JPY91.9 billion commitment line affected
Tokyo, December 21, 2010 -- Moody's Japan K.K. has today downgraded to Ba2 (sf) from
Baa2 (sf) the ratings on Pegasus Funding's Class A1 and A2 loans.
At the same time, Moody's continues its review of the ratings
for possible further downgrade.
The complete rating actions are as follows:
Deal Name: Pegasus Funding
Class A1, Downgraded to Ba2 (sf) and Remains On Review for Possible
Downgrade; previously on October 8, 2010, Baa2 (sf) Placed
Under Review for Possible Downgrade
Class A2, Downgraded to Ba2 (sf) and Remains On Review for Possible
Downgrade; previously on October 8, 2010, Baa2 (sf) Placed
Under Review for Possible Downgrade
Class: A1 and A2
Issue Amount (commitment line): JPY 91.9 billion
Dividend: Floating
Issued Date: September 29, 2006
Final Maturity Date: December 11, 2014
Underlying Asset: Real estate-backed loan receivables
The commitment line was established in September 2006 and is backed by
a pool of real estate-backed loans to small- and medium-sized
enterprises.
A servicer -- which is other than the initial servicer --
conducts servicing and special servicing of all the loan receivables in
the transaction.
RATING RATIONALE
These rating actions mainly reflect 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 and collection
policies, and 2) an increase in substantial losses in the underlying
receivables pool.
On October 8, 2010, Moody's placed under review for
possible downgrade the ratings of the Class A 1 and A2 loans because the
actual recovery rates for the collateral properties have been slightly
lower than Moody's expectations. And there are expectations
that the recovery rates may further decline.
Moody's monitoring of the actual results of servicing from the properties
reveals that the cumulative recovery rate on the loan receivables from
April 2009 to October 2010 was lower than Moody's expectation of
50-60%. Accordingly, if the remaining properties
are sold at prices lower than expected or at auction, then this
cumulative recovery rate may further decline.
A business plan for the properties, including expected collection
amounts, is now being developed.
Moody's has been informed by the arranger of its progress and receives
any relevant information, including expected collection amounts
for large outstanding loans (top 50 loans), although the amounts
can change as it is not yet fixed.
Loan receivables with large outstanding balances (JPY1.0 billion
or more, for example) comprise a substantial portion of the pool,
and the cumulative recovery rate will depend on their recovery rates.
The expected collection amount -- as provided by the arranger --
does not exceed Moody's assumptions. Therefore, the
probability that the cumulative recovery rate may further increase --
and exceed Moody's expectation -- is low.
Furthermore, the arranger has explained that it will increase the
pace of property sales and a certain number will be auctioned, if
needed.
Sales have progressed, and the Class A1 and A2 loans have been redeemed
slowly. As of November 2010, the total outstanding balance
of these classes was around 80% of the amount in February 2009.
However, with the ongoing sale of the properties, uncollected
loan receivables have emerged. This situation has led to a substantial
decline in credit enhancement, as Moody's assumes that payments
from obligors cannot be expected.
Moody's assumes that the recovery rates for the collateral properties
will remain at current low levels, or decline further, given
the fall in the actual recovery rates, an increase in substantial
losses in the underlying receivables pool, the character of the
servicing policies, and the probability that properties will be
sold in a depressed market, etc.
Hence, Moody's has downgraded the Class A1 and A2 loans.
In addition, Moody's continues to review the ratings for possible
further downgrade because it still needs to examine the expected collection
amounts and collection schedules in the new business plan. As stated,
this has not yet been fixed.
Moody's will decide on the ratings after reviewing the business plan and
servicing policies.
The final maturity takes place in December 2014. As of November
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.
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as to the accuracy, timeliness, completeness, merchantability
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The credit risk of an issuer or its obligations is assessed based on information
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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); continues review