Source: GF Securities
Excerpt
Core points of the report
In the current market environment, credit bond investors are concentrated in short duration and low grade, and investment lacks focus. We believe that urban investment ABS has not low interest rate differentials, and the credit fundamentals are relatively stable, which can be used as a mining direction. Urban Investment ABS credit analysis focuses on the underlying assets, entity qualifications, and transaction structure, and some ABS high-quality underlying assets play a strong supporting role in credit qualifications, but some ABS basic assets are not independent enough, resulting in a large correlation between ABS and the entity's credit qualifications. At present, the stock of urban investment ABS generally has a certain interest rate difference, it is recommended to take the main credit qualification of the urban investment ABS, which has a certain liquidity premium, which may be compressed in the future, and thicken the portfolio income from both high coupons and capital gains; the urban investment ABS with weak credit qualifications of the main body, such as the quality of the underlying assets, can be used as a credit mining tool, but there is a valuation risk.
Short-term, high-grade credit bonds are more crowded, and urban investment ABS can be used as a mining direction
In the current credit bond market environment, investors need to face triple risks, interest rate upward risk, credit risk, redemption risk, resulting in a lack of focus on credit bond investment, credit debt conventional strategies to pull long-term, credit sinking are difficult to operate; in the value of varieties, private interest spreads are very thin, secondary capital bonds are flexible and long-term; and abs variety value is prominent, can be thickened without pulling long-term, without credit sinking premise, there are still not low interest rate differentials, and the investment group is wide. In ABS, the credit ABS spread fell to a low level, and consumer finance, real estate enterprises and other entities in the ABS of enterprises faced difficulties, while the credit fundamentals of urban investment ABS were relatively stable, and the risk-return ratio was prominent.
Analysis of the underlying assets and transaction structures of three typical urban investment ABSs
The credit analysis of Urban Investment ABS mainly focuses on the underlying assets, subject qualifications, and transaction structure, and some high-quality basic assets can fully cover the principal and interest repayment of Urban Investment ABS, which plays a strong role in supporting and supporting credit qualifications; on the contrary, some ABS basic assets rely on the continuous operation of the entity, and the independence is insufficient, so the focus is on the credit and transaction structure of the entity at this time. Among the three types of typical urban investment ABS, the basic assets of abs for infrastructure fee income rights and shed reform/affordable housing ABS all rely on urban investment for continuous operation, while commercial real estate mortgage ABS, high-quality properties make the realization value of the underlying assets high, and significantly improve credit qualifications. The transaction structure focuses on the credit enhancement measures of urban investment entities.
Stock city investment ABS spread analysis
There is an interest rate difference between urban investment ABS and ordinary bonds, which can be mainly disassembled into two parts: liquidity compensation and credit qualification difference. Liquidity compensation is due to the poor liquidity of ABS and the difficulty of credit analysis; the difference in credit qualification refers to the difference between the underlying assets of ABS and the transaction structure, resulting in different credit qualifications from the entity. At present, urban investment ABS generally has a certain interest rate difference, and some subjects have large interest rate differentials, which require detailed study of the credit qualifications, underlying assets and transaction structure of the main body, and explore the source of the spread. From the perspective of implicit ratings by subject, the main AA and above ABS spreads are mainly liquidity premiums, about 10-80BP; AA(2) belongs to the investable edge, ABS spreads are largely differentiated, distributed in the (-40,270) BP range; AA- and below, ABS yields are higher but the spread is mostly negative. Vertically, the urban investment ABS spread has been stable in the past two years.
Investment strategy: high-quality entities buy liquidity premiums, and weaker entities buy ABS asset support
From the comprehensive analysis of the interest rate spread and credit risk of urban investment ABS, it is possible to construct an investment strategy: first of all, through the urban investment ABS with excellent credit qualifications of the main body, the liquidity premium is obtained, and the space for future liquidity premium compression is obtained. Secondly, abs, which have weak credit qualifications, stable, reliable and independent cash flows of underlying assets, or high realization value, are used as a small amount of credit mining tools. In extreme cases such as credit default events, such as credit default events, this kind of ABS can bring more than the repayment rate of ordinary claims, but there are still hidden dangers of valuation fluctuations. If the entity's credit qualification, ABS underlying assets, and transaction structure are weak, and the risk and return are relatively poor, it is recommended to avoid it. Risk Warning: Financing regulatory policies have been tightened, and the cash flow of ABS underlying assets is difficult to confirm.
Short-term, high-grade credit bonds are crowded, but ABS still has some spreads
Investors have faced triple risk since 2022, and short-term, high-grade credit bonds have become very crowded
Since 2022, the credit bond market environment is more complex, investors need to face triple risks, interest rate upward risk, credit risk, redemption risk.
Since 2022, the 10-year treasury bond has repeatedly oscillated in the range of 2.68% to 2.85%, falling to 2.77% as of March 30, at a historically low position since 2015, with the steady growth, there may be upward pressure during the year; real estate credit risks occur frequently, causing losses to some accounts, and institutional risk appetite has tightened significantly; since the Spring Festival, stocks and bonds have performed poorly, and some accounts are facing redemption pressure.
