JPY3.0 billion in Debt Securities affected
Tokyo, February 19, 2021 -- Moody's SF Japan K.K. has assigned a provisional rating
to Condominium investment loans trust ABL 202103 backed by condominium
investment loans.
The complete rating action is as follows:
Transaction Name: Condominium investment loans trust ABL 202103
Class, Issue Amount, Interest Rate, Rating
ABL, JPY3.0 billion, Floating, (P)Aaa (sf)
Closing Date: March 12, 2021
Final Maturity Date: November 20, 2057
Underlying Asset: Condominium investment loans
Arranger: Mizuho Securities Co., Ltd.
Credit Enhancement: The senior/subordinated structure and excess
spread available.
Subordination: Approx. 23.8%
RATINGS RATIONALE
The Settlor A entrusts a pool of its condominium investment loans and
all related rights to the Asset Trustee, and in turn receives the
Senior Beneficial Interests and the Subordinated Beneficial Interests.
The Settlor B entrusts cash to the Asset Trustee, and in turn receives
the Co-Settlor Beneficial Interests.
Entrustment of the condominium investment 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 condominium investment loans are guaranteed by the Settlor B as the
guarantor. The guarantor makes the payment for defaulted loans
on behalf of obligors for the benefit of the Asset Trustee. Such
payments are transferred to the Asset Trustee according to the servicing
agreement.
The Co-Settlor Beneficial Interests are backed by a cash reserve,
which is available to cover liquidity risk, costs for perfection
against the relevant obligors and fees relating to the start of back-up
servicer operations and so forth.
The Settlor A sells the Senior Beneficial Interests to the arranger and
the Subordinated Beneficial Interests to the Settlor B. 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 Asset Trustee receives limited recourse loans, the ABL,
from investors. The proceeds are used to redeem the Senior Beneficial
Interests.
The Settlor B acts as the initial servicer, under the Servicing
Agreement with the Asset Trustee. The Settlor B also assigns part
of its servicing operation to the Settlor A under the Calculation Agency
Agreement.
The transaction does not have a third-party Back-up Servicer
in place that can take over actual servicing operations. However,
the Asset Trustee has the obligation to appoint an eligible Back-up
Servicer if any servicer credit deterioration events occur.
Principal redemption is made in a sequential manner. After the
ABL are fully redeemed, the Subordinated Beneficial Interests are
then redeemed.
Interest collections (after paying expenses and dividends) are transferred
to the Principal Account up to the net balance of the cumulative defaulted
receivables, minus the guarantor's subrogated amount (default
trapping mechanism).
If any subordinated dividend suspension events occur, the dividends
waterfall to the Subordinated Beneficial Interests are suspended,
and any excess spread available is used to redeem the ABL. Key
subordinated dividend suspension events include a servicer replacement
event occurring.
Although the interest types of the asset side and liability side are floating
rate, their base interest rates are different. The rated
notes are exposed to the basis risk where the spread between the two base
interest rates is shrinking significantly which could lead to negative
carry. The negative carry risk is mitigated by the credit enhancement
provided by the senior/subordinated structure.
The rating is based mainly on the credit quality of the receivables,
the transaction structure, and the servicers' experience.
Moody's has not given any credit, in its rating analysis,
to the guarantee on the condominium loans.
Having analyzed the obligors' attributes, the historical performance
of the guarantor and industry trends, Moody's estimated an
expected cumulative gross loss rate of 4.2%. Moody's
also determined its portfolio Expected Loss (EL) of 2.1%
and MILAN Credit Enhancement (CE) of 18.3%. Moody's
used the portfolio EL and the MILAN CE to determine a probability loss
distribution for the portfolio and conducted a cash flow analysis considering
multiple portfolio loss scenarios.
The pool of condominium investment loans is small (around JPY3.9
billion) which means that the effective number of borrowers of 122 is
very low compare to typical Japanese RMBS. The high borrower concentration
increases the risk of high pool loss scenarios and this is taken into
account in the MILAN model via the Borrower concentration penalty and
the MILAN CE which are higher than usual. Moody's also checked
that the available credit enhancement for the ABL could cover the default
of a significant number of top loans to ensure that the rating of the
ABL are not too sensitive to the default of top loans.
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 bankruptcy of the Settlor A and B
or the Asset Trustee is sufficiently minimized to achieve the rating assigned.
Moody's considers the Settlor A and B sufficiently capable of servicing
the pool, having taken into account the business experience and
the servicing operations of the Settlor A and B.
The principal methodology used in this rating was "Moody's Approach
to Rating RMBS Using the MILAN Framework" (Japanese) published in January
2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1248144.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the rating:
The primary factor that could lead to a downgrade of the rating is 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 4.2%/18.3% to 6.3%/27.5%
and 8.4%/36.6% and other assumptions remained
unchanged, the model-indicated output of the ABL would change
by 1 and 1 notch 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 coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of consumer assets from the
current weak Japanese economic activity and a gradual recovery for the
coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. 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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is 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_1243406.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK 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
