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Rating Action:

Moody's upgrades the rating on Clover 2016 referencing SME loans

 The document has been translated in other languages

13 Feb 2018

Tokyo, February 13, 2018 -- Moody's SF Japan K.K. has upgraded the rating on the Series One Class B Unsecured Notes (Class B Notes) of the Synthetic CLO of Regional Financial Institutions (Clover 2016, LLC.) referencing corporate loans to small- and medium-sized enterprises (SMEs) in Japan.

The affected rating is as follows:

.... JPY4.339 billion Series One Class B Unsecured Notes, Upgraded to Aa1 (sf); previously on August 16, 2017 Upgraded to Aa3 (sf)

Transaction Name: Synthetic CLO of Regional Financial Institutions (Clover 2016, LLC.)

Issuer: Clover 2016, LLC.

Interest Rate: Floating

Payment Frequency: Quarterly

Issue Date: March 28, 2016

Expected Maturity Date (Final Maturity Date): April 30, 2019

Reference Obligation: Loans to SMEs in Japan

Originators/First CDS Buyers/Servicers: The Shimizu Bank, Ltd., The Higashi-Nippon Bank, Ltd., THE SEIBU SHINKIN BANK, Suwa Shinkin Bank, Toyama Shinkin Bank, Kanazawa Shinkin Bank (The), Osaka Shinkin Bank, Yonago Shinkin Bank, THE NAGANO-KEN SHINKUMI BANK

First CDS Seller/Second CDS Buyer: Japan Finance Corporation

Second CDS Seller: Clover 2016, LLC.

Independent Auditor: Tokyo Kyodo Accounting Office

Note Trustee/Initial Deposit Bank: Sumitomo Mitsui Banking Corporation

Calculation Agent: Mizuho Trust & Banking Co., Ltd.

Arranger: Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

RATINGS RATIONALE

The rating upgrade reflects the increased credit enhancement available to the Class B Notes, because of the fully amortizing nature of all the underlying loans and the good performance of the reference pool.

The performance of the reference pool has been good, with low delinquency and credit event rates. Only three credit events of approximately JPY77 million have occurred so far, corresponding to an aggregate loss rate of 0.63% of the initial pool balance. There are currently six delinquent loans representing approximately JPY85 million in exposure.

Redemption of the Class A and B Notes is made every quarter on a pass-through pro-rata basis, in accordance with reductions in the notional amounts. Class C Notes will not be redeemed until both Class A and B Notes are fully redeemed. Consequently, the credit enhancement for the Class B Notes has increased since closing. The credit enhancement of the Class B Notes is currently 26.2%, ignoring the limited credit enhancement available for each of the nine originator's sub-pools.

Moody's has maintained its estimate of the annualized expected credit event rate of the performing reference loans at approximately 2.2% on a weighted-average basis.

In its cash flow analysis, Moody's also considered a stress run on the expected credit event rate and looked at sensitivity runs on each key parameter.

The principal methodology used in this rating was "Moody's Global Approach to Rating SME Balance Sheet Securitizations" (Japanese) published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the rating:

Factors that could lead to a rating upgrade or downgrade include an improvement or deterioration in the performance of the reference pool, and the amount of credit enhancement available for the Class B Notes.

If the transaction annual credit event rate used in determining the rating were changed to 2.75% or 3.30%, the model output for Class B Notes would change to Aa2 or Aa3, respectively, based on Moody's assessment of parameter sensitivities.

Parameter sensitivities are not intended to measure how the rating of the security might migrate over time. They are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed.

The analysis assumes that the transaction has not aged, and does not factor structural features such as sequential payment effect. Parameter sensitivities reflect only the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the parameter sensitivity analysis.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

In rating this transaction, Moody's CDOROM™ is used to model the expected loss for each tranche. Moody's CDOROM™ is a Monte Carlo simulation tool which takes each underlying asset default probability as input. Each underlying asset default behavior is then modeled individually with a standard multi-factor model incorporating both intra- and inter-industry correlation. The correlation structure is based on a Gaussian copula. Each Monte Carlo scenario simulates defaults and if applicable, recovery rates, to derive losses on a portfolio. For a synthetic transaction, the model then allocates losses to the tranches in reverse order of priority to derive the loss on the tranches. By repeating this process and averaging over the number of simulations, Moody's can derive the expected loss on the tranches. For a cash transaction, the portfolio loss, or default, distribution produced by Moody's CDOROM™ may be input into a separate cash flow model in accordance with its priority of payment to determine each tranche's expected loss.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's SF Japan K.K. is a credit rating agency registered with the Japan Financial Services Agency and its registration number is FSA Commissioner (Ratings) No. 3. The Financial Services Agency has not imposed any supervisory measures on Moody's SF Japan K.K. in the past year.

Moody's SF Japan K.K. is a registered credit rating agency under the Financial Instrument and Exchange Act but not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore the credit ratings assigned by Moody's SF Japan K.K. are Registered Credit Ratings to the FSA, but are not NRSRO Credit Ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Shinji Yoshizawa
Asst Vice President - Analyst
Structured Finance Group
Moody's SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210

Marie Lam
Associate Managing Director
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210

No Related Data.
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