Under the triple risk, credit bond investment lacks a focus point, and the conventional strategy of credit bonds to pull long-term and sink credit are difficult to operate: the short-term credit bonds favored by investors are very crowded, the yield has dropped sharply, and the interest rate differential between ratings has narrowed significantly.
From January 4 to March 30, 2022, the short-end yield of credit bonds fell, while the long-end rose. Taking the implicit rating AA+ urban investment bond as an example, the 1-year yield fell by 4BP, while the 3, 5, 7 and 10 years rose by 24, 21, 19 and 21BP respectively. The spread between 1-year credit bond ratings has narrowed significantly, taking the short- and medium-term yield curve as an example, including five implied ratings between AAA+ and AA, but as of March 30, the spread is only 26BP, and the inter-rating spread has fallen to the historical 3% quantile since 2015.
This shows that the short-term credit bonds with implied rating AA and above have been fully tapped, and the difference in the valuation of credit bonds with better 1-year credit qualification (implicit rating AA) and credit bonds with the best credit qualification (AAA+) is very small; if you want to obtain excess returns, you can only further tap into the implied rating AA- and below, and the credit sinking faces many constraints, and the practice is very difficult.
In terms of variety value, the premium of private equity varieties has been fully compressed, and the fluctuations of secondary capital bonds have been drastic
In terms of variety value, private placement spreads have been compressed, taking urban investment as an example, as of March 30, the 1-year AAA, AA+, AA, and AA private placement premiums were only 6, 6, 7 and 7BP, respectively.
Symbol value is an important tool for yield enhancement. First look at the private interest rate differential: under the expansion of the scale of wealth management, high-grade short-duration assets are sought after, and banks can make up for the price difference from the issuers of bonds; which has led to the private interest rate differential (with implied rating, non-public bonds of the same maturity minus all bonds) at the end of 2020 and the beginning of 2022, which has dropped sharply twice, and has now dropped to a very low level. Taking urban investment as an example, the one-year AAA, AA+, AA, and AA(2) private placement spreads dropped from about 55, 60, 70 and 90 BP in August 2020 to 6, 6, 7 and 7 BP at the end of March 2022.
Secondary capital bonds have greater elasticity, amplify valuation fluctuations, and it is difficult to operate in the swing band; and the remaining term is generally longer, elongating the duration of the portfolio.
Secondary capital bonds are also used as an important means of yield thickening, and this variety has a coupon advantage over interest rate bonds and has good liquidity relative to credit bonds. However, the main holders of the current secondary capital bonds are fixed income +, bond funds and other trading institutions, when the stock market decline or other factors lead to redemption pressure of these institutions, secondary capital bonds as liquid assets are sold, which leads to secondary capital bonds trading attributes are very strong, valuation fluctuations more than interest rate bonds. For example, from January 25 to March 30, 2022, the 5-year Treasury note rose by 18BP, while the 5-year implied rating AA+ Tier 2 capital bond rose by 29BP.
Judging from the market since March, it is also very difficult to obtain income through the swing band of secondary capital bonds. In addition, the remaining maturity of secondary capital bonds is generally longer, and the remaining maturity of existing secondary capital bonds is mostly 3-5 years, which lengthens the duration of the portfolio.
ABS still has a certain spread, which can increase the yield by high coupons and resist interest rate shocks
ABS still has a lot of spreads, and it can thicken earnings through liquidity compensation without pulling a long period of time and without credit sinking.
Short-end credit yields are already low and spreads between ratings are already crowded, but ABS still retains a higher premium. From the perspective of the medium debt yield curve, ABS generally has a premium relative to short- and medium-term notes of the same maturity and rating, mainly due to compensation for poor liquidity. Based on the implied rating AA&1 period as of March 2016, the spread of ABS as of March 30 was 44BP, which is the historical quantile of 58% since March 2016, which is in the middle range. This allows investors to obtain higher coupons and thicken portfolio yields without sinking credit for a short duration.
High coupon assets such as ABS have performed better in the market this year, and interest rates are expected to remain in a narrow range this year and will perform better.
ABS and other high coupon assets are of great significance to resist valuation risks and thicken returns, during which the return is higher and the valuation is relatively stable; it is expected that the interest rate of the 10-year Treasury bond will fluctuate in a narrow range of 2.7%-3.0% this year, and with the steady growth, the interest rate will still have upward pressure during the year, and the high coupon assets such as ABS will help resist interest rate shocks.
ABS's investment group is relatively broad and has a comparative advantage
ABS is recognized as a standardized debt asset, which is more attractive under the policy of non-standard investment restriction.
According to the Rules for the Determination of Standardized Debt Assets issued in July 2020, credit asset-backed securities, asset-backed notes, and asset-backed securities listed on stock exchanges are all standardized bond assets recognized by the regulator, that is, of the four types of asset-backed securities, only the asset-backed plans of insurance institutions are non-standard assets. Under the new asset management regulations, the amount of non-standard asset investment in banks, securities and futures, trusts and other institutions is strictly restricted, while ABS has both standardized attributes and financing convenience, and the attraction to investors under the policy of restricted non-standard investment is enhanced.
AbS's investment group is relatively broad, and it has advantages over private equity corporate bonds and PPN.
