Best overall ABS/MBS deal 2020
Gongyuanyiju RMBS 2020-1
Since the People’s Bank of China (PBoC) reformed the country’s benchmark rate system in August 2019, many banks have linked their RMBS trades to the new five-year loan prime rate (LPR). But the underlying mortgages of their RMBS deals were still linked to the old benchmark rate. As a result, linking their RMBS to the new five-year LPR created a rate mismatch between the asset side and the securities side.
Gongyuanyiju 2020-1 changed that. All borrowers in the Gongyuanyiju 2020-1 asset pool agreed to switch the benchmark rate of their loans from the old benchmark rate to the five-year LPR by the end of August 2020 in line with the deadline the PBoC gave commercial banks when it reformed the interest rate system.
The Rmb15.63 billion ($2.4 billion) RMBS has a Rmb6.3 billion senior A1 tranche, a Rmb7.78 billion A2 tranche and a Rmb1.553 billion subordinated tranche. The deal was originated by the Industrial and Commercial Bank of China (ICBC). Citic Securities was the lead underwriter with Bank of China International and Bank of Communications as joint leads.
Since the trade was the first LPR-linked RMBS which has underlying assets also benchmarked on the new LPR, many institutional investors had to update their internal valuation systems so that they could chip in the trade.