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Rating Action:

Moody's downgrades MF-1 Class A, SME-loan ABS

 The document has been translated in other languages

14 Apr 2011

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, 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 MF-1 Class A, SME-loan ABS
No Related Data.
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