JPY150 billion in Debt Securities affected
Tokyo, September 02, 2020 -- Moody's SF Japan K.K. has assigned definitive ratings
to Trust Beneficial Interest (202008) backed by residential mortgage loans.
The complete rating action is as follows:
Transaction Name: Trust Beneficial Interest (202008)
Class, Issue Amount, Scheduled Dividend Rate/Interest Rate,
Rating
Class I Senior Beneficial Interests, JPY100 billion, Floating,
Aaa (sf)
Tokkin ABL, JPY50 billion, Floating, Aaa (sf)
Total Issue Amount: JPY150 billion
Closing Date: September 2, 2020
Final Maturity Date: April 30, 2058
Underlying Asset: Residential mortgage loans
First Trustee: Mitsubishi UFJ Trust and Banking Corporation
Second Trustee: The Norinchukin Trust & Banking Co.,
Ltd.
Arranger: Mitsubishi UFJ Trust and Banking Corporation / The Norinchukin
Trust & Banking Co., Ltd.
Credit Enhancement: The senior/subordinated structure and excess
spread available.
Subordination: Approx. 18.1%
RATINGS RATIONALE
The Seller entrusts a pool of its residential mortgage loans, all
related rights and cash to the First Trustee. In turn, the
Seller receives the Class I Senior Beneficial Interests and the Class
II Senior Beneficial Interests (collectively, "Senior Beneficial
Interests"), the Seller's Beneficial Interests and the
Subordinated Beneficial Interests.
Entrustment of the residential mortgage loans is perfected against third
parties via registration pursuant to the Perfection Law. Perfection
against obligors of the receivables is not made unless certain events
occur.
The Seller has established first security interests (mortgages) on the
collateral properties. The First Trustee holds the security interests
in accordance with the entrustment of the loans. Transfer of the
ownership of the security interests is not perfected by registration unless
certain events occur.
The Seller's Beneficial Interests are backed by a cash reserve that
will cover liquidity risk, commingling risk, set-off
risk, registration expenses for the transfer of the ownership of
the security interest and fees relating to the start of back-up
servicer operations and so forth.
The Seller retains the Seller's Beneficial Interests, and
sells the Class I Senior Beneficial Interests to beneficial interest investors,
the Class II Senior Beneficial Interests to the Second Trustee and the
Subordinated Beneficial Interests to subordinated beneficial interest
investors. The transfer of the Senior Beneficial Interests and
the Subordinated Beneficial Interests is perfected against relevant obligors
and third parties under Article 94 of Japan's Trust Law.
The Tokkin Settlor entrusts cash to the Second Trustee and receives the
Beneficial Interests. The Second Trustee receives limited recourse
loans, the Tokkin ABL, from ABL investors. The proceeds
are used to purchase the Class II Senior Beneficial Interests.
The Seller acts as the initial servicer, under the Servicing Agreement
with the First Trustee.
The transaction does not have a third-party Back-up Servicer
in place that can take over actual servicing operations. However,
the First Trustee appoints an eligible Back-up Servicer by entering
into a new servicing agreement if any servicer replacement preparation
events occur.
Special Servicer is appointed, under the Special Servicing Agreement
with the First Trustee and the initial servicer. The First Trustee
appoints an eligible Back-up Special Servicer by entering into
a back-up special servicing agreement if any special servicer replacement
preparation events occur.
Principal redemption is made in a sequential manner. After the
Senior Beneficial Interests are fully redeemed, the Seller's
Beneficial Interests and the Subordinated Beneficial Interests are then
redeemed in this order. The Class I Senior Beneficial Interests
and the Class II Senior Beneficial Interests are redeemed on a pari passu
basis.
The dividend and principal collections of the Class II Senior Beneficial
Interests are allocated to the interest and principal payments on the
Tokkin ABL.
If any accelerated amortization events occur, the dividends waterfall
to the Seller's Beneficial Interests and the Subordinated Beneficial
Interests are suspended, and the excess spread is used to redeem
the Senior Beneficial Interests. Key accelerated amortization events
include a servicer replacement event occurring.