AbS investment groups cover major investment institutions such as bank self-operation, bank wealth management, insurance, funds, securities company asset management, etc., with a wide range of investment groups, and have advantages over private corporate bonds, PPN and other bond varieties, such as public bond bases generally cannot invest in private corporate bonds and PPNs. ABS high-grade varieties of demand side to banks, brokers self-operated, public funds and other institutions with low risk appetite, because the ABS risk weight is only 20%, the level of capital consumption is low, and the yield level is dozens of BP higher than the same rating of pure bonds, and the priority credit risk is very small, so the demand for credit ABS by banks is very large, which is a great investor; bank wealth management is an important demand side for corporate ABS and asset-backed notes. As institutions with high cost of funds, securities companies' asset management and private equity funds are the main demand side of low-rated ABS.
The credit fundamentals of urban investment ABS are relatively stable and can be used as a mining direction
In terms of classification, credit ABS spreads have fallen to a low level, and there is still room for corporate ABS spreads
Mainland asset securitization products can be divided into four categories, credit asset securitization, corporate asset securitization, asset-backed notes and insurance asset-backed plans, of which insurance asset-backed plans are still very small.
Credit asset securitization is supervised by the People's Bank of China and the Banking and Insurance Regulatory Commission, the underlying assets are mainly credit assets of banks and other financial institutions, generally a single amount is small and the number of loans is large, the standardization is high; the securitization of enterprise assets is supervised by the CSRC, the underlying assets are relatively diversified, including accounts receivable, financial leasing, charging rights, etc., the approval method is the filing system, the issuance process is relatively simple; asset-backed notes (ABN) are supervised by the Dealers Association, which can be issued in both public and private ways. The underlying assets include note income assets, receivable debt assets, lease debt assets, etc., which have higher requirements for asset qualifications; insurance asset support plans are income certificates issued by insurance institutions and other investors such as insurance institutions, and the underlying assets include financial leasing assets, non-performing asset restructuring assets, small loan assets, etc., and are not limited to insurance-related assets.
At present, the credit ABS spread has dropped to a very low level, while the corporate ABS spread is stable and there is still some room.
The basic assets of credit ABS are credit assets held by financial institutions, and the development is relatively mature, the main investment institutions are banks; the interest rate spread of credit ABS such as residential mortgage loans, corporate loans and lease claims (ABS yield - medium and short-term bill yield of medium and short-term bonds of the same maturity and grade) has dropped to a very low level, of which the residential mortgage interest rate spread has turned negative. The trend of corporate ABS spreads is relatively stable, significantly higher than that of credit ABS spreads, and there is still some room for mining.
Some important issuers of corporate ABS are facing challenges, and the advantages of urban investment credit fundamentals are prominent
Among the original rights holders of enterprise ABS, consumer finance companies and real estate enterprises occupy an important position, but the credit fundamentals of these entities face certain challenges.
For example, consumer finance, the stability of residents' income under the epidemic has been affected, and the default rate may rise; the supervision of the real estate industry has become stricter, the industry prosperity has declined, and risk events such as bond defaults have occurred frequently. The credit risk of these entities has an upward trend, which will also have a collateral negative impact on ABS credit qualifications.
The credit fundamentals of the urban investment industry are relatively stable, and the risk-return ratio of urban investment ABS is prominent.
In this paper, we define the original equity holders as urban investment companies' exchange enterprise ABS and dealers association ABN as urban investment ABS, as the main research objects of this paper. The urban investment platform has not yet experienced a substantial default of public bonds, and in the short term, there are factors such as the leadership responsibility system of local party and government organs, the demand for stability maintenance in the year of change, and the demand for infrastructure construction in the pressure of stable growth, and the credit risk is small; in the long run, it is also an important subject for local infrastructure construction and public services, and the credit fundamentals are also relatively stable. While urban investment ABS still has a certain premium, we believe that urban investment ABS has a strong risk-reward ratio.
Urban Investment ABS has a certain volume, but it still needs to be further developed
The historical issuance scale of urban investment ABS and the current stock scale have an increasing trend, but the scale of ordinary bonds is still relatively small.
From the perspective of issuance data, the scale of urban investment ABS issuance in 2019 increased significantly year-on-year, reaching 51.5 billion yuan, 19.3 billion yuan in 2020 and 2021, respectively; as of the end of March 2022, the stock scale of urban investment ABS was 86.6 billion yuan. There is an increasing trend in the issuance of URBAN INVESTMENT ABS and the current stock scale, but it is still very small compared with the trillion-yuan issuance scale of urban investment ordinary bonds and the stock of 10 trillion yuan.
The essence of urban investment ABS is to realize the income of urban investment's quasi-public welfare business or market-oriented business in advance.
The main business of urban investment can be divided into three categories: public welfare projects, quasi-public welfare and operational projects, of which the public welfare business has no market-oriented cash flow, and the object of capital transactions is mostly government departments; the quasi-public welfare business has a certain cash flow, but often operates at a small profit or loss, and needs the government to provide subsidies or other resources; the market-oriented business has complete cash flow income, and the urban investment is responsible for its own profits and losses. Urban investment quasi-public welfare business, market-oriented business, etc. have a certain cash inflow, through the structured design, ABS as a financing tool, the future cash flow in advance realization.
