JPY 8.5 billion in Chotatsu Trust Beneficial Interests affected
Tokyo, January 28, 2011 -- Moody's Japan K.K. has assigned a provisional rating to
Leading Star 3, JPY8.5 billion, backed by credit card
receivables.
The ratings address 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 January 27, 2011.
The complete rating action is as follows:
Deal Name: Leading Star 3
Class: Chotatsu Trust Beneficial Interests
Rating: (P)Aaa (sf)
Scheduled Issue Amount: JPY8.5 billion
Scheduled Dividend Rate: Fixed
Payment Frequency: Monthly
Scheduled Entrustment Date: March 3, 2011
Scheduled Transfer Date of Chotatsu Trust Beneficial Interests:
March 11, 2011
Revolving Period: From March 2011 to February 2014
Final Maturity Date: March 29, 2019
Underlying Asset: Credit card purchase receivables
Total Amount of Receivables (Principal Amount): JPY15,000,999,968
Arranger/Chotatsu Trust Entruster: Nikko Cordial Securities Inc.
Asset Trustee/Chotatsu Trust Trustee: ORIX Trust & Banking Corporation
RATING RATIONALE
The seller, being both originator and initial servicer, will
entrust a pool of eligible credit card purchase receivables to the asset
trustee, which will then issue a Senior Beneficial Interest,
a Subordinated Beneficial Interest and a Seller's 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). Perfection against obligors
will not be made unless certain events occur.
The asset trustee will receive a limited recourse loan ("Trust ABL") from
the Chotatsu Trust Trustee. The funds will be used to redeem the
Senior Beneficial Interest in full. The Seller will hold the Subordinated
Beneficial Interest and the Seller's Beneficial Interest.
The Chotatsu Trust Entruster will entrust the cash to the Chotatsu Trust
Trustee, and receive the Chotatsu Trust Beneficial Interests.
The Chotatsu Trust Beneficial Interests will be transferred to investors.
The transfer will be perfected against the relevant obligors and third
parties under Article 94 of Japan's Trust Law.
Interest and principal repayment on the Trust ABL will be used to pay
dividends on and redeem the Chotatsu Trust Beneficial Interests.
The Trust ABL will be repaid in a sequential, monthly, scheduled
amortization.
Credit enhancement is provided by the senior/subordinated structure and
available excess spread. Subordination comprises approximately
19.3% of the initial principal balance of investors' beneficial
interest (the total of the Chotatsu Trust Beneficial Interests and the
Subordinated Beneficial Interest).
The Chotatsu Trust Beneficial Interests will be redeemed in a sequential,
monthly, scheduled amortization after a three-year revolving
period.
Defaulted receivables in the underlying pool will be used as payment in
kind for dividends on the Subordinated Beneficial Interest, while
cash in an amount equivalent to the principal balance of the defaulted
receivables will be transferred from the interest collection account to
the principal collection account (defaulted trapping mechanism).
Additional enhancement will be built up in accordance with deterioration
in the performance of the pool through a dynamic reserve mechanism.
If any early amortization events occur, the dividend waterfall to
the Subordinated Beneficial Interest will be suspended, and excess
spread will be used to repay the Trust ABL. Key early amortization
events include the default rate exceeding its trigger level.
In preparation for servicer replacement, liquidity will be provided
in the form of a cash reserve at closing. This reserve will cover
the interest payments on the Trust ABL, trust fees, and fees
relating to start back-up servicer operations, etc.
If any servicer replacement events occur, the asset trustee can
dismiss the servicer. A back-up servicer will be appointed
at closing.
Commingling risk is covered by the Seller's 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 7%, 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 base scenario of the monthly principal
payment rate is at approximately 4% and the annual yield at approximately
15%. (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 by adding stress consistent with the assigned rating on these
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 experience in the credit card industry.
The principal methodology used in this rating was "Moody's
Approach To Rating Credit Card Receivables-Backed Securities,"
published on December 6, 2010, and available on www.moodys.co.jp.
Moody's did not receive or take into account any third-party
due diligence reports on the underlying assets or financial instruments
in this transaction.
The V Score for this transaction is Low/Medium, the same score assigned
to the Japanese Credit Card ABS sector. Moody's has assigned ratings
to securitizations of credit card receivables originated by the seller
for about ten years. The structure of this transaction is a common
one, and the level of complexity is similar to that of a typical
Credit Card ABS.
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 8.5% or 10.0%, the model
output for the Chotatsu Trust Beneficial Interests in these two scenarios
would be one notch down (Aa1) for a 8.5% default rate,
and two notches down (Aa2) for a 10.0% 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 methodologies, "Updated Report on V Scores and Parameter
Sensitivities for Structured Finance Securities," published
on September 30, 2010 and " V Scores and Parameter Sensitivities
in the Global Consumer Loan ABS Sector," published on September
30, 2010, are 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
Masafumi Hirai
Associate 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 Leading Star 3 credit card receivables ABS