The interest type of underlying assets is floating rate with the option
to convert to fixed rate. Interest rate on a portion of the loan
portfolio are fixed at closing and thus the transaction has an asset-liability
interest rate mismatches. The rated notes are exposed to the risk
that the base interest rate increases significantly which could lead to
negative carry. The negative carry risk is mitigated by the credit
enhancement provided by the senior/subordinated structure.
The ratings are based mainly on the credit quality of the receivables,
the transaction structure, and the servicer's experience.
Having analyzed both the obligors' attributes and the originator's
historical performance, Moody's estimated an expected cumulative
gross loss rate of 3.0%. Moody's also determined
its portfolio Expected Loss (EL) of 1.2% and MILAN Credit
Enhancement (CE) of 7.9%. In addition, Moody's
used the portfolio EL and the MILAN CE to determine a probability loss
distribution and conducted a cash flow analysis with multiple portfolio
loss scenarios of the distribution.
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 First Trustee's bankruptcy
is sufficiently minimized to achieve the ratings assigned.
Moody's considers the seller sufficiently capable of servicing the pool,
having taken into account the seller's business experience and the servicing
operations.
The principal methodology used in these ratings was "Moody's Approach
to Rating RMBS Using the MILAN Framework" (Japanese) published in May
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1228959.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to a downgrade of the ratings:
The primary factors that could lead to a downgrade of the ratings are
worse performance of the underlying assets than Moody's expected.
Moody's has also conducted the sensitivity analysis below which
provides the number of notches by which the model-indicated output
of the deal would have varied if different assumptions had been made as
to certain key model parameters. The analysis assumes that the
deal has not aged.
If the expected cumulative gross loss rate and the MILAN CE were changed
from 3.0%/7.9% to 4.5%/11.9%
and 6.0%/15.8% and other assumptions remained
unchanged, the model-indicated output of the Class I Senior
Beneficial Interests and the Tokkin ABL would change by 1 and 3 notches
respectively.
The analysis results are model-indicated outputs, which are
one of the many quantitative and qualitative factors considered by rating
committees in determining actual ratings. This analysis does not
intend to measure how the rating of the deal might migrate over time,
but rather, how the initial model-indicated output of the
deal might have differed if certain key model parameters had been varied.
The rapid spread of the coronavirus outbreak, the government measures
put in place to contain it and the deteriorating global economic outlook,
have created a severe and extensive credit shock across sectors,
regions and markets. Our analysis has considered the effect on
the performance of consumer assets from the collapse in Japanese economic
activity in the second quarter and a gradual recovery in the second half
of the year. However, that outcome depends on whether governments
can reopen their economies while also safeguarding public health and avoiding
a further surge in infections. As a result, the degree of
uncertainty around our forecasts is unusually high. We regard the
coronavirus outbreak as a social risk under our ESG framework, given
the substantial implications for public health and safety.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to
determine the collateral loss distribution, that is, the function
that correlates to an assumption about the likelihood of occurrence to
each level of possible losses in the collateral. As a second step,
Moody's evaluates each possible collateral loss scenario using a
model that replicates the relevant structural features to derive payments
and therefore the ultimate potential losses for each rated instrument.
The loss a rated instrument incurs in each collateral loss scenario,
weighted by assumptions about the likelihood of events in that scenario
occurring, results in the expected loss of the rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Moody's SF Japan K.K. is a registered credit rating agency
under the Financial Instrument and Exchange Act but not a Nationally Recognized
Statistical Rating Organization ("NRSRO"). Therefore the credit
ratings assigned by Moody's SF Japan K.K. are Registered
Credit Ratings to the FSA, but are not NRSRO Credit Ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Shinichiro Kan
VP - Senior Credit Officer
Structured Finance Group
Moody's SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
Yusuke Seki
Associate Managing Director
Structured Finance Group
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
Releasing Office:
Moody's SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
