MOODY'S ASSIGNS (P)Aaa.tw RATING TO SHIN KONG LIFE INSURANCE'S SECOND REAT DEAL
Approximately NTD 1.65 Billion of Asset-Backed Trust Beneficiary Certificates Rated
Taipei, May 27, 2005 -- Moody's Taiwan Corporation has assigned provisional National Scale Ratings
to the three series of beneficiary certificates to be issued by a real
estate asset trust which will own a certain portion of the Shin Kong Dun
Nan Building ("Dun Nan Building") located in Taipei City. The transaction
is arranged under Taiwan's Real Estate Securitization Law ("RESL") enacted
in July 2003, and sponsored by Shin Kong Life Insurance Company
("SKL"). Industrial Bank of Taiwan acts as the arranger.
The provisional National Scale Ratings assigned are as follows:
(P)Aaa.tw to NTD [1,130] Million Series A Beneficiary
Certificates due 2013
(P)A2.tw to NTD  Million Series B Beneficiary Certificates
(P)Baa2.tw to NTD  Million Series C Beneficiary Certificates
The above ratings address the expected loss the investors of the Series
A, Series B and Series C beneficiary certificates (together,
"senior beneficiary certificates") may face by the legal final maturity
date in 2013. The structure allows for timely payment of interest
and ultimate repayment of principal with respect to the senior beneficiary
certificates by the legal final maturity date.
In assigning the ratings, Moody's considered, among other
things, the following factors:
1. the quality and value of the Dun Nan Building;
2. the structural features which include the cash flow mechanism,
the presence of various pre-funded reserve funds, and the
experience of the property manager;
3. the level of subordination to be provided to each series of
beneficiary certificates by those junior to them in accordance with their
payment priorities; and
4. the legal integrity of the transaction and the fulfillment of
various requirements under the RESL.
The National Scale Ratings are not directly comparable to Moody's global
ratings, which do not carry a jurisdiction identification symbol.
Specifically, a Aaa.tw rating on Moody's Taiwan National
Scale indicates an issuer or issue with the strongest domestic creditworthiness
and the lowest likelihood of credit loss on local currency obligations
relative to other local issuers or issues.
Moody's emphasizes that National Scale Ratings are not opinions on absolute
default risks. These national ratings do not address systemic risk
or the expectation of loss associated with systemic events that could
affect all issuers - even those that receive the highest ratings
on the national scale.
The Land Bank of Taiwan, in its capacity as the trustee, will
issue three series of rated senior beneficiary certificates and a subordinated
beneficiary certificate (together, "beneficiary certificates").
The Dun Nan Building is wholly owned by SKL. On the trust establishment
date, SKL will transfer part of its ownership in the building and
136 car parks to the newly set-up trust in exchange for the issuance
proceeds of the senior beneficiary certificates and the ownership of the
subordinated beneficiary certificate. The term "the Dun Nan Building"
used hereunder refers to the portions of the Dun Nan Building that would
be transferred to the trust.
The payments on the senior beneficiary certificates will derive from the
rental collections paid by tenants. The holders of the beneficiary
certificates will also be entitled to the trust assets, which include,
among others, the Dun Nan Building, the parcel of land on
which it is located, the tenancy agreements, the insurance
policies and insurance proceeds, and the transaction accounts.
Interest payments and principal prepayments will be made once every six
months in sequential order, starting from the Series A beneficiary
Rental collections from the tenants will first be applied to pay the various
fees and expenses that the transaction has incurred. The remaining
collections will then be used to fulfill the interest payment obligations
on the senior beneficiary certificates, and to replenish the reserve
funds to their required levels. If there is excess cash,
it will be employed to pay down the most senior beneficiary certificates
for an amount not exceeding NTD 37.5 million on each payment date.
Any shortfall will be carried forward to subsequent payment dates.
UNDERLYING TRUST ASSETS
The Dun Nan Building was completed in 1984 and is situated in the Da-an
district, a core business area in Taipei City, which is known
to be one of the best commercial districts in the city with many financial
institutions setting up their offices there.
Current tenants are involved in industries such as retail trading,
electronics, banking and chemical-related businesses.
The largest single tenant is a retail trading company, and those
involved in the electronics business make up the second largest tenant
group. Together, they occupy about 40% of the lettable
space and contributing the same portion to total rental income.
Such a high level of tenant concentration could leave the transaction
vulnerable as tenants could terminate their leases early by simply providing
several months advance notice and paying a penalty equal to 1-3
months rent. The transaction has a mechanism - by way of
reserve funds - to mitigate the cash flow disruption caused by
the tenant concentration risk.
When rating the transaction, Moody's considered the attributes of
the Dun Nan Building, the outlook for the office market in Taiwan,
along with the deal's payment mechanism, structural features and
the subordination available to each series of senior beneficiary certificates.
Consequently, Moody's is of the opinion that the subordination levels
of the senior beneficiary certificates are sufficient to protect their
investors against loss that is consistent with their respective ratings.
Shin Kong Life Insurance Company was established in July 1963.
It started its real estate business since 1964 and has been actively involved
in the market. It owns close to 200 buildings in Taiwan and its
investment in the real estate market is NTD 85.8 billion with annual
rental income of NTD 3.58 billion in 2003.
Tong Yang Chia Hsin International Corp., will be the property
manager of the transaction. It has experience in property management
- it is currently the property manager and leasing manager for
a prime office building in Taipei, and has held that role for the
past 17 years. In addition, it is the property manager in
another SKL-sponsored REAT transaction.
Pre-sale reports in English and Chinese will be available on Moody's
Moody's issues provisional ratings in advance of the final sale of securities
and these ratings reflect Moody's preliminary credit opinion regarding
the transaction. Upon a conclusive review of the final versions
of all the documents and legal opinions, Moody's will endeavour
to assign definitive ratings to the transaction. A definitive rating
may differ from a provisional rating. Moody's ratings address only
the credit risks associated with the transaction; other non-credit
risks have not been addressed, but may have significant effect on
yield to investors. Moody's ratings are subject to revision,
suspension or withdrawal at any time at our absolute discretion.
Moody's Investors Service is a publisher of rating opinions and research.
It is not involved in the offering or sale of any securities, nor
is it acting on behalf of the offering party. This release is not
a solicitation or a recommendation to buy, hold or sell securities.
Structured Finance Group
Moody's Asia Pacific Ltd.
Vice President - Senior Analyst
Structured Finance Group
Moody's Asia Pacific Ltd.