QIFU TECHNOLOGY, INC.
Fitch Ratings has assigned ratings to
The issuance consists of notes backed by a pool of unsecured consumer loan receivables originated by
The notes are issued by
RATING ACTIONS
Entity / Debt
Rating
A1
LT
AAAsf
New Rating
A2
LT
AAAsf
New Rating
B
LT
BBB+sf
New Rating
Subordinated
LT
NRsf
New Rating
Page
of 1
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Stresses Commensurate with Rating (Neutral): Fitch assumes a base-case lifetime default rate of 2.5%, based on the historical performance of Fuzhou Microcredit's portfolio, our expectation of continued intense competition in the consumer loan market, restrictions on collection activities, and Fitch's lower economic growth expectation for
We applied a stress multiple of 6.5x, which is slightly above the range stated in the criteria for a 'AAAsf' rating, on transaction cash flow to take into account the 12-month revolving period.
Excess Spread and Sequential Paydown Structure (Positive): The senior notes are paid monthly in sequential order during the amortisation period, prior to any payments to the subordinated notes. The subordinated notes have 0% coupon and positive excess spread allows credit enhancement (CE) to build up for the senior notes. During the revolving period, aside from payment of quarterly fees and interest to the senior notes, all asset collections are used to purchase new loans.
Pool at Closing May Differ from
Satisfactory Legal Structure (Neutral): Fitch has reviewed the legal opinion issued in accordance with the provisions of relevant laws, regulations and normative documents, which support our analytical assumptions. The legal opinions cover, among other matters, the enforceability of the parties' obligations under the transaction and that the underlying assets are independent from the originator and plan manager.
Counterparty Risk Mitigated (Neutral): The transaction has mechanisms that ensure risks from various counterparties are mitigated, which are consistent to Fitch's criteria. However, the transaction is exposed to set-off risk from employee loans. Fitch views this risk as immaterial given the small number of employees relative to a very large, diverse pool of borrowers.
Adequate Servicing Capabilities (Neutral): Fuzhou Microcredit has a shorter servicing history compared with the servicers of other Chinese ABS transactions rated by Fitch. Fuzhou Microcredit was established in 2017 and acted as a servicer/originator for 18 ABS issues in the
Heying Factoring can perform servicing and collection duties should a servicer termination event occur in respect of Fuzhou Microcredit. Fitch conducted servicer review meetings with Fuzhou Microcredit and Heying Factoring, and found that the operation, risk management, servicing and collection procedures for both are satisfactory.
Elevated Score in Exposure to Social Impacts (Negative): Fuzhou Microcredit reduced its pricing in the last two years to comply with regulatory guidance of a 24% interest rate cap. Fitch believes regulators will continue to push for lower pricing to protect borrowers against usury practices and support growth of the real economy.
As the transaction has a 12-month revolving period and no minimum interest rate in the eligibility criteria, Fitch halved the WA pool interest rate to account for the pricing pressure and uncertainties in the rating analysis. The haircut results in a two-notch lower rating for class B.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Unanticipated increases in the frequency of defaults or decreases in recovery rates could produce larger losses than the base case and could result in potential rating action on the notes.
Expected impact on the note rating of an increase in defaults (Class A1/A2/B):
10% increase in default: AA+sf/AA+sf/BBBsf
25% increase in default: AAsf/AAsf/BBB-sf
50% increase in default: A+sf/A+sf/BB+sf
Expected impact on the note rating of a decrease in recoveries (Class A1/A2/B):
10% decrease in recoveries: AAAsf/AAAsf/BBB+sf
25% decrease in recoveries: AAAsf/AAAsf/BBB+sf
50% decrease in recoveries: AAAsf/AAAsf/BBB+sf
Expected impact on the note rating of a simultaneous increase in defaults and decrease in recoveries (ClassA1/A2/B):
10% increase in default, 10% decrease in recoveries: AA+sf/AA+sf/BBBsf
25% increase in default, 25% decrease in recoveries: AAsf/AAsf/BBB-sf
50% increase in default, 50% decrease in recoveries: A+sf/A+sf/BB+sf
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Expected impact on the note rating of a simultaneous decrease in defaults and increase in recoveries for the class B notes:
10% decrease in default, 10% increase in recoveries: A-sf
The class A1 and A2 notes are rated at the highest end of the rating scale and no positive rating action is possible.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
DATA ADEQUACY
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch reviewed the results of a third-party assessment conducted on the asset portfolio information, and concluded that there were no findings that affected the rating analysis.
Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool was not prepared for this transaction, although Offering Documents for this market sector typically do include it. For further information, please see Fitch's Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
Huaneng - 360 Phase 1 ABSP has an ESG Relevance Score of '5' for Exposure to Social Impacts due downward pressure on interest rates from regulators to protect borrowers against usury practices and support growth of the real economy, which has a negative impact on the credit profile, and is highly relevant to the rating, resulting in two-notch downgrade for class B notes.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
Additional information is available on www.fitchratings.com
(C) 2024 Electronic News Publishing, source
