JPY91.9 billion commitment line affected
Tokyo, January 20, 2011 -- Moody's Japan K.K. has downgraded to B3 (sf) from Ba2 (sf)
the ratings on Pegasus Funding's Class A1 and A2 loans. The
final maturity takes place in December 2014.
The complete rating actions are as follows:
Deal Name: Pegasus Funding
Class A1, Downgraded to B3 (sf); previously on December 21,
2010, Downgraded to Ba2 (sf) from Baa2 (sf) and Remains On Review
for Possible Downgrade
Class A2, Downgraded to B3 (sf); previously on December 21,
2010, Downgraded to Ba2 (sf) from Baa2 (sf) and Remains On Review
for Possible Downgrade
Class: A1 and A2
Issue Amount (commitment line): JPY91.9 billion
Dividend: Floating
Issue Date: September 29, 2006
Final Maturity Date: December 11, 2014
Underlying Asset: Real estate-backed loan receivables
The commitment line, the underlying assets of which are real estate-backed
loans to small and medium-sized enterprises, was established
in September 2006.
The initial servicer went bankrupt in February 2009 and a new servicer
started servicing all of the loan receivables in the transaction.
RATING RATIONALE
These rating actions take into consideration:
1) Moody's view that the recovery rates for the collateral properties
will remain at their current low levels or will decline further,
given actual collection results, the business plan for the sale
of the properties, and the collection strategy.
2) A substantial decline in credit enhancement.
On December 21, 2010, Moody's downgraded the ratings
on the Class A1 and A2 loans to Ba2 (sf) because of 1) the expectation
that recovery rates would decline further and 2) substantial declines
in credit enhancement.
Moody's kept the ratings on review for further downgrade because
it needed to assess the expected collection amounts and collection strategy
in the new business plan.
The arranger's collection strategy (in the new business plan) is
delineated below:
1) The pace of property sales will increase; the arranger expects
to sell the properties in the next year and a half.
2) As for approximately 60% of the loan receivables (based on the
number of loans), the collateral properties will be auctioned off.
3) The expected collection amounts in the new business plan fall below
Moody's expectation.
Moody's notes that the cumulative recovery rate on the loan receivables
from April 2009 to December 2010 was lower than its expectation of 50-60%.
Moody's assumes that the recovery rates for the properties will
remain at the current low levels, or decline further, given
the nature of the servicing policies, and the likelihood of poor
sales in a difficult property market.
Nevertheless, sales have progressed, and the Class A1 and
A2 loans have been redeemed, albeit slowly. As of December
2010, the total outstanding balance of these loans was around 80%
of the amount in February 2009.
However, the sale of the properties has revealed the existence of
uncollected loan receivables, a situation that has led to a substantial
decline in credit enhancement, as Moody's assumes that payments
from obligors cannot be expected.
As such, the Class A1 and A2 loans may incur losses, although
the amounts will vary according to future collections, including
any auctions.
Hence, Moody's has downgraded its ratings on the Class A1
and A2 loans.
As of December 2010, the number of obligors in this transaction
was around 100 and the number of properties around 350.
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. In addition, Moody's
publishes a weekly summary of structured finance credit, ratings
and methodologies, available to all registered users of our website,
at www.moodys.com/SFQuickCheck.
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 Reports, Calculation Reports, etc.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings (the Arranger, etc.);
parties not involved in the ratings (the Servicer, etc.);
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
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.
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for the last rating action and the rating history.
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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 Pegasus Funding (SME-loan ABS)