Rating Action: Moody's assigns provisional ratings to SB handset ABS transaction
Global Credit Research - 03 Sep 2020
JPY 20.0 billion in Debt Securities affected
Tokyo, September 03, 2020 -- Moody's SF Japan K.K. has assigned provisional ratings to SB Handset Installment Sales Receivables Securitization 2020-9 backed by handset installment sales receivables, originated by SoftBank Corp.
The complete rating action is as follows:
Transaction Name: SB Handset Installment Sales Receivables Securitization 2020-9
Class, Scheduled Dividend Rate/Interest Rate, Rating
Investor Trust Certificates, Floating, (P)Aaa (sf)
Investor ABL, Floating, (P)Aaa (sf)
Total Issue Amount: JPY20.0 billion
Closing Date: September 29, 2020
Final Maturity Date: April 4, 2025
Underlying Asset: Handset Installment Sales Receivables
Total Amount of Receivables: JPY27,000,049,300 (JPY25,563,487,304 in principal, as of the end of July 2020)
Seller (Originator/Initial Servicer): SoftBank Corp. ("SB")
Asset Trustee: Mizuho Trust & Banking Co., Ltd. ("Mizuho Trust")
Specified Money Trustee: Mizuho Trust
Back-up Servicer: Japan Collection Service Co., Ltd.
Cap Provider: Mizuho Bank, Ltd. ("Mizuho Bank")
Arranger: Mizuho Securities Co., Ltd., SBI SECURITES Co., Ltd.
Arranger/Program Manager: Mizuho Bank
The Seller entrusts a pool of installment sales receivables and cash to the Asset Trustee, and in turn, receives the Senior Trust Certificates, the Class A through D Seller Trust Certificates, and the Subordinated Trust Certificates.
The entrustment of the receivables is perfected against third parties under the Perfection Law. Perfection against obligors is not made unless certain events occur.
The Specified Money Trustee raises funds by issuing the Investor Trust Certificates and taking out the Investor ABL. The Investor Trust Certificates and the Investor ABL rank pari-passu in terms of cash allocation at the Specified Money Trust level.
The Specified Money Trustee receives the Senior Trust Certificates by using the funds raised. The transfer of the Senior Trust Certificates is perfected against the relevant obligors and third parties under Article 94 of Japan's Trust Law. The Seller, acting as the Initial Servicer, holds the Class A through D Seller Trust Certificates and the Subordinated Trust Certificates.
The Asset Trustee enters into an interest-rate cap agreement with a cap provider to hedge its interest-rate risk.
Credit enhancement is mainly provided by the senior/subordinated structure. Subordination comprises approximately 21.8% (including 1.8% of the amount of the Subordinated Beneficial Interests to be redeemed on the first payment date) of the initial principal balance of the Senior Trust Certificates and the Subordinated Trust Certificates.
The Senior Trust Certificates are redeemed in a monthly pass-through amortization manner. The redemption of the Subordinated Beneficial Interest is suspended until the full redemption of the Senior Trust Certificates excluding the first payment date (sequential payment mechanism).
Defaulted receivables in the underlying pool are used as redemption in kind of the Subordinated Trust Certificates. At the same time, cash -- equivalent to the principal balance of the defaulted receivables -- is transferred from the interest collection account to the principal collection account, and the outstanding amount of the Subordinated Trust Certificates is increased by the same amount (default trapping mechanism).
If any early amortization events occur, the dividend waterfall to the Subordinated Trust Certificates is suspended, and interest collections -- after the payment of cost -- are used to pay dividend and principal of the Senior Trust Certificates.
Key early amortization events include the occurrence of a tax event and asset performance triggers being reached.
If any servicer replacement events occur, the Asset Trustee can dismiss the Servicer. The Back-up Servicer is appointed at closing. In preparation for servicer replacement, liquidity is provided in the form of a cash reserve at closing. If any servicer replacement preparation events occur, additional enhancement is provided.
Commingling risk is covered by the Subordinated Trust Certificates.
In this transaction, the underlying assets include receivables under the programs such as "Tokusuru Support +". Under the program, when obligors recontract with new phones, they have the option of offsetting their remaining loan balance up to an amount equivalent to 24 months of installments by selling to SB their old phones, which must be in a satisfactory condition as determined by SB.
To compensate for the lost receivables collections, the transaction requires the seller to make an indemnity payment to the Asset Trustee, within approximately three months after the option is exercised, equal to the outstanding receivable amount at the time the mobile phone is returned.
These potentially large indemnity payments expose the transaction to the default of the seller during the period between the return of the mobile phones and the indemnity payments. To partially mitigate this risk, the seller entrusts some amount of cash in advance, based on pre-fixed formulas. If the seller defaults and fails to make the indemnification payments to the Asset Trustee, the cash held by the Asset Trustee and the subordinated trust certificates will provide protection to the Senior ABS.
The ratings are based mainly on the credit quality of the receivables, the transaction structure and the Originator/Initial Servicer's experience and credit quality.
The assets are handset installment sales receivables originated by SB. The portfolio is highly granular with a large number of consumer obligors and no large exposures.
Moody's estimated the annualized expected default rate of the underlying assets at approximately 1.2%, taking into consideration the receivables' attributes, historical data on the Seller's entire pool, performance data on existing securitization pools, and industry trends. The expected default rate is based on the default definition used in Moody's analysis and may not be comparable to other rates.
To determine the ratings, Moody's also conducted a cash flow analysis by adding stress consistent with the assigned ratings on parameters, such as the expected default rate.
Moody's assumes that, given the structure of the transaction and other factors, the risk of interruption to the cash flow from the assets -- in the event of the Seller's or the Trustee's bankruptcy -- is sufficiently minimized to achieve the ratings assigned.
Moody's considers the Seller is sufficiently capable of servicing the underlying pool, as SB has substantial experience as an Initial Servicer in the mobile telecommunications carrier industry.
The principal methodology used in these ratings was "Moody's Approach to Rating Consumer Loan-Backed ABS" (Japanese) published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230144. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors that would lead to a downgrade of the ratings:
The primary factors that could lead to a downgrade of the ratings are the worse performance of the underlying assets than Moody's had expected and the deterioration of the Seller's creditworthiness.
Moody's has also conducted the sensitivity analysis below which provides the number of notches by which the model-indicated output of the deal would have varied if different assumptions had been made as to certain key model parameters. The analysis assumes that the deal has not aged.
If the transaction's annualized expected default rate was changed from 1.2% to 1.8% and 2.4% and other assumptions remained unchanged, the model-indicated output of the Investor Trust Certificates and the Investor ABL would change by 1 and 2 notches.
The analysis results are model-indicated outputs, which are one of the many quantitative and qualitative factors considered by rating committees in determining actual ratings. This analysis does not intend to measure how the rating of the deal might migrate over time, but rather, how the initial model-indicated output of the deal might have differed if certain key model parameters had been varied.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of consumer assets from the collapse in Japanese economic activity in the second