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Rating Action:

Moody's assigns provisional rating to Eco Frontier Revenue Trust backed by future receivables

 The document has been translated in other languages

12 Apr 2011

JPY10.0 billion in Senior Beneficial Interests affected

Tokyo, April 12, 2011 -- Moody's Japan K.K. has assigned a provisional (P)A1 (sf) rating to the Senior Beneficial Interests backed by future receivables generated by the Ibaraki Prefecture Environmental Conservation Agency.

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 a provisional rating in advance of the final sale of securities. This rating, however, represents Moody's preliminary credit opinions only. Upon a conclusive review of the transaction and associated documentation, Moody's will endeavor to assign a definitive rating to the securities. A definitive rating may differ from a provisional rating. The provisional rating is based on information received as of April 11, 2011.

The complete rating actions are as follows:

Deal Name: Ibaraki Prefecture Eco Frontier Revenue Trust

Class: Senior Beneficial Interests

Rating: (P)A1 (sf)

Scheduled Issue Amount: JPY 10.0 billion

Dividend: Fixed

Payment Frequency: Quarterly

Scheduled Entrustment Date: May 31, 2011

Scheduled Transfer Date of Senior Beneficial Interests: June 14, 2011

Final Maturity Date: December 20, 2045

Underlying Asset: Receivables (mainly waste disposal fee)

Seller (Originator & Servicer): Ibaraki Prefecture Environmental Conservation Agency

Asset Trustee: Shinsei Trust and Banking Co., Ltd.

Arranger: Goldman Sachs Japan Co., Ltd.

RATING RATIONALE

The Seller will entrust its future receivables generated through its waste disposal business to the Asset Trustee, which will then issue Senior Beneficial Interests, Subordinated Beneficial Interests, and Seller Beneficial Interests.

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 Senior Beneficial Interests will be transferred to investors. The transfer will be perfected against relevant obligors and third parties under Article 94 of Japan's Trust Law. The Seller will retain the Subordinated Beneficial Interests and the Seller Beneficial Interests.

The Subordinated Beneficial Interests will absorb the first credit loss related to the underlying receivables. The Seller Beneficial Interests will increase, or decrease, reflecting fluctuations in the generation of receivables. Subordination comprises approximately 30% of the Investor Beneficial Interests at closing.

In addition, the existing loan from Ibaraki Prefecture to the Seller will be amended as a subordinated loan so that the repayment of this loan will start after full redemption of the Senior Beneficial Interests. Various types of covenants, including limitations on the transfer of the business, are set in the trust agreement.

The Senior Beneficial Interests will be redeemed in scheduled quarterly amortizations. However, the transaction allows the accelerated and deferred payment of the Senior Beneficial Interests under certain conditions.

If any credit events occur, the dividend waterfall to the Subordinated Beneficial Interests will be suspended, and the dividend will be used to redeem the Senior Beneficial Interests. Key events include the occurrence of a servicer replacement event, or the cumulative deferred amount of the Senior Beneficial Interests trigger being reaching the trigger amount.

In preparation for servicer replacement, liquidity will be provided in the form of a cash reserve which will be installed during the next few months after closing. This reserve will cover approximately [6] months of scheduled dividends on the Senior Beneficial Interests, and trust fees, etc. If any servicer replacement events occur, the Asset Trustee can dismiss the Servicer.

The rating is based mainly on 1) the inherent strength of the business, 2) stability of future cash flow, 3) the structural features of the transaction, including legal aspects, and 4) the operational capability of the seller with the support of Ibaraki Prefecture.

Moody's has analyzed risks associated with the business which may negatively affect the future cash flows of the transaction, taking into consideration historical data, the seller's financial statements, and information provided by the seller and Ibaraki Prefecture.

In addition, an independent revenue consultant report has been utilized in Moody's analysis.

To determine the rating, Moody's also conducted a cash flow analysis in which it added stress consistent with the assigned rating on key parameters, such as the volume of waste disposal, unit prices, and on-going business costs.

With its ratings, Moody's factors in various metrics such as leverage multiples (particularly debt to EBITDA) and debt service coverage ratios ("DSCR"). At closing, the leverage multiple is approximately 6.9 times, and will improve -- in Moody's conservative scenario -- to approximately 4.4 times in the next 5 years. DSCR is stable, and will likely stay between approximately 1.9 times and 2.2 times (Average 2.0 times) for the next 5 years.

The cash flow analysis shows that the Senior Beneficial Interests will be fully redeemed in approximately next 14 years. Moody's believes that the trust period is enough that future cash flow in the transaction can repay the Senior Beneficial Interests by the final maturity date.

The underlying assets are only future receivables generated through the business. The facilities related to the business are not transferred to the Asset Trustee. This means that there are some differences between typical whole business securitizations in Japan and the transaction.

Moody's assumes that the probability of the ultimate payment of principal by the final maturity date is sufficiently high to achieve the rating assigned in our cash flow analysis.

We consider that, given the structure of the transaction and legal aspects, the risk of interruption to the cash flow from the business in the event of the seller's or the Asset Trustee's bankruptcy is incorporated into the rating. Moody's also factors in the support of Ibaraki Prefecture towards the business. As a result, the rating may also be affected by our credit opinion of regional and local governments.

The Ibaraki Prefecture Environmental Conservation Agency (located in Kasama City) was re-organized in 2000, and started operation in August 2005. The entity is wholly owned by Ibaraki Prefecture, and operates a plasma gasification facility, a landfill pit and leachate treatment facility. (Facilities are commonly known as "Eco Frontier Kasama".) The entity manages household waste from Kasama city and other municipalities as well as industrial waste generated by companies through industrial activities mainly in Ibaraki Prefecture.

Moody's conducted a review of the entity's operations and considers it sufficiently capable of managing its business with the support of Ibaraki Prefecture and servicing the underlying pool as the servicer, given its substantial experience in the waste disposal industry.

The seller has reported to Moody's that it temporally stopped part of its operations for safety considerations due to the earthquake on March 11 although the damage to the facilities was limited. We will endeavor to assign a definitive rating to the transaction on the confirmation of its full operation.

The principal methodology used in this rating is "Moody's Approach to Rating Japanese Whole Business Securitization," published on September 30, 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.

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 a financial ratio of the transaction such as DSCR used in determining the initial rating were changed to 1.8 times or 1.5 times, the result of cash flow analysis for the Senior Beneficial Interests would be A2 or A3, respectively (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 accelerated payment effect. Parameter sensitivities reflect only the ratings impact of each scenario from a quantitative 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.

REGULATORY DISCLOSURES

For an explanation of the (sf) indicator, please see "Moody's Structured Finance Rating Scale" on www.moodys.com. Please note that the structure of the transaction may differ from that of the securitizations of which Moody's has rated in the past.

The principal information used to prepare the credit rating comprised financial data, 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.

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 would disclose related information pertinent to this transaction through Moody's press release and its presale report.

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
Atsushi Karikomi
Vice President - Senior 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.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's assigns provisional rating to Eco Frontier Revenue Trust backed by future receivables
No Related Data.
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