First, the process for the self-recorded securitization of assets has been much faster, with project applications generally taking about two weeks to receive no-objection letters. The product is filed with the foundation industry association within five working days of its establishment, and a further letter of confirmation is obtained before it can be placed on the exchange. The benefits to the conduct of asset securitization operations are significant. In the process of applying for exchange-listed no-objection letters on transfers, the in-depth exchange will invite experts from accounting firms, firms, non-five rating agencies and buyers ' agencies from banks, insurance, funds and trusts to provide feedback on the declared material, many of which are also of interest to investors and are of great assistance to issuers。
Second, the following key points were identified by the experts as critical to the conduct of the asset securitization business:
Definition of capital assets
First of all, it needs to be made clear that the underlying assets that can be used as “raw materials” to support securities consist mainly of creditor and right-of-proceed assets。
Assets in the class of claims are legally claims and are interpreted as receivables in accounting terms, allowing in principle for insolvency isolation. A right to proceeds refers to future income, which is not clearly defined by law, and the future operating income of an asset in the category of a right to proceeds is inextricably linked to the viability of the original owner, business status, etc., and cannot be separated from the insolvency of the underlying asset from the original owner. It is therefore more important that due diligence be fully informed of the original equity position and solvency of such assets. The right-of-receiving category of assets is often characterized by the nature of the concession or natural monopoly。
Ii. Tenure of underlying assets, circumstances that may be specific
In doing so, the administrator will need to focus on the relevant certification documents of the original equity holder relating to the underlying asset, including, but not limited to, the following:
First, the original owner acquires the property rights of the underlying asset or the cash flow of the underlying asset and the relevant legal documents relating to its continued operation. For example, the subject park ticket-paying asset-support securities project needs to determine whether the original owner legally owns land tenure rights in the park, whether effective security and fire protection measures are in place in the operation of the original equity park, and obtain security and fire documentation。
Secondly, the underlying asset may not be subject to a burden of security, such as collateral, pledge or other limitation of rights. The burden of security or other limitation of rights has been put in place and specific measures need to be identified in advance to release the security or other limitation of rights in the underlying asset before filing. For example, when a capital asset is pledged to a bank in the context of an asset securitization business, the administrator, when reporting to the exchange for a no-objection letter, is required to provide the relevant legal effects and elements of effectiveness that would exonerate the liability prior to filing the underlying asset. After the product is established, the original equity owner will use the collection funds to repay the bank's borrowing, and the underlying asset will be released from the liability if the enterprise fails to fulfil its obligation to release the underlying asset even if the product is established。
Third, the product designer needs to judge whether the underlying asset is specific. Specificization is a prerequisite for the transfer of underlying assets and a basis for ensuring that future cash flows of underlying assets are independent and predictable. For example, in the securitization project for the proceeds of the admission of the theme park, the receipt of tickets to the special asset support scheme is to be printed with special words and digital numbers to be used to distinguish them from other ordinary tickets。
Transfer of capital assets
The transfer of the underlying asset involves the transfer of the principal right and the subsidiary security interest. However, the transfer of related subordinate interests, such as security interests, mortgages and pledge rights, is often easily ignored or not clearly agreed upon in the contract elements, and in the event of default of the underlying asset, the subsidiary interest attached to the underlying asset itself becomes an important basis for recourse by the administrator. For example, a lease deposit is a subsidiary interest, and it is necessary to establish at the time of signing a contract relating to the transfer of assets that ownership of the lease bond relating to the base asset pool is attributed to a special asset support plan and that the original equity holder may not divert the security for other purposes。
Iv. Historical records and projections of cash flows
Different types of underlying assets have different concerns. For multiple decentralized creditor classes, attention needs to be paid to the credit position of individual borrowers, the distribution characteristics of asset pools (e. G. Industry distribution, regional distribution, shadow rating distribution, monetary distribution (concentration), rating model assumptions (relevance assumptions, default rate assumptions, recovery rate/recovery period assumptions)。
For a large number of homogenous claims, attention needs to be paid to historical performance data (historical default rates, recovery rates, loss rates, non-compliance migrations and time distribution of losses), credibility and applicability of historical data (dynamic data v. S. Static data, comparability of historical assets with pool assets) and stress testing (historical data as a reference to expected performance of asset pools)。
For business income assets, attention needs to be paid to historical performance data, projections of future income (taking into account changes in growth rates over time), stability of business owners and alternatives. There is a need for careful consideration of volatility and growth. For example, the reasonableness of many products currently predicting future growth in cash flows on the assumption that income growth will be the same each year is highly problematic. In addition, there was a lack of comprehensive consideration of the volatility of benefits in some projects. For example, in the expressway billing rights asset support scheme, less disclosure was made of the type of motorway passing vehicle (the average vehicle and transport vehicle were completely different in the extent of road damage), the cost of repair and the break-up of the financial chain as a result of possible future road closures。
