Ratings on Classes A, B, and C withdrawn; JPY 282.2 billion of Beneficial Interests affected
Tokyo, January 27, 2011 -- Moody's Japan K.K. has downgraded to Baa1 (sf) from A2 (sf)
its rating on the Class A Beneficial Interests issued by Sunshine Trust,
due to recalculation risk.
Also, the transaction documents were amended, and on January
27, 2011, the class and size of Investors' Beneficial
Interests changed. (For more information, please see "Moody's
rates Beneficial Interests of Sunshine Trust, consumer loan ABS",
released today.) In light of the amendment, Moody's
has withdrawn its ratings on the Class A through C Beneficial Interests
that were issued under the former documents.
Details follow:
Deal Name: Sunshine Trust
JPY 228.1 billion Class A Beneficial Interests, Downgraded
to Baa1 (sf), subsequently Withdrawn; previously on December
6, 2010, A2 (sf) Placed Under Review for Possible Downgrade
JPY 40.8 billion Class B Beneficial Interests, Withdrawn
the Baa3 (sf); previously on September 24, 2008, Assigned
Definitive Rating of Baa3 (sf)
JPY 13.3 billion Class C Beneficial Interests, Withdrawn
the Ba3 (sf); previously on August 27, 2010, Assigned
Definitive Rating of Ba3 (sf)
Class: Class A, B and C Beneficial Interests
Total Issue Amount: JPY 282.2 billion
Dividend: Fixed
Issued Date:
Class A and B; September 24, 2008
Class C; August 27, 2010
Final Maturity Date: July 31, 2018
Underlying Asset: Consumer loan receivables
The transaction is backed by consumer loans receivables, including
gray-zone interest assets. The originator of this deal is
a consumer finance company with offices across the country.
(In Japan, interest rates are regulated by two statutes: the
Interest Rate Restriction Law [IRRL] and the Capital Subscription
Law. Each stipulates a different maximum rate. The difference
in the interest rate charged between the two is called "gray-zone
interest.")
RATING RATIONALE
The rating downgrade on Class A Beneficial Interests reflects mainly Moody's
consideration of the originator's credit quality, its business,
profitability, relationship with its parent bank, and the
extent of potential dilution of loan receivables due to recalculation
risk, among other factors.
Recalculation risk refers to the dilution that an underlying asset may
suffer due to the redefining of the outstanding principal amount in the
event of originator bankruptcy, and is discussed in Moody's
rating guidelines for gray-zone interest asset ABS, which
were published in December 2010.
Moody's thinks it necessary to take into account in its rating analysis
of gray-zone interest asset ABS the possibility of recalculation
risk if an originator goes bankrupt. Moody's believes that
an originator's credit quality and industry are key factors when
considering recalculation risk.
(For more information on this topic, please see Moody's December
6, 2010, press release "Moody's updates methodology
on gray-zone interest asset ABS," and the revised rating
methodology, "Moody's Approach to Rating Consumer Finance
Loan ABS in Japan," issued on the same day.)
Following the revision to its rating methodology on December 6,
2010, Moody's placed under review for possible downgrade the
rating on the Class A Beneficial Interests.
The downgrade reflects mainly the following:
(1) Key factors regarding recalculation risk:
- Originator's credit quality: The originator's
credit quality is not high enough, in light of the Rating Guidelines
for Gray-Zone Interest Asset ABS, which can be found in the
revised rating methodology. As the originator is not rated by Moody's,
a credit estimate was used in Moody's assessment of the transaction.
- Originator's business: The originator in this transaction
is a consumer finance company that specializes in the money lending business.
The consumer finance business in Japan remains under pressure due to obligors'
low credit quality and the ongoing pressure on credit costs, etc.
(2) Factors specific to the transaction:
- The level of dilution due to recalculation: Should recalculation
risk materialize, the current level of credit enhancement is very
unlikely to cover dilution in the value of the underlying loan receivables.
- Originator's profitability: The originator's
profitability may be negatively affected by the imposition of loan amount
caps stipulated by the Revised Money Lending Business Law. However,
indemnity by a third party with high-credit quality eases the burden
of claims for refunds of overpaid interest.
- Relationship with the parent bank: The consumer finance
business is one of the major business segments of the originator's
parent bank. Because of this, and the originator's
profitability, the current relationship between the originator and
the parent bank will very likely hold.
Because of recalculation risk, and taking into account the originator's
credit quality and business, as well as other factors specific to
the transaction, Moody's considers the current level of credit
enhancement for the Class A Beneficial Interests insufficient for the
rating of A2 (sf) -- hence, the downgrade to Baa1 (sf).
In addition, the transaction's trust agreement was amended,
and on January 27, 2011, the class and size of the Investors'
Beneficial Interests changed as a result. Moody's has therefore
withdrawn its ratings on the Class A through C Beneficial Interests.
The principal methodology used in this rating was "Moody's Approach
to Rating Consumer Finance Loan ABS in Japan" published on December
6, 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 received and took into account a third party due diligence
report on the underlying assets or financial instruments in this transaction
and the due diligence report had a neutral impact on the rating.
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, Trustee Reports, etc.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings (the arranger, the originator,
etc.); parties not involved in the ratings; public information;
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.
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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 Sunshine Trust Class A (Consumer loan ABS)