JPY 20.334 billion Beneficial Interest affected
Tokyo, April 14, 2011 -- Moody's Japan K.K. has downgraded to Ba2 (sf) from Baa3
(sf) its rating on the MF-1 Senior Beneficial Interest A,
issued in September 2008 and backed by a pool of real estate SME loans.
Details follow:
Deal Name: MF-1
JPY 20.334 billion Senior Beneficial Interest A, downgraded
to Ba2 (sf); previously, on January 26, 2011, Baa3
(sf) placed under review for possible downgrade
Class: Senior Beneficial Interest A
Issue Amount: JPY 20.334 billion
Dividend: Floating
Issued Date:September 29, 2008
Final Maturity Date: September 24, 2013
Underlying Asset: Real estate loan receivables
The initial servicer went bankrupt in February 2009, and special
servicers have been appointed to service all the loan receivables in this
transaction.
RATING RATIONALE
The rating action reflects mainly Moody's view that recovery rate
of the collateral properties may decline and fall below Moody's
expectation, in light of the status of servicing negotiations and
procedures, and various other factors.
According to the servicing policy, the arranger is trying to sell
the properties, but sales thus far have been slow. And,
the cumulative recovery rate on loan receivables from April 2009 to February
2011 was at the lower range of expectations of 50-60%.
Moody's is concerned that the recovery rate of the properties will
decline below its expectations, because (1) the actual recovery
rate is at the low end of expectations, and the pace of sales has
been slower than expected, and (2) some of the properties may require
more time to sell due to issues specific to the obligor or property.
Moody's thus placed the rating on the Senior Beneficial Interest
A under review for possible downgrade on January 26, 2011.
For the current rating action, Moody's revised its assumption
about recovery from the properties and now assumes a recovery rate of
40-45% (against loan receivables), in light of the
following:
- According to the special servicers, although sales are
progressing steadily for some of the properties, they may have difficulty
selling others due to issues specific to the obligor or property.
Thus, Moody's believes that some of the properties will be
auctioned off or sold at prices lower than expected. (Moody's
notes that appraisals for each of the properties were provided by the
special servicers in July 2009, and have not been updated.)
- The actual recovery rate has been at the low end of expectations,
and the pace of sales is slow. Property prices will be pressured
for some time, as Japan's real estate market has not sufficiently
recovered, even as the final maturity date approaches.
- In other deals backed by the same type of asset, the actual
recovery rate has been below expectations. And, for some
properties, net collections have been low because of costs or preferred
tax payments, or because they were auctioned off. Although
the servicing plans differ from that of this particular transaction,
in the end the properties in this deal may end up in the same situation.
In Moody's view, the credit enhancement of the Beneficial Interests
is insufficient for the Baa3 (sf) rating, and Moody's has thus downgraded
the rating.
The Senior Beneficial Interest A is being redeemed gradually. As
of February 2011, the outstanding balance was less than 80%
of the amount in February 2009. At the same time, property
sales have revealed the existence of uncollected loan receivables,
which has led to a substantial decline in credit enhancement, as
Moody's assumes that payments from obligors cannot be expected.
The legal maturity of the transaction is September 2013. As of
February 2011, the number of obligors in this transaction was around
80, the number of properties, around 170.
The principal methodology used in this rating was "Moody's Approach
to Rating Transactions Backed by Real Estate Collateralized SME Loans
in Japan," published on September 30, 2010, and
available on www.moodys.co.jp.
Moody's did not receive or take into account any third-party
due diligence reports 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 Reports, Trustee Reports, etc.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings (the arranger); parties not involved
in the ratings (the trustee and the special servicers.); 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,
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as to the accuracy, timeliness, completeness, merchantability
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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
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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 MF-1 Class A, SME-loan ABS