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