JPY [20.0] billion in Beneficial Interests affected
Tokyo, February 23, 2011 -- Moody's Japan K.K. has assigned a provisional rating to
Cosmic Trust 2011-1 Beneficial Interests, amounting to JPY
[20.0] billion, backed by consumer loan receivables.
The rating addresses the expected loss posed to investors by the final
maturity date. The structure allows for timely payments of dividends
(in scheduled amounts, on scheduled payment dates), and ultimate
payment of principal by the final maturity date.
Moody's issues provisional ratings in advance of the final sale of securities.
These ratings, however, represent Moody's preliminary credit
opinions only. Upon a conclusive review of the transaction and
associated documentation, Moody's will endeavor to assign definitive
ratings to the securities. Definitive ratings may differ from provisional
ratings. The provisional rating is based on information received
as of February 22, 2011.
The complete rating actions follow:
Deal Name: Cosmic Trust 2011-1
Beneficial Interests, rated (P)Aaa (sf)
Scheduled Issue Amount: JPY [20.0] billion
Scheduled Dividend Rate: Fixed
Payment Frequency: Monthly
Scheduled First Asset Trust Entrustment Date: March [24],
2011
Scheduled Second Asset Trust Entrustment Date: March [25],
2011
Scheduled Beneficiary Interests Transfer Date: March [31],
2011
Revolving Period: From March 2011 to [March] 2012
Final Maturity Date: [March 31, 2017]
Underlying Asset: Consumer loan receivables
Arranger: Mitsubishi UFJ Morgan Stanley Securities Co.,
Ltd.
RATING RATIONALE
The seller will entrust a pool of consumer loan receivables to the First
Asset Trustee, and receive a Senior Beneficial Interest, a
Subordinate Beneficial Interest and a Seller Beneficial Interest.
Entrustment of the receivables will be perfected against third parties
under the Perfection Law (the Law Prescribing Exceptions, Etc.
to the Civil Code Requirement for Setting Up Against a Third Party to
an Assignment of Claims and Chattels [Law No.104, 1998]).
Perfection against obligors will not be made until certain events occur.
The ABL Lender will extend a limited recourse asset backed loan ("ABL"),
totaling JPY [20.0] billion, to the First Asset Trustee
under an ABL agreement. The First Asset Trustee will use the amount
financed by the ABL to redeem the Senior Beneficial Interest.
The ABL Lender will entrust the ABL to the Second Asset Trustee,
and in turn receive Beneficial Interests. Entrustment of the ABL
will be perfected against the relevant obligor and third parties by obtaining
the First Asset Trustee's certified, dated approval without objection
in writing, in accordance with rules under the Civil Code's
Article 467.
The seller will hold the Seller Beneficial Interest and the Subordinated
Beneficial Interest.
Credit enhancement is provided by the senior/subordinated structure and
available excess spread. Subordination comprises 32.0%
of the total principal amount of the ABL and Subordinated Beneficial Interest.
Cash flow from the ABL will be allocated to the payment of principal and
scheduled dividends on the Beneficial Interests. The Beneficial
Interests will be redeemed in pass-through amortization with cash
flow from the ABL at the Second Asset Trustee level.
Cash flow from the receivables will be allocated to the payment of principal
and interest on the ABL. The ABL will be redeemed in a scheduled
monthly amortization after a one-year revolving period.
Default receivables will be used as payment in kind for dividends on the
Subordinated Beneficial Interest, while cash -- in
an amount equivalent to the principal balances of the defaulted receivables
-- will be transferred from the interest collection account
to the principal collection account (defaulted trapping mechanism).
If an early amortization event occurs, the dividend waterfall to
the Subordinated Beneficial Interest will be suspended, and excess
spread will be used to redeem the ABL. Key early amortization events
include a servicer replacement event occurring and asset performance triggers
being reached.
In preparation for servicer replacement, liquidity will be provided
in the form of a cash reserve at closing. This reserve will cover
interest payments on the ABL, trust fees, and fees relating
to start back-up servicer operations, etc. If any
servicer replacement events occur, the First Asset Trustee can dismiss
the servicer. A back-up servicer will be appointed at closing.
Commingling risk is covered by the Seller Beneficial Interest.
The rating is based mainly on the strength of transaction structure,
the credit of the receivables, and the servicer's experience.
Moody's estimated the annualized expected default rate of the underlying
assets at approximately 13.5%, after taking into consideration
receivable attributes, historical data on the seller's entire
pool, performance data on existing securitization pools, and
industry trends. Moody's also believes that the monthly principal
payment rate is almost 4%, and the yield 17%.
(These parameters are based on Moody's definition for analytical
purposes, and thus may not be comparable to other data.)
To determine the rating, Moody's also conducted a cash flow
analysis in which it added stress consistent with the assigned rating
on parameters such as the expected default rate.
Moody's assumes that, given the structure of the transaction
as well as other factors, the risk of interruption to the cash flow
from the assets in the event of the seller's or the Asset Trustee's
bankruptcy is sufficiently minimized to achieve the rating assigned.
Moody's examined the seller's operations and considers it
sufficiently capable of servicing the underlying pool as initial servicer,
given its substantial experience in the industry.
The principal methodology used in this rating was "Moody's Approach
to Rating Consumer Finance Loan ABS in Japan" published on December
6, 2010, and available on www.moodys.co.jp.