The main limitation of the development of urban investment ABS is that there are fewer assets with real market-oriented cash flow, but under the impetus of urban investment transformation, the scale of urban investment market-oriented cash flow tends to increase, creating better conditions for ABS issuance.
Traditionally, urban investment is mainly based on public welfare business income such as agency construction and land consolidation, and the market-oriented cash flow is small, which greatly restricts the issuance of urban investment ABS; however, with the advancement of the market-oriented transformation of urban investment, the standardized management of pure public welfare business has a compression trend, while the income of quasi-public welfare business and market-oriented business tends to increase, and the proportion of market-oriented cash flow in the cash flow statement of urban investment increases, creating better conditions for ABS issuance.
The control of urban investment ordinary bond issuance is becoming stricter, and the proportion of ABS may increase in the future.
Since November 2020, the supervision policy of urban investment financing has entered a tightening cycle, and exchanges and dealers associations have tightened their control over the issuance of ordinary bonds by urban investment; and ABS will help revitalize the assets of urban investment platforms with cash flow and reduce financing costs under the condition of high-quality underlying assets.
Urban Investment ABS credit analysis focuses on the underlying assets, subject qualifications, and transaction structure
The analysis of ABS's credit qualification can start from three aspects: the underlying asset, the qualification of the entity, and the transaction structure.
First, the underlying assets are the fundamental source of ABS debt repayment, which mainly examines the four dimensions of the type of underlying assets, the degree of cash flow dispersion, the stability of cash flow and the realization value of the underlying assets. Among them, the type of underlying assets affects the risk-return characteristics of the ABS asset package, the degree of cash flow dispersion affects the actual diversification effect of risk, the stability of cash flow affects the product return, and the realization value of the underlying assets is the bottom line of debt repayment.
Second, the qualification of the entity is an important factor affecting the credit of ABS, and the importance is affected by the degree of association between the underlying assets and the original equity holder and the credit enhancement of the original equity holder itself, and the qualification of the entity of the enterprise debt ABS and the income right ABS generally needs to be examined.
Third, the transaction structure affects the credit enhancement and cash flow repayment of ABS, and attention should be paid to the risk points of internal and external credit enhancement measures, and the cash flow measurement and pressure test should be carried out by comprehensively considering the characteristics of the asset pool and the transaction structure arrangement.
High-quality underlying assets can fully cover the repayment of principal and interest of urban investment ABS, which plays a strong role in supporting and supporting credit qualifications; but the problem is that some basic assets rely heavily on the continuous operation of the main body, and it is difficult to realize, and the independence of basic assets is insufficient.
The realization value of the abs underlying assets of some urban investment is relatively high, such as high-quality commercial real estate against pledge, even in the case of problems in the operation of urban investment entities, its value can also exceed the ABS principal repayment and interest payment, making the ABS credit qualification higher than the credit qualification of urban investment entities; but the problem is that some urban investment ABS basic assets rely heavily on the continuous operation of urban investment entities, such as infrastructure fee income rights, affordable housing sales income, etc., which need to be obtained in the case of good operation of urban investment entities to obtain future cash flow. Insufficient independence of the underlying asset. Some underlying assets are susceptible to policy changes, taking the basic assets of the right to charge income as an example, relying on the urban investment franchise, if the franchise rights change, or the government requires a reduction in fees during the epidemic period, it may lead to a decrease in the income of the underlying assets.
The analysis of the entity's credit qualification needs to be discussed on a case-by-case basis. If the underlying assets are of high quality, the analysis of the subject's credit qualifications can be diluted, and the ABS credit qualifications may be better than the subject credit qualifications; but some urban investment ABS, it can even be said that most urban investment ABS basic assets are weakly independent, and the credit qualifications of the subjects are crucial at this time.
From the perspective of classification, when the underlying assets are relatively high-quality, risk isolation can be effectively realized, and the payment of ABS priority principal and interest can be completed simply through this part of the basic assets with stable cash flow and high realization value, and the importance of the entity's credit qualifications has decreased at this time. However, the independence of the basic assets of most urban investment ABS is insufficient, and the analysis of the credit qualification of the subject is crucial.
Finally, pay attention to the credit enhancement measures in the transaction structure, and whether the urban investment entity provides a strong credit enhancement measure for ABS, so that ABS can be fully supported by the credit qualification of the entity.
ABS generally supports a series of internal and external credit enhancement measures, the main significance is the external credit enhancement measures, need to pay attention to the specific arrangements of external credit enhancement measures, from the effectiveness of the main guarantee > the difference payment commitment > liquidity support, at least there should be a difference payment commitment to make abs credit qualification and urban investment entity credit qualification fully bundled. In addition, it is also necessary to study the risk points in internal and external credit enhancement measures, such as whether the credit enhancement period matches the repayment schedule, and whether the credit enhancement measures are conditional.
In reality, because the original equity holder (urban investment entity) participates in the product in the form of an asset service institution, the cash flow is usually directly returned to the original equity holder's account, mixed with the original equity holder's own funds, and once the original equity holder has a problem, it is difficult for the funds to flow to the investor's account.
