| | Credit enhancement methods | Description |
| | Project company’s full premiums repurchase + third-party’s joint guarantees | The project company repurchase the equity (beneficial right or fund share) held by the financial instruments of equity-like debt (including trust plans, asset management plans, fund shares, etc.) according to the principal and income premium agreed in the investment contract, and the third-party agency (such as sponsoring group companies or local governments) undertakes joint guarantees on the repurchase obligations of the project company. The project company assumes the obligation to pay the debt, and the third-party institution which acts as the trustworthy entity will be the target of the rating. This is a guarantee security method, and the credit enhancement effect is based on the credit quality of the project company and the third-party organization. Any party with a high credit rating is sufficient to support the high level of rating of financing instruments. Therefore, the final credit rating is determined based on the higher rating of the two parties. |
| | Project company’s full premiums repurchase + third-party’s making up principal and interest shortfalls | In this case, the guarantee effect of the third-party institution’s commitment letter must be first determined. If the commitment letter of making up principal and interest shortfalls has strict terms, and the triggering mechanism is conducive to implementation, it can be defined that the supplemental commitments have substantial safeguard effect, but the nature of the liability is the supplementary responsibility instead of the repayment liability, so the replenishment obligor has the counterplead right of telling first and cannot constitute joint guarantees. The “Enterprise Bankruptcy Law” stipulates that the debtor’s unexpired guarantee liability is deemed to have been expired and needs to be paid off in advance. However, in the case of the bankruptcy of the third party, the guarantor who bears the supplemental responsibilities still has the problem of handling the counterplead right of telling first. In order to protect the fairness of transactions and achieve the original intention of setting rights, if the guarantor’s counterplead right is cancelled, the creditor may first get the repayment from the guarantor. Judging from the legal practice, as the supplement number of debts is difficult to define, the creditor’s claims can be denied by the bankruptcy administrator. Therefore, under this situation, if there is a substantial guarantee effect, and the terms in the agreement substantially cancel the guarantor’s counterplead right, the higher credit rating of the third party can support the debt rating to the corresponding level. If there is only a substantial guarantee effect and the credit rating of the third party institution is higher than that of the project company, it can support the debt which is higher than the project company level but not higher than the third party institution’s credit rating. In other cases, third-party agencies are not considered, and the credit rating of the debt is determined only based on credit rating of the project company. |
| | Project company’s principal repurchase + third-party’s making up principal and interest shortfalls | Project company repurchase the equity, income right and fund share of the financing instrument, The third party agency has the liability for the repurchase shortfalls of the project company and the interest of the financing instrument. However, as the project company acts as the debtor and its repurchase obligation cannot cover the principal and interest of the financing instrument, its corporate credit has little impact on the credit rating of the financing instrument. The main consideration is the substance of the third-party’s replenishment commitment shortfalls. If the credit rating of the third-party company is high, the debt rating can be appropriately close to its credit rating. |
| | Project company’s principal repurchase + profit supplement or project company’s full premiums repurchase of principal and interest | The project company acts as the debtor and assumes all payment obligations. Therefore, the credit rating of the debt is largely determined by the rating of the project company. |
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