Moody's did not receive or take into account a third-party
due diligence report on the underlying assets or financial instruments
in this transaction.
The V Score for this transaction is Medium, the same score assigned
to the Japanese consumer loan ABS sector. Moody's has assigned
ratings to the securitization of consumer loan receivables originated
by the seller. The underlying asset backing this transaction is
consumer loan receivables, but not involving past payments of gray-zone
interest* thanks to the transaction's eligibility criteria.
This transaction's structure is a common one, and the transaction's
complexity is similar to that of a typical consumer loan ABS.
*In Japan, interest rate caps are regulated by two statutes:
the Interest Rate Restriction Law and the Capital Subscription Law,
each of which stipulates a different cap. The difference in the
interest rate charged between the two caps is called "gray-zone
interest."
Moody's V scores provide a relative assessment of the quality of available
credit information and the potential variability of various inputs in
a rating determination. The V score ranks transactions by the potential
for significant rating changes owing to uncertainty about the assumptions
due to data quality, historical performance, the level of
disclosure, transaction complexity, modeling, and the
transaction governance that underlie the ratings. V scores apply
to the entire transaction, not to individual tranches.
If the transaction default rate used in determining the initial rating
were changed to 15% or 17%, the model output for the
Beneficial Interests in these two scenarios would be zero notches down
(Aaa) for a 15% default rate, and one notch down (Aa1) for
a 17% default rate (the "parameter sensitivities").
Parameter sensitivities are not intended to measure how the rating of
the security might migrate over time; rather, they are designed
to provide a quantitative calculation of how the initial rating might
change if key input parameters used in the initial rating process differed.
The analysis assumes that the deal has not aged, and does not factor
structural features such as sequential payment effect. Parameter
sensitivities reflect only the ratings impact of each scenario from a
quantitative/model-indicated standpoint.
Qualitative factors are also taken into consideration in the ratings process,
so the actual ratings that would be assigned in each case could vary from
the information presented in the parameter sensitivity analysis.
The methodology, "Updated Report on V Scores and Parameter
Sensitivities for Structured Finance Securities," published
on September 30, 2010, is available on www.moodys.co.jp.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
REGULATORY DISCLOSURES
For an explanation of the (sf) indicator, please see "Moody's
Structured Finance Rating Scale" on www.moodys.com.
The principal information used to prepare the credit rating comprised
historical data, attribution data and contracts.
Information sources used to prepare the credit rating are the following
parties involved in the ratings (the Arranger etc.); public
information; and confidential and proprietary Moody's information.
Measures taken to ensure the quality of this information include representations
and warranties.
Moody's considers the quality of information available on the issuer
or obligation satisfactory for the purposes of assigning a credit rating.
A profile of the originator follows:
Business sector: Financial industry
Size of business: More than JPY 100 billion in total assets
Location: Tokyo
Reason for non-disclosure: Given the possibility that information
about this transaction could be used for objectives different from those
originally intended, disclosing the originator's name may
have a negative impact.
Moody's encouraged rating-related entities to disclose any
information that may be pertinent to this transaction, including
items described in "Information Considered Important in Evaluating
the Appropriateness of a Credit Rating" on www.moodys.co.jp,
or to take other measures to enable third parties to verify the appropriateness
of the credit rating.
Rating-related entities have responded to us that they will not
disclose information pertinent to this transaction to third parties except
through Moody's press release. However, they will disclose
related information pertinent to this transaction to candidate investors
who may invest in the transaction.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Credit ratings are Moody's current opinions of the relative future credit
risk of entities, credit commitments, or debt or debt-like
securities. Moody's defines credit risk as the risk that an entity
may not meet its contractual, financial obligations as they come
due and any estimated financial loss in the event of default. Credit
ratings do not address any other risk, including but not limited
to: liquidity risk, market value risk, or price volatility.
Credit ratings do not constitute investment or financial advice,
and credit ratings are not recommendations to purchase, sell,
or hold particular securities. No warranty, express or implied,
as to the accuracy, timeliness, completeness, merchantability
or fitness for any particular purpose of any such rating or other opinion
or information is given or made by Moody's in any form or manner whatsoever.
The credit risk of an issuer or its obligations is assessed based on information
received from the issuer or from public sources. Moody's may change
the rating when it deems necessary. Moody's may also withdraw the
rating due to insufficient information, or for other reasons.
Moody's Japan K.K. is a credit rating agency registered
with the Japan Financial Services Agency and its registration number is
FSA Commissioner (Ratings) No. 2. The Financial Services
Agency has not imposed any supervisory measures on Moody's Japan K.K.
in the past year.
Please see ratings tab on the issuer/entity page on the Moody's website
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Credit Ratings were fully digitized and accurate
data may not be available. Consequently, Moody's provides
a date that it believes is the most reliable and accurate based on the
information that is available to it. Please see the ratings disclosure
page on the Moody's website for further information.
Please see the Credit Policy page on the Moody's website for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Tokyo
Takako Tokinaga
Asst Vice President - Analyst
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Yusuke Seki
Senior Vice President - Team Leader
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Moody's Japan K.K.
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Moody's assigns a provisional rating to Cosmic Trust 2011-1, consumer loan ABS