The underlying assets in urban investment ABS often have the problem of incomplete independence and mixed funds, resulting in a high degree of correlation between the credit qualification of urban investment ABS and the credit qualification of the entity.
For urban investment entities, the strength of urban investment enterprises should be studied from the perspectives of management level, business model, financial ability, etc., and the credit level of regional governments should be analyzed, and the possibility, support methods and compliance of government support should be assessed.
However, in this paper, the focus of our research is on the connection and difference between urban investment ABS and the credit qualification of urban investment entities, so we focus on whether the underlying assets of urban investment ABS can generate cash flow independently or have higher realization value; and whether the transaction structure provides sufficient entity credit support for ABS.
From the perspective of basic assets, the basic assets of Urban Investment ABS are mainly three types of infrastructure fee income rights
From the perspective of basic asset classification, the main basic assets of the current urban investment ABS are infrastructure fee income rights, shed reform/affordable housing claims, and commercial real estate mortgage loans; as of March 30, 2022, the total scale of the three typical urban investment ABSs was 70.4 billion yuan, accounting for 81% of the total. Therefore, in the following, we will analyze the underlying asset characteristics and transaction structure of the above three typical urban investment ABSs.
ABS: Dependent on the subject to continuous operation, there is a certain regional monopoly
Underlying asset analysis: The business has a certain monopoly, and the cash flow is usually more reliable
The right to income from infrastructure fees ABS is the largest in the existing urban investment ABS, mainly in the quasi-public welfare business, the right to collect revenue from public utilities and public service businesses.
We dismantle the abs of infrastructure toll collection rights, and the specific underlying assets include the right to collect revenue from public transport passenger charges, the right to earn revenue from subway passenger tolls, the right to benefit from ferry passenger charges, the right to benefit from vehicle toll charges, the right to earn revenue from water supply charges, the right to earn from heat charges, the right to earn from gas supply charges, and other types.
The right to income from infrastructure charges relies on the continuous operation of urban investment entities, and the independence is insufficient; fortunately, the business has a certain regional monopoly and the cash flow stability is strong; it is also necessary to pay attention to the risk of industry prosperity and policy risk.
This kind of charging income right relies on the continuous operation owned by urban investment, which is the premise of generating cash flow, and the independence of the underlying assets is weak; but urban investment often has a franchise right, there is a monopoly advantage in the region, and in the absence of major changes in the regional environment, the future cash flow is relatively stable and predictable. At the same time, it is also necessary to pay attention to the impact of the regional environment on the prosperity of the industry, such as the decline in future fees due to population outflows, or policy changes, such as the requirement for fee reductions and reductions during the epidemic period, and the reduction of charging prices.
Transaction model: Take ABS, the right to revenue from passenger transportation charges of A city investment subway, as an example
Taking abs for example, we analyze the ABS trading model of urban investment infrastructure charging revenue rights.
The ABS trading model of A City Investment can be simply understood as three steps, setting up an asset-backed special plan and obtaining the right to the income of subway passenger tolls as the basic asset, improving credit enhancement and liquidity enhancement measures, and issuing ABS.
(1) Asset-backed special plan to acquire the underlying assets.
City A transferred the right to the revenue of subway passenger tolls to an asset-backed special plan.
(2) Improve measures for credit enhancement and liquidity enhancement.
The asset-backed plan involves three credit enhancement measures, priority sub-structured design, sub-level accounting for 5.05%; cash flow excess coverage, it is expected that the cash flow of subway passenger tolls will cover the priority ABS principal and interest multiple of more than 1.73 times; the difference payment commitment, A City Investment assumes the obligation to make up for the difference.
(3) Issuance of ABS.
The asset-backed special plan issues asset-backed securities based on the right to the income from passenger tolls, combined with credit enhancement and liquidity enhancement measures.
From the perspective of transaction structure, the core is still the credit enhancement measures of urban investment entities, which provides entity credit support for ABS.
The difference payment commitment of A city investment has played a strong role in increasing credit, making ABS close to the credit qualification of A city investment entity; cash flow excess coverage, covering multiples of 1.73 times, also plays a certain support role in ABS principal and interest repayment, but relies on the continuous operation of the entity; the secondary proportion is relatively low, and the credit enhancement effect is relatively limited.
Shed reform /affordable housing ABS: The future sales revenue of affordable housing also depends on the continuing operation of the main body
Analysis of basic assets: There is uncertainty in the future sales revenue and cash flow of shed reform/affordable housing projects
The basic asset of such urban investment ABS is the trust beneficiary right, while the underlying asset after penetration is the future sales income of shed reform/affordable housing, which depends on the continuous operation of the subject, and there is a certain uncertainty.
Although shed reform/affordable housing also belongs to the real estate business in a broad sense, the sales price is often lower than the market price, and the sales method is often targeted sales, which is weakly profitable and has certain public welfare attributes. There is also uncertainty in sales revenue, and the affordable housing has not been sold at the time of the issuance of ABS, and it is necessary to guard against the risk of poor project dematerialization or project turnover delay.
Transaction structure: Taking the ABS of B City Investment Affordable Housing as an example, the sales revenue of affordable housing is converted into a debt in the structure
Affordable housing ABS mostly adopts the dual SPV model of trust beneficiary rights as the underlying asset.
