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Rating Action:

Moody's reviews Atami Beach Line WBS deals for downgrade

Global Credit Research - 21 May 2010

JPY 11.4 Billion of Notes Affected

Tokyo, May 21, 2010 -- Moody's Investors Service has placed under review for possible downgrade the ratings assigned to KK Atami Beach Line Funding 2 and Atami Beach Line Mezzanine Funding Limited.

Both deals are backed by toll revenues from Atami Beach Line Motor Road (Atami Beach Line). Notes for KK Atami Beach Line Funding 2 (the Senior Notes) were issued in July 2007, for Atami Beach Line Mezzanine Funding (the Mezzanine Notes), in May 2002.

The complete rating actions follow:

Deal Name: KK Atami Beach Line Funding 2 (Senior Note Issuer)

Class A-2 Note, JPY 5.5 billion, Aaa placed under review for possible downgrade; previously on July 24, 2007 definitive rating assigned Aaa

Class B Note, JPY 1.2 billion, Aa2 placed under review for possible downgrade; previously on July 24, 2007 definitive rating assigned Aa2

Class C Note, JPY 1.2 billion, A3 placed under review for possible downgrade; previously on July 24, 2007 definitive rating assigned A3

Deal Name: Atami Beach Line Mezzanine Funding Limited (Mezzanine Note Issuer)

Mezzanine Note, JPY 3.5 billion, Baa2 placed under review for possible downgrade; previously on May 31, 2002 definitive rating assigned Baa2

Traffic volume on the Atami Beach Line has been consistently below Moody's expectation.

This rating action reflects Moody's concerns that traffic volume will remain weak and that the consequently weak Annual Net Cash Flow from underlying assets are unlikely to recover any time soon.

The Class A-1 Note, originally for JPY 0.4 billion and rated Aaa, is not a subject of this rating action, as it has been redeemed as scheduled. Moody's believes that the principal of the note is highly likely to be redeemed in full by maturity in May 2012.

The Senior Notes and Mezzanine Notes are backed by a Senior Loan and a Mezzanine Loan, both of which were taken out by Atami Beach Line Limited, the Borrower SPC. Mitsui Kanko Development Co., Ltd. ("MKD," which is now GRANVISTA Hotels & Resorts Co., Ltd.) transferred ownership of the Atami Beach Line to the Borrower SPC. Atami Beach Line was then leased back to MKD, which operates the toll road business. GRANVISTA pays the Borrower SPC the entire toll revenue in advance. The Borrower SPC then pays GRANVISTA its operating fee. The remainder -- the toll revenue minus the operating fee -- is the rent revenue. The loan principal and interest on the loans are paid out of the rent revenue, minus taxes and fees, insurance premiums, repair costs, and capital expenditures (Annual Net Cash Flow).

Traffic volume on the Atami Beach Line was 3.34 million through June 2006 to May 2007, but Moody's expects it declins around 10% (around 3 million) from June 2009 to May 2010. This decline should be due not to a decline in everyday use, but mainly to a decline in travel, stemming from economic and political events: the introduction of discounts on other toll expressways around the country; changes in consumer habits and preferred travel destinations; and an increase in the use of public transportation and a concomitant decline in the use of automobiles.

The Senior Notes (other than Class A-1 Note) will likely be paid down with a bullet payment at the expected maturity in May 2012. However, the Borrower SPC will have two opportunities to refinance the Senior Loan between September 2011 and the May 2012 maturity date.

The expected maturity of Mezzanine Notes is May 2027; these notes have been redeemed semi-annually as scheduled, as well as the amount relationg to excess cash in the structure. If Annual Net Cash Flow remains below Moody's expectation, the redemption of the Mezzanine Notes will slow down and the outstanding balance at their expected maturity will rise. And if the Senior Loan is not refinanced before the Senior Notes' expected maturity in May 2012, both the Senior Loan and the Mezzanine Loan may be refinanced during the tail period between the Senior Notes' expected maturity in May 2012 and their final maturity in May 2015.

Moody's thus believes that its Annual Net Cash Flow estimates need to be re-considered -- hence, the review for possible downgrade.

In its review, Moody's will take into account GRANVISTA's outlook for traffic volume and toll revenue, as well as repair costs and capital expenditures for the line. Moody's will also examine GRANVISTA's policies and operations. In addition, Moody's will discuss with relevant parities the practical approach to refinancing.

The principal methodology used in rating this transaction was "Moody's Approach to Rating Japanese Whole Business Securitizations" published in April 2007, which can be found at www.moodys.com in the Research & Ratings directory, in the Rating Methodologies subdirectory.

Other methodologies and factors that may have been considered in the process of rating these transactions can also be found in the Rating Methodologies subdirectory.

Moody's Investors Service is a publisher of rating opinions and research. It is not involved in the offering or sale of any securities, nor is it acting on behalf of the offering party. This release is not a solicitation or a recommendation to buy, hold, or sell securities.

Tokyo
Soichiro Makimoto / Analyst
Mitsuteru Masuoka / VP-SCO
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Koji Kumamaru
Managing Director
Structured Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's reviews Atami Beach Line WBS deals for downgrade
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