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Related Issuers
Rating Action:

Moody's downgrades Pegasus Funding (SME-loan ABS)

 The document has been translated in other languages

20 Jan 2011

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, 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 Pegasus Funding (SME-loan ABS)
No Related Data.
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