In the area of cash flow management, attention needs to be paid to the matching and safeguarding of cash flow from the underlying asset pack to cash flow repayments of the asset supporting securities. An accurate estimate of the matching and safeguarding of cash flows for each payment point is required. Whether each payment node base asset package has sufficient cash flow guarantee income distribution to take into account fluctuations and a certain debt service default rate。
V. On investor types
At present, investors in enterprise securitized products are institutional investors, with no individual investor subscriptions; institutional investors have banks, voucher management, public fund-raising, insurance funds, etc., such as jubilee valley, ari micro-credit project investors, insurance-based workers, and reits。
Vi. Ppp project feasibility analysis for introducing securitization of assets
“asset securitization” refers to a process of lack of liquidity, but in the future assets that can generate a stable cash flow are pooled into an asset pool, through structural reorganization, and then converted into securities that can be sold and circulated in financial markets. The securitization of our assets falls under three categories: securitization of credit assets, securitization of business assets and asset support instruments. Under the country's current system, it is more appropriate to use ppp project companies as sponsors, mainly as a model for the securitization of business assets, the following elements of which refer to the securitization of business assets。
The ppp project introduced asset securitization, which is feasible as follows:
(i) the ppp projects, which are mostly public infrastructure projects or utilities, cover a wide range of areas such as urban water, transport, environmental protection and secure engineering, with relatively transparent charging mechanisms that will produce a stable cash flow in the future, which is naturally compatible with the securitized nature of the asset。
(ii) policy support. The state council's opinion on strengthening local government debt management (no. [2014] 43) encourages the participation of social capital in urban infrastructure and investors to finance through market-based approaches such as asset securitization. The cvm regulation on the operations of secured assets opened the era of securitization of assets of an enterprise by further clarifying the underlying asset securitization rights to real estate, including infrastructure. These provisions provide policy possibilities for securitization of the ppp project。
(iii) from a long-term perspective, future local debt will continue to be settled through market-based underwriting, and the securitization of local debt under the ppp model is unstoppable in the context of the advent of the capital master plan。
Problems with securitization of ppp assets
The three main principles of asset securitization are “real sale, bankruptcy isolation, credit enhancement”. For the social capital involved in the ppp project, securitization of the ppp's right to benefit from the project would enable them to reap the benefits more quickly or have a better exit. However, since the current legislation and policies on this component are not yet mature, the securitization of the assets of the ppp project remains partly an issue to be addressed。
(i) lack of standards for “real sale”
“true sale” is an important link in achieving “insolvency isolation”. With regard to the issue of “real sale” of capital assets, there is a lack of uniform, specific and clear criteria, and the mere construction of “real sale” criteria for securitization of assets in areas such as contract law, bankruptcy law or some less fragmented sectoral normative documents does not meet the actual need for asset transfer and bankruptcy segregation in asset securitization. The legal standard of “real sale” therefore needs to be harmonized and refined。
(ii) the appropriateness of the right to the proceeds of the ppp project as the underlying asset
There are two levels at the legal level in which the ppp proceeds, the first of which is the concession of the ppp project, and the second is based on the right arising from the concession to charge the public for the use of infrastructure and public goods, i. E. The right to the proceeds of the ppp project. The latter are dependent on the former's core assets, which are dependent and dependent. This raises operational questions as to whether the transfer of the proceeds of the concession should be accompanied by the transfer of the concession; whether a special scheme could become the holder of the concession if the concession was transferred simultaneously; and whether the separate transfer of the fee income would satisfy the need for securitization of the real sale of the asset and bankruptcy isolation if the concession was not transferred simultaneously。
(iii) credit risk protection
While the asset securitization bankruptcy segregation mechanism separates assets from the ppp project company, it is difficult to ensure a stable cash flow in the event of construction or operational problems in the project. In particular, the current low legislative rank of the ppp project makes it easy to induce problems with the project's cash flow once policy changes have been made with respect to the right to charge, the right to operate, etc。
Both the ppp model and the asset securitization business are new to the market in recent years. There is currently a lack of useful attempts to combine the two in theory and practice. The combination of the ppp model and asset securitization remains one of the important directions for future development, given the degree of convergence and obvious advantages. However, there are still some obstacles and shortcomings in introducing asset securitization into the ppp project, based on the fact that laws and policies are not yet mature and that border definitions are not clear, and that lessons need to be learned in practice on an ongoing basis with a view to achieving beneficial results。
