Silver Arrow China 2020-1 Retail Auto Loan Asset Backed Notes Trust

HONG KONG (S&P Global Ratings) March 24, 2020--S&P Global Ratings today 
assigned its 'AAA (sf)' rating to the class A notes issued by China Foreign 
Economy and Trade Trust Co. Ltd. as trustee of the Silver Arrow China 2020-1 
Retail Auto Loan Asset Backed Notes Trust (see list). The notes are backed by 
a pool of consumer loan contracts secured by passenger vehicles that were 
originated by Mercedes-Benz Auto Finance Ltd. (MBAFC).

The transaction has a reinvestment period of three months after close, during 
which additional receivables can be purchased in accordance with certain 
eligibility criteria, via asset collections, provided an early amortization 
event has not occurred. 

The rating assigned to the notes reflects:
  • The credit risk associated with the underlying collateral portfolio and the credit support provided for the class A notes in the form of subordination and overcollateralization are commensurate with our view of credit risk under 'AAA' rating stresses. Our assessment of credit risk takes into account originator MBAFC's underwriting standards and centralized approval process, which are largely consistent with Daimler AG's financing business practice and risk-management approach, with some local adaptation. Daimler AG is MBAFC's parent company.
  • The transaction's cash flows can meet the timely payment of interest and ultimate payment of principal to the rated notes under stresses commensurate with the rating assigned. All rating stresses are assessed on the basis that the issuer does not call the notes on or beyond the call-option date, and that the notes must be fully redeemed via the mechanisms under the transaction documents.
  • The timely payment of senior expenses and rated note coupon is supported by the use of interest and principal collections from the underlying pool of loans and a liquidity reserve equal to Chinese renminbi (RMB) 69 million. The liquidity reserve will not amortize and will be topped up through the priority of payments on each payment date.
  • A proportion of the collateral portfolio comprises contracts that have an interest rate lower than that required to cover the trust's senior expenses and class A note interest. However, the transaction's cash flows are further supported via the provision of additional overcollateralization in the form of yield supplement overcollateralization.
  • The legal structure of the trust, established as a special-purpose trust (SPT) under China's Trust Law, and the transaction structure and terms, are consistent with the governance of China Banking and Insurance Regulatory Commission and The People's Bank of China's credit assets securitization scheme. The legal structure of the SPT reflects our criteria for insolvency remoteness.
  • The transaction has counterparty exposure to Industrial And Commercial Bank Of China Ltd. as a bank account provider. The rating on the bank account provider, coupled with the replacement trigger of the bank account provider if this rating falls below a certain level, is consistent with our counterparty criteria to support an 'AAA' transaction.
  • The rating on the notes is higher than our sovereign rating on China. We applied our "Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions" criteria published on Jan. 30, 2019, and determined that the highest rating that can be considered for this transaction is 'AAA'.
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