Taking B City Investment Affordable Housing ABS as an example, in this case, a trust plan + asset-backed plan dual SPV structure is established, the basic asset of ABS is the trust beneficiary right, and the trust beneficiary right comes from the creditor's right to the subsidiary, but continues to penetrate downwards, and the underlying asset is essentially the income from the sale of affordable housing. The main transaction structure of B City Investment Affordable Housing ABS is:
(1) Establish a dual SPV structure of a trust plan and an asset-backed plan, and purchase the underlying assets.
The first layer of transaction structure: the establishment of a trust plan, B City Investment Company to the subsidiary as the trust property, trust to the trust company, the establishment of property rights trust plan; the second layer of transaction structure: asset-backed special plan, buy trust beneficiary rights, based on the trust beneficiary rights of assets.
The asset-backed special plan involves four credit enhancement measures: priority subordinate structured design, with a subordinate accounting for 5.32%; cash flow excess coverage, the cash flow of the resettlement housing sales revenue has a multiple of the priority principal and interest coverage of not less than 1.34 times; the difference compensation commitment, B City Investment assumes the obligation to make up the difference between the trust plan and the asset-backed special plan; the pledge guarantee, the B City Investment subsidiary uses the accounts receivable for the sale of the corresponding shed renovation as the pledge property, which is the borrowing claim enjoyed by the trust plan. B City Investment made a promise to provide a pledge guarantee for the difference in the amount of compensation, and promised to use the future sales income of the corresponding shed renovation house as the first source of repayment of the principal and interest of the existing debt.
(3) Issuance of ABS. Asset-backed securities are issued on the basis of trust income rights, combined with credit enhancement and liquidity enhancement measures.
From the perspective of transaction structure, the role of the pledge guarantee is actually to make the future sales income of the affordable housing the actual source of repayment of the asset-backed plan; due to the uncertainty of the future sales income of the affordable housing, the commitment of the urban investment entity to make up the difference plays a central role, so that the ABS credit qualification is bound to the urban investment entity, ensuring the safety of the principal and interest of the priority securities.
Commercial Real Estate Mortgage ABS: High-quality underlying assets significantly improve credit qualifications
Analysis of underlying assets: Property assets against pledge increase the realization value of underlying assets and enhance ABS credit qualifications
Most of the commercial real estate business involved in urban investment is park development and property service business, which belongs to market-oriented business from the perspective of business classification, and there is market-oriented cash inflow; however, the amount of investment in commercial real estate development is large and the payment time is long, and the liquidity pressure of urban investment can be reduced through ABS financing.
The underlying assets of urban investment commercial real estate mortgage ABS are generally the claims of the urban investment entity to the subsidiary responsible for commercial real estate development, and the subsidiary provides property asset mortgage and property operation income pledge for the claim.
The source of cash flow of the underlying assets is the net income from property operation, and the stability is questionable, which is related to the regional investment attraction, industrial development, and property operation service capabilities; however, the mortgage of property assets, such as mortgage with housing ownership and land use rights, greatly increases the realization value of the underlying assets.
Transaction structure: Taking cbd commercial real estate mortgage ABS as an example, commercial real estate mortgage enhances the credit enhancement effect
Taking C City Investment Commercial Real Estate Mortgage ABS as an example, we analyze the ABS transaction model of Urban Investment Commercial Real Estate Mortgage Loan.
The ABS trading model of C City Investment can be simply understood as three steps, setting up an asset-backed special plan and obtaining the debt of a subsidiary of Urban Investment as the basic asset, improving credit enhancement and liquidity enhancement measures, and issuing ABS.
(1) Establish an asset-backed special plan to purchase underlying assets. The Asset-Backed Special Scheme purchases C City Investment Company's loan claims against Subsidiary 2 (responsible for commercial real estate development).
(2) Improve measures for credit enhancement and liquidity enhancement. The asset-backed special plan mainly involves 4 credit enhancement measures: priority subordinate structured design, which accounts for 5% of the subordinate; mortgage guarantee, subsidiary 2 provides mortgage security for the claims held by the asset-backed special plan with house ownership and land use rights, which can fully cover the principal and interest of the priority ABS, and the initial mortgage rate is 63.25%; the pledge guarantee, subsidiary 2 provides pledge guarantee for the claim based on property operation income; urban investment entity difference compensation obligation, liquidity support, debt joint and several liability guarantee, etc., Urban Investment C assumes the obligation to make up the difference for the priority ABS, the liquidity support obligation for the withdrawal of the priority ABS, the liquidity support for the operation of subsidiary 1, and the joint and several liability guarantee guarantee for the debtor 's (subsidiary 2) debt under the underlying asset transfer agreement.
(3) Issuance of ABS. The asset-backed special plan issues asset-backed securities based on the loan claims of subsidiaries, combined with credit enhancement and liquidity enhancement measures.
From the perspective of transaction structure, in addition to the common difference payment commitment of urban investment ABS, the ABS credit qualification is supported by the credit qualification of urban investment entities, and the mortgage guarantee of property assets has also played a strong role in improving the abs credit qualification, and the value of property assets can fully cover the principal and interest of ABS, and the initial mortgage rate is only 63.25%. This makes the credit qualification of urban investment ABS blessed, and may even be higher than the credit qualification of the main body.
