JPY 11.0 billion in Beneficial Interests affected
Tokyo, April 26, 2011 -- Moody's Japan K.K has downgraded to Aa2 (sf) from Aaa (sf) its
rating on Leading Star 2.
Details follows:
Deal Name: Leading Star 2
Chotatsu Trust Beneficial Interest, downgraded to Aa2 (sf);
previously on December 20, 2010, Aaa (sf) placed under review
for possible downgrade
Issue Amount: JPY 11.0 billion
Dividend: Fixed
Transfer Date of Beneficial Interests: September 29, 2009
Final Maturity Date: September 28, 2018
Underlying Asset: Credit card cash advance receivables
Arranger: Daiwa Securities Capital Markets Co., Ltd.
Asset Trustee: ORIX Trust and Banking Corporation
The beneficial interests are backed by credit card cash advance receivables,
which include gray-zone interest assets.
(In Japan, interest rates are regulated by two statutes: the
Interest Rate Restriction Law [IRRL] and the Capital Subscription
Law. Each stipulates a different maximum rate. The difference
in the interest rate charged between the two is called "gray-zone
interest.")
RATING RATIONALE
The rating has been downgraded mainly because Moody's lowered its
credit estimate for the transaction's originator.
Moody's thinks it necessary to take into account in its rating analysis
of ABS that incorporate gray-zone interest assets the possibility
that the underlying assets may be recalculated based on the IRRL interest
rate -- in cases where an originator goes bankrupt -- and that,
as a result, the underlying pool's value would be diluted.
Ratings on ABS backed by gray-zone interest assets may be linked
to an originator's credit quality. Therefore, the ratings
may change when the originator's credit quality changes.
(For more information on this topic, please see Moody's December
6, 2010, press release, "Moody's updates
methodology on gray-zone interest asset ABS," and the
revised rating methodology, "Moody's Approach to Rating Credit
Card Receivables-Backed Securities," issued on the
same day.)
On December 20, 2010, rating was placed under review for possible
downgrade because Moody's may lower its credit estimate on the transaction's
originator.
As the originator is not rated by Moody's, a credit estimate
was used in the assessment of the transaction. This time,
Moody's has lowered its credit estimate for the originator,
mainly because, due to the persistently severe operating environment
for the credit card cash advance business, 1) Moody's believes
the originator's standalone financial strength has been pressured,
and 2) Moody's has re-assessed its expectations for support from
parent companies in general.
Moody's has taken into consideration the factors listed below:
Key factors regarding recalculation risk:
- Originator's credit quality: The originator's
credit quality is not high enough, in light of the rating guidelines
for gray-zone interest asset ABS, which can be found in the
revised rating methodology.
- Originator's business: The originator is a shinpan/credit
card company. Generally, the businesses of this type of company
are diversified, and the credit quality and level of overpaid interest
claims of their obligors are different from those of the consumer finance
companies. Thus, in Moody's view, the possibility
that these companies could go bankrupt -- and that the loan
receivables would thus have to be recalculated -- is more
limited in comparison to the consumer finance companies.
Factors specific to the transaction:
- Relationship with the investing bank: The relationship
with a bank with high credit quality -- shareholding ratio,
borrowing amount, personal relationship, etc. --
is a positive factor for the originator's business continuity.
- The level of dilution due to recalculation: Should recalculation
risk materialize, the current level of credit enhancement is very
unlikely to cover any dilution in the value of the underlying loan receivables.
Due mainly to relationship with the investing bank and the originator's
business strategy, Moody's believes the rating could be higher
than what the rating guidelines indicate. However, the current
level of credit enhancement for the Chotatsu Trust Beneficial Interest
is still insufficient to achieve a rating of Aaa (sf) -- hence,
the downgrade to Aa2 (sf).
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 a third party due diligence
report on the underlying assets or financial instruments related to the
monitoring of this transaction in the past six months.
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
Servicing Report, Trustee Report, etc.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings (the arranger, the originator,
etc.); parties not involved in the ratings; public information;
and confidential and proprietary Moody's information.
Measures taken to ensure the quality of this information include reviews
by a third party.
Moody's considers the quality of information available on the issuer
or obligation satisfactory for the purposes of maintaining a credit rating.
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
Yumiko Kitaoka
Vice President - Senior Analyst
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Koji Kumamaru
MD - Structured Finance
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 downgrades Leading Star 2, Credit Card ABS