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Related Issuers
Rating Action:

Moody's downgrades Leading Star 2, Credit Card ABS

 The document has been translated in other languages

26 Apr 2011

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.
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 downgrades Leading Star 2, Credit Card ABS
No Related Data.
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