There is a spread between ABS and ordinary bonds: liquidity compensation + credit qualification difference We exclude the influence of factors such as the credit qualification, duration, issuance method, whether perpetual bonds and other factors of the subject, and calculate how much the VALUATION of ABS is higher than the valuation of ordinary bonds, which is called ABS spread.
We use the valuation of urban investment ABS minus the valuation of ordinary bonds with the same entity and the same remaining maturity range to calculate the ABS spread. In the calculation process, we separate the bonds issued by the public offering and the private placement, the public ABS (all ABN) minus the valuation of the public ordinary bonds, and the private ABS minus the valuation of the private ordinary bonds; when the ordinary bonds are selected, the perpetual bonds are removed to avoid the perpetual premium affecting the calculation results. As a result, we exclude the influence of factors such as the entity's credit qualification, duration, issuance method, whether perpetual bonds are available, and obtain a pure ABS spread.
ABS spreads can be broken down into two parts, the first is the liquidity compensation of ABS, and the other is the difference between ABS credit qualification and entity credit qualification.
Liquidity compensation is due to the inactivity of ABS transactions in the secondary market, poor liquidity, and THE STRUCTURE OF ABS transactions is complex, the underlying assets are difficult to confirm, and credit analysis is difficult, so it needs to be compensated by higher yields.
The difference in credit qualifications is divided into three situations: if the entity's credit qualification is very good, or the ABS underlying assets are not independent, in the case of a reasonable transaction structure, the ABS credit qualification is basically equivalent to the entity's credit qualification, and the credit difference has a small impact; if the ABS underlying assets are independent, have sufficient and reliable cash flow, or have a high realization value, and the ABS credit qualification is better than the entity's credit qualification, the credit qualification difference brings negative interest margins. If the underlying assets of ABS itself are not independent, and the credit enhancement effect of the transaction structure is limited, it may lead to ABS credit qualification being significantly lower than the entity credit qualification, and the difference in credit qualification needs to be compensated by the yield spread.
Horizontally, the current urban investment ABS generally has a certain spread, some of the main interest rate difference is larger, the public urban investment ABS subject credit qualification is better, mainly affected by liquidity compensation, the interest rate difference is positive specifically to see the urban investment ABS spread situation, sub-issuance methods, the number of public urban investment ABS is small, all ABN (asset-backed notes). The credit qualifications of these public urban investment ABS entities are relatively good, and the implied ratings of the main entities are all AA(2) or above, of which the implicit rating of the main body of guangzhou metro is AAA, shaoxing Keqiao state-owned assets, and Xuzhou Xinsheng is AA+. From the perspective of ABS spreads, these urban investment ABS spreads are distributed between 20-80BP, which mainly reflects liquidity compensation.
Among them, the ABS spread of Guangzhou Metro is low, only 20BP; the ABS spread of Changshu Binjiang, Shaoxing Keqiao State-owned Assets and Xuzhou Xinsheng is higher, exceeding 60BP. Chongqing high-tech new city construction, the remaining term of the existing public urban investment ABS does not fully correspond to the ordinary public bond, but it can be seen that the valuation of the 0-1 year public urban investment ABS is 4.62%, which is significantly higher than the valuation of the 1-2 year public bond 3.20%, and the ABS spread is estimated to be at least 140BP, and the interest rate difference is significantly larger.
In private urban investment ABS, the implicit rating AA+ and AA entity ABS spreads may mainly reflect the liquidity premium
Most urban investment ABS is private placement issuance, and we use the urban investment ABS valuation minus the valuation of private bonds of the same entity and the same maturity to calculate the spread.
From the perspective of implicit ratings by entity, the implied rating AA+ urban investment ABS spread is generally positive, mainly distributed between 10-80BP, and some entities have higher ABS spreads, which require specific analysis of the underlying assets, entity credit and transaction structure.
Yuhang Innovation 1-2 year ABS spread of 34BP, Jinan Xicheng 1-2 year ABS spread of 57BP, Shaoxing trading 0-1 year, 1-2 years, 2-3 years ABS spread of 123, 137, 170BP, Chengdu Gaotou, Chengdu Xingcheng, Shanghai New Changning can not directly calculate the ABS spread, the estimated spread is roughly 10, 60, 10BP. Entities with large ABS spreads may have a certain investment value, but they still need to specifically analyze the underlying assets, entity credit and transaction structure.
Among the credit qualifications of urban investment entities with implicit rating AA, ABS spreads are distributed in the small range of (-20,60) BP.
The ABS spread distribution of the entity implied rating AA is narrower than the AA+ range of the subject implied rating, which may be due to the more valuable credit enhancement effect of the ABS underlying assets and transaction structure, and the advantage of credit qualification makes up for part of the impact of the liquidity premium disadvantage.
In the ABS of private urban investment, the abs spread of the implicit rating AA(2) entity is very differentiated
The credit qualification of the urban investment entity with the implied rating AA(2) of the entity is medium, and some institutions are on the edge of the investable library, and the difference in the underlying assets and transaction structure of ABS leads to the differentiation of abs credit blessing, and the ABS spread is largely differentiated, distributed between (-40,270) BP.
