Jianyuan 2018-21 Residential Mortgage Backed Securities Assigned Preliminary 'AAA (sf)' Ratings

HONG KONG (S&P Global Ratings) Dec. 3, 2018--S&P Global Ratings today assigned 
its preliminary 'AAA (sf)' ratings to the class A-1, class A-2, and class A-3 
notes to be issued by CCB Trust Co. Ltd. as trustee of the Jianyuan 2018-21 
Residential Mortgage Backed Securities (see list). The notes are backed by a 
pool of residential mortgage loans that were originated by China Construction 
Bank Corp. (CCB).

This is the second Jianyuan series transaction rated by S&P Global Ratings. 
The preliminary ratings assigned to the notes to be issued by Jianyuan 2018-21 
Residential Mortgage Backed Securities reflect:
  • The credit risk. The credit risk associated with the underlying mortgage pool and the credit support available are commensurate with our view of credit risk under a 'AAA' rating stress. Our assessment of credit risk takes into account originator CCB's underwriting track record and the characteristics of the underlying mortgage pool. We assume a 17.5% foreclosure frequency--the level of defaults--for the underlying mortgage pool outstanding and a 39.4% loss severity--estimated losses given default--for assumed defaulted loans under our 'AAA' rating stress scenario.
  • Our cash-flow analysis. The transaction's cash flows can meet the timely payment of interest and ultimate payment of principal to the rated noteholder under stresses commensurate with the rating. The available credit enhancement provided via subordination and excess spread (if any) for the notes to be issued is sufficient to absorb the credit losses as well as payment of senior fees, expenses, and coupon on the notes under our 'AAA' rating stress scenario. Our cash-flow scenarios assume a combination of key parameters such as payment sequence, interest-rate movement, prepayment, and default timing, together with other assumptions that reflect portfolio-specific characteristics.
  • The counterparty risks. The transaction is exposed to counterparty risks, including the risk related to the bank account provider and servicer commingling risk, as well as deposit set-off risk. The rating-dependent counterparties meet our minimum rating requirement to support a 'AAA' rating. Moreover, the documented downgrade and remedy language is in line with our current counterparty criteria to support the rating and address counterparty risk and certain legal risk.
  • The legal risks. The legal structure of the trust is established as a special-purpose trust under China's trust law, and the transaction structure and terms are consistent with the governance of China Banking Insurance Regulatory Commission and The People's Bank of China's credit assets securitization scheme. The legal structure of the special-purpose trust meets our criteria for insolvency remoteness.
  • The rating being above that of the sovereign. Our preliminary ratings on the notes are higher than our sovereign rating on China. We applied our " Ratings Above The Sovereign – Structured Finance: Methodology And Assumptions" criteria, published Aug. 8, 2016. Based on our analysis, the criteria allow a maximum differential of four notches above the sovereign rating. Therefore, the highest rating that can be assigned to this transaction is 'AAA (sf)' under our criteria for a rating above the sovereign.
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