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Related Issuers
Rating Action:

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

 The document has been translated in other languages

28 Jul 2011

JPY91.9 billion commitment line affected

Tokyo, July 28, 2011 -- Moody's Japan K.K. has downgraded to Caa3 (sf) from B3 (sf) the ratings on Pegasus Funding's Class A1 and A2 loans.

Details follows:

Deal Name: Pegasus Funding

JPY 40.0 billion commitment line of Class A1, Downgraded to Caa3 (sf);

Previously on January 20, 2011, Downgraded to B3 (sf) from Ba2 (sf)

JPY 51.9 billion commitment line of Class A2, Downgraded to Caa3 (sf);

Previously on January 20, 2011, Downgraded to B3 (sf) from Ba2 (sf)

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

The ratings have been downgraded mainly because Moody's now expects that the final losses in the Class A1 and A2 loans will exceed what the B3 (sf) rating indicates. This considers 1) the amount of substantial losses in the underlying receivables pool and 2) the level of the expected collection amount from the remaining collateral properties.

On January 20, 2011, Moody's downgraded the ratings on the Class A1 and A2 loans to B3 (sf) because of 1) the expectation that recovery rates from the properties may decline further and 2) substantial declines in credit enhancement.

Under the business plan of the transaction, the underlying loan receivables are to be collected around by mid-2012. And as for approximately 60% of the loan receivables (based on the number of loans), their collateral properties will be auctioned off.

Due to the progress in the sales of the properties, the number of remaining properties was approximately 300 as of June 2011, a decrease from 350 as of December 2010, and total outstanding balance of the loan receivables (excluding uncollected receivables) were JPY33 billion from JPY57 billion.

Although property sales have been progressing almost as scheduled in the business plan, the recovery rate is decreasing. In particular, the collateral properties -- related to loan receivables which rank high in the outstanding balance -- have been sold and their recovery rates on loans were low -- below 30%.

As the sales of the properties progress, the amount of uncollected loan receivables has become more evident. In Moody's view, because the underlying obligors are not expected to make additional payments, there have been substantial losses in the underlying receivables pool. As of now, losses in the underlying receivables pool have increased greatly.

Moody's considers that the recovery rates for the properties will remain at current low levels, considering the collection results so far, the business plan, and servicing strategy.

Moody's assumes the recovery rate for the remaining properties at 40-45%.

As a reference, the total outstanding balance of the Class A1 and A2 loans, as of June 2011, was around 60% of the amount in February 2009, due to the progress in the sales of the collateral properties.

The legal maturity of the transaction is December 2014. The number of obligors in this transaction was around 90 and the number of properties around 300 as of June 2011.

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 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.

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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.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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