Research On Credit Enhancement Of China's Enterprise Asset Securitization

As credit enhancement plays a crucial role in enterprise asset securitization,this article focused on credit enhancement in this specific subject with the case of Hanhua Special Plan.This plan raising the amount of 350 million was launched by Hanhua Small Loan Company and backed by its petty loans.For the sake of issuing securities backed by poor-credit assets,five credit enhancement methods were used in this program including repurchase pledge,excess collateral,balance payment commitment,the third-party guarantee and structured hierarchy.Inside the product,credit of the whole asset pool was enhanced with subprime funds and excess petty loans.Outside the product,solvency of the asset-backed securities was also guaranteed by two companies with good reputation.With these credit enhancement methods effectively reducing adverse selection and moral hazard,credit of this special purpose vehicle was enhanced by means of excess asset and guarantee commitments.Standing on the originator side,the cost of credit enhancement is mainly composed of the opportunity cost of excess assets and the option value of guarantee commitments while the income is financing cost saving after credit enhancement.The difference between the income and cost reflected the effect of credit enhancement which proved significant.