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07 Apr 2011
Tokyo, April 07, 2011 -- Moody's Japan K.K. has downgraded the A3 issuer rating of
Orient Corporation (Orico) to Baa1 and placed it on review for further
downgrade.
RATING RATIONALE
The downgrade takes into consideration the persistently severe operating
environment of Orico's cashing/loan business -- hence its standalone
financial strength will be negatively pressured over the medium term.
Orico's reserves against overpaid-interest losses cover about
1.5 years of current level annual losses. In Moody's
view, there is uncertainty regarding the evolution of overpaid-interest
claims. Accordingly, downward pressure on the company's
bottom-line profits as well as capital base is increasingly higher
than previously assumed.
However, Orico's standalone financial strength also incorporates
the company's other business segments such as retail shopping credit
card and guarantee business which should absorb a certain amount of risk
relating to the cashing/loan business segment(accounting for about 30%
of total revenues).
Moreover, Moody's also notes that Orico's funding/liquidity
is not yet under severe stress like the consumer loan specialists.
Placing Orico's ratings on review for further downgrade reflects
Moody's need to reassess its standalone financial strength as well
as degree of support on Orico by its parent banking group -- Mizuho
Financial Group's (MHFG) two primary operating banks (Mizuho Bank
and Mizuho Corporate Bank).
Moody's rating for Orico incorporates not just its standalone financial
strength, but also the likelihood of support from the two primary
operating banks of MHFG in a situation of extraordinary stress.
The degree of support is based on Moody's assessment regarding the
degree of strategic importance to its parent banks. Moody's assesses
a bank's strategic importance by considering the level of common
shareholding interests directly held by parent companies, and the
degree of integration of the Orico's operations with its parent
banking group.
Moody's has incorporated the probability of high support if the
bank's degree of strategic importance to the parent banking group
is high despite the bank's weak standalone financial strength.
Moody's assesses Orico' standalone financial strength as weak,
indicated by its lower capital base and exposure to the risks related
to overpaid-interest claims, which is potentially large.
However, in the rating consideration, Moody's has incorporated
high support probability due to Orico's high strategic importance
to MHFG.
On the other hand, when assessing the strategic importance to the
banking group and the support considerations to the banking group subsidiaries/affiliates,
Moody's looks for the existence of binding documents such as keepwell
letters, and more effectively guarantee letters.
Accordingly, the review will focus on the assessment of Orico's
standalone financial strength as well as strategic importance to MHFG
in the absence of a binding document.
The principal methodology used in this rating was "Analyzing the Credit
Risks of Finance Companies: Rating Methodology" published on September
30, 2010, and available on www.moodys.co.jp.
Orient Corporation, headquartered in Tokyo, was established
in 1954. Its primary business lines include installment sales of
general/specific products, and provision of credit card cash/loans
and credit guarantees. It had total consolidated assets of around
JPY 4.3 trillion as of December 31, 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's information.
Measures taken to ensure the quality of this information include use of
public information, reviews by a third party and verification by
the lead analyst.
Moody's considers the quality of information available on the issuer or
obligations 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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or hold particular securities. No warranty, express or implied,
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
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rating due to insufficient information, or for other reasons.
Moody's Japan K.K. is a credit rating agency registered
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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
Naoki Morimura
Analyst
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Tokyo
Minoru Kubota
MD - Financial Institutions
Financial Institutions 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 Orient Corporation's ratings to Baa1 Further downgrade possible
No Related Data.
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