7. Credit enhancement features
3 key means of leverage for capital unlock
Both the investor and originator bank benefit from three core means of credit enhancement from ChinaAI:
100% Notional Guarantee: Given a $200k initial investment from Circle and Alliance, the Old Mutual Facility (underwriter) provides a $10 million AAA-rated guarantee to unlock total USD liquidity at originating banks. In anticipation of future growth, a Repo facility enables the guarantee to scale up to $500 million fully funded.
Self-Funding Reserve: Excess spread is reinvested as collateral. This progressively de-risks the underwriter, providing additional protection (and right-way risk) for the investor and originator bank.
Super senior Tranche: Given the expected loss of 0.01% on AAA-rated trade credit, a 2% super senior tranche provides a 200x buffer. Considering the cushion provided by the first layer of sovereign bonds and equity tranche, the probability of investors exhausting this buffer is close to 0%. The result is made sustainable by using superior default-risk prediction enabled by machine learning (e.g. XGBoost and Random Forest).
This multi-tier credit enhancement allows the investor and originator bank to unlock increasing USD liquidity while managing risk sustainably. Section 8 elaborates on risk-mitigation factors.
Last updated