successor loan service institution. On the other hand, it will start to accelerate the repayment and protect it to the greatest extent. Priority investors.

The trustee's dismissal directly triggers a default event. After the default, a new trustee can be found, but the order of distribution follows the order after the default event. All principles are to change the interests of priority investors to the greatest extent. This is the triggering event arrangement. logic.

2. Cash flow distribution

In general auto loan ABS products, the order of cash flow distribution is: (1) Replenish the cash reserve account; (2) Pay corresponding taxes and fees ; (3) Remuneration of each participating institution; (4) Interest on Class A preferred securities; (5) Interest on Class B preferred securities; (6) Payment of principal of Class A securities; (7) Payment of principal of Class B securities; (8) ) subordinated interest and subordinated principal.

6. Operational process and main participating institutions of automobile consumer loan asset securitization

1. Operational process

(1) Demand-initiated automobile companies based on company assets Liability management requirements, combined with its own actual situation, initiate securitization needs.

(2) Selection of intermediaries, including but not limited to trustee agencies, fund custodians, rating agencies, legal advisors, accounting advisors, loan service agencies, lead underwriters, financial advisors, etc.

(3) Basic asset pool construction and due diligence The company’s basic asset provision department should organize relevant branches to submit due diligence materials for the assets to be added to the pool in strict accordance with the requirements. ? Legal advisors focus on the legal compliance of the assets to be added to the pool. The accounting consultant conducts due diligence on the five-level classification, amount, interest rate, principal and interest repayment and other factors of the assets to be added to the pool. Rating agencies conduct due diligence on the credit status and internal and external rating results of the assets to be added to the pool. Starting from the submission of information on assets to be added to the pool, the basic asset providing department should maintain the stability of reporting basic assets.

(4) Transaction structure determination and rating: Design the product structure of the credit asset securitization business based on the underlying assets and due diligence results, and propose whether credit enhancement is needed and what kind of credit enhancement to use depending on the specific situation. Suggestions on how to conduct an external independent rating based on the transaction structure.

(5) Preparation of legal documents including but not limited to master definition form, trust contract, loan service contract, fund custody contract, legal advisory contract, accounting advisory contract, offering prospectus, lead underwriting agreement, and underwriting syndicate agreement wait.

(6) Submission to regulatory authorities for approval. After the transaction structure is determined, it shall be reported to the China Banking Regulatory Commission and the People's Bank of China.

(7) Pricing and issuance After obtaining regulatory approval (or filing), organize the pricing and issuance of asset-backed securities. The bank, together with the trustee and the lead underwriter, forms an underwriting syndicate, and the underwriter can distribute the asset-backed securities it underwrites to other investors during the issuance period. Including road shows, distribution, etc.

(8) Investment management: The secondary part is regarded as bond investment management. ?

(9) Loan services, information disclosure and tracking ratings 1. Manage the loans in the basic asset pool and collect entrusted loan management and transfer service fees in accordance with the contract. ? 2. Provide service reports to the trustee on a regular basis. ? 3. If there is delay in principal and interest payment, default, early repayment, application for extension, etc. on the underlying assets, it shall be reported and handled in accordance with the provisions of the loan service contract.

(10) Redemption and clearance repurchase of unqualified assets

2. Approval process and materials?

After sufficient prior communication, the initiating institution and The trustee shall jointly declare to the China Banking Regulatory Commission, and the CBRC's approval time shall not exceed 3 months; after obtaining the approval of the China Banking Regulatory Commission, it shall submit an application to the central bank for issuance in the inter-bank bond market, and the central bank's approval time shall not exceed 25 days. After obtaining the administrative licensing notice from the central bank, the issuance documents will be published on the designated website (China Bond Information Network) and issued through the inter-bank bond market.

According to China Banking Regulatory Commission Document No. 1092, the credit asset securitization business has been changed from an approval system to a business filing system, and no case-by-case approval will be conducted.

Banking financial institutions that have not conducted asset securitization business need to submit relevant qualification applications to the China Banking Regulatory Commission, and can only file for securitization products after passing the qualification review; banking financial institutions that have issued credit asset securitization products will be required to do so in November 2014. The registration process can be followed after March 20th. The filing application will be accepted by the Innovation Department of the China Banking Regulatory Commission and forwarded to the regulatory departments of each institution for filing. Financial institutions can issue products after completing the registration, and they need to complete the issuance within 3 months, otherwise they will re-register. During the filing process, the regulatory departments of each institution will inspect the compliance of the originating institution, and will no longer open the "asset package" to review the underlying assets and other issuance plans.

3. Securities issuance and roadshow

(1) Preparatory work before issuance? The lead underwriter will set up a roadshow team; contact preliminary inquiry targets to determine roadshow targets; and produce roadshow materials ; Contact roadshow matters, confirm attendees, list of meeting organizations, specific itinerary, etc.

(2) Pre-roadshow/inquiry? The lead underwriter organizes a roadshow with important institutional investors; recommends products together with the sponsoring institution; determines a reasonable interest rate range.

(3) ] During the bidding and issuance stage, the lead underwriter communicates with institutional investors again to further narrow the interest rate range; and organizes the bidding and issuance work.

4. Follow-up management?

5. The main participating institutions and their functions in asset securitization

The sponsor is the fund financier in the asset securitization business , is also the initiator of the entire business. In addition to supplementing sources of funds, financial institutions participating in credit asset securitization also have considerations of improving capital adequacy, resolving capital constraints, transferring risks, and enhancing liquidity; non-financial institutions participating in corporate asset securitization hope to simultaneously expand direct channels and optimize Financial statements, innovative business methods and other purposes.

The trustee or plan manager is the main intermediary of the asset securitization project. It is responsible for custody of the underlying assets and various related rights and interests, supervising and managing the assets, and connecting the sponsors as the representative of the SPV. with investors. In the credit asset securitization market, trust institutions, as trustees, are responsible for managing trust properties in accordance with the trust contract, continuously disclosing trust property and asset-backed securities information, and distributing trust benefits. In the corporate asset securitization market, securities firms serve as plan managers, establishing special asset management plans, and at the same time fully participate in product design, sales and issuance, and provide financial advisory and other services.

Professional rating agencies check the credit quality of the original equity holder’s underlying assets, the product’s transaction structure, cash flow analysis and stress testing through data collection, due diligence, credit analysis, information disclosure and follow-up. , thereby providing important reference basis for investors, protecting investors’ rights and interests, and serving as a credit disclosure function.

As an important intermediary in the asset securitization issuance process, the law firm evaluates and investigates the legal status of the sponsor and the underlying assets, clarifies the rights and obligations of other project participants, and during the process of drafting the transaction related agreements and legal documents, and provide reminders of legal risks and provide legal advice. Act as the legal guardian in the asset securitization process to ensure the legal compliance of the project.

Accounting work is an important link in the asset securitization process. Accountants need to conduct due diligence and cash flow analysis on the financial status of underlying assets, provide accounting and tax consulting, and provide audit services for special purpose entities. During the product issuance stage, accountants need to ensure the integrity of the cash flow of the assets in the pool and the accuracy of the information, and conduct strict verification of the cash flow model to ensure that the product can be repaid smoothly according to the design plan.