Legal Research About Credit Enhancement In Asset Securitization

Asset securitization is one of structured financing technology. With its ownunique operating structure, the sponsors and investors could share profits anddiversification of risk. So asset securitization has been widely used in the countries allover the world. Credit enhancement is an important link of asset securitizationstructure. The reasons is that it can reduce the financing cost for the sponsors, avoidthe risk will happen in the trading period, get higher credit scores,attract moreinvestors. Then the securitization products will sell well. This thesis introduces thelegal basis and principle of the credit enhancement and analysis the entire assetsecuritization operation under the legal environment in China. Based on the above, thethesis’s point is to explain the legal barriers when using the credit enhancement mode.This question made the credit risk cannot be dispersed. Instead of, the risk is moreconcentrated on a link. This article attempts to give some suggestions about how tomake the credit enhancement play a better role in asset securitization from twoperspectives which is the legal and the market.This thesis includes four parts as follows:In the first part, the author illustrates the basic connotation of asset securitizationfrom the two perspectives which is the economics and the law. Then the thesisintroduces the development process of asset securitization in the United States, Europe and Asia respectively. The process of China’s asset securitization displayswith data list. When the article introduces of asset securitization transaction operationstructure the point is on the description and explanation the legal principle of thespecial purpose vehicle and the structure of the asset pool. The last part introduces therisk when operating these financial instruments and explains the role of creditenhancement in the asset securitization briefly.The main content of the second part is the introduction of the credit enhancementpatterns and the analysis of the legal environment. According to the different legalprinciple, the article introduces four kinds of internal credit enhancement patterns andfive kinds of external credit enhancement patterns. And then according to theoperation of asset securitization process, the paper interprets each link which must bebased on laws and legal obstacles. Through the above analysis, some mechanismsrestrict the use of credit enhancement patterns, which is the bankruptcy law, theguarantee law, the information disclosure system in China.On the third part of the thesis mainly introduces the practice of assetsecuritization operation in China. In China, the representative of securitized productshas two categories, one is credit asset securitization products, and another is enterpriseasset securitization securitized products. Each of product’s credit enhancementpatterns has been counted in the form of table. The author summaries it and analysisthe advantages and disadvantages on it. Then we do case analysis on the two products,show the characteristics of credit enhancement mode design in China and itsdefective.With the analysis on the credit enhancement in legal and empirical, the authorattempts to give some suggestions on legal system of credit enhancement and theoperational mode. In order to promote the development of asset securitization inChina, the author put forward concrete suggestions on the specific legislativeproposals and the cultivation of the market main body etc.