This may be due to the difference between different ABS underlying assets and transaction structures, some ABS underlying assets have strong cash flow uncertainty and poor realization value; and the entity's credit qualification itself is not good enough, which makes urban investment ABS further fall outside the range of institutional investment, and abS spreads are very high; while some ABS basic assets and transaction structure credit blessings play a large role, but make it enter the investable range.
In the ABS of private urban investment, the implied rating AA- and the following entities have higher ABS yields and negative spreads
Implicit rating AA- and below urban investment entities, the main credit qualification is weak, ABS credit blessing role is prominent, but most of the ABS spread is negative.
In the current market environment, most investment institutions have low credit risk preference and it is difficult to sink credit, while the basic assets and transaction structure of ABS have played a role in credit support, which has led to most of the ABS spreads being negative.
Vertically, the urban investment ABS spread has not been fully tapped
Above, we have studied the spread distribution of urban investment ABS in various issuance methods and implicit ratings of various entities horizontally; from the perspective of time series, we conduct a longitudinal study of the spread space of urban investment ABS. Taking Shaoxing, which has a large number of bonds issued and ABS and ordinary bonds have a large stock, as an example, since 2020, the spread of urban investment ABS relative to ordinary bonds of the same maturity has not been fully tapped, and it has been maintained in the range of 100-150BP relatively smoothly. This may be related to the difficulty of confirming the underlying assets of urban investment ABS and the complexity of the transaction structure, and we believe that urban investment ABS still has a large space for mining.
Investment strategy: high-quality entities buy liquidity premiums, and weaker entities buy assets to support the decomposition of urban investment ABS spreads
From the analysis of the ABS spread of different issuance methods and the implied rating of different entities in the above article, there may be three situations: the subject's credit qualification is excellent, or the underlying assets are not independent ABS, the credit difference is less affected, the ABS spread is mainly affected by liquidity compensation, and is generally positive; the subject's credit qualification is medium or weak, and when the ABS underlying assets are high-quality and independent, abs credit qualification may be significantly better than the subject's credit The liquidity disadvantage and credit qualification advantage work together, resulting in the abs interest rate difference narrowing or negative; the subject credit qualification is medium or weak, and the cash flow of abs underlying assets is uncertain and not independent, and it is difficult to realize, ABS has both liquidity disadvantage and credit qualification disadvantage, and ABS spread is large.
Specifically, when the credit qualification of urban investment entities is very good, such as entities with implicit ratings of AA+ and above, even if ABS has the support of basic assets, it is difficult for the credit qualifications to exceed the credit qualifications of the subjects; in practice, most of the basic assets of urban investment ABS rely on the continuous operation of the entities, and there is no obvious difference between the ABS credit qualifications and the credit qualifications of the entities. If the entity's credit qualification is weak and the ABS underlying assets are relatively high-quality, the ABS credit qualification is better than the entity's credit qualification.
Because, due to the underlying assets, the abs guaranteed value is higher than that of ordinary claims; in the case of physical assets against pledge, the disposal yield of the underlying assets is generally higher than the repayment rate of ordinary claims; at this time, the advantage of ABS credit qualification may be better than the disadvantage of liquidity qualification, resulting in negative ABS spreads.
If the entity's credit qualification is weak, and the abs underlying assets lack independence, the realization value is also low; at this time, the difference between abs liquidity compensation and credit qualification is large, and the ABS spread is higher; but considering that both the entity and abs itself lack credit support, the credit risk is also larger.
Urban investment ABS investment strategy: high-quality entities buy liquidity premium, weaker entities buy assets to support from the comprehensive analysis of the interest rate spread and credit risk of urban investment ABS, which can construct an investment strategy:
(1) First of all, through the urban investment ABS with excellent credit qualifications of the subject, the liquidity premium is obtained, and the space for future liquidity premium compression is obtained.
AbS with excellent credit qualifications of the main body, the entity itself is in the investable library, and the investment in urban investment ABS can obtain a liquidity premium; this liquidity premium has not been fully tapped, and with the expansion of the ABS investment group, the liquidity premium may still have room for compression.
(2) Second, the ABS of the entity with weak credit qualifications, but the cash flow of the underlying assets is stable, reliable and independent, or the realization value is high, is used as a small amount of credit mining tools.
ABS, which has weak credit qualifications, can be used as a credit mining tool, but the premise is that it is necessary to carefully distinguish whether the real cash flow of the underlying assets is stable, reliable and independent, and whether there is a high realization value. If it is, in extreme cases such as credit default events, it can bring more than the repayment rate of ordinary creditor's rights, which can be used as a starting point for credit mining, but due to the weak credit qualification of the entity, the subject may have related risks, and there is inevitably a hidden danger of valuation fluctuations.
(3) Finally, abs that avoid entities, ABS underlying assets, and transaction structures are weak.
If the entity's credit qualification and ABS underlying assets and transaction structure are weak, the credit risk of ABS may be higher, and it will bear the brunt of urban investment risk events; even if the interest rate spread is higher, the risk-reward ratio may be poor, and it is recommended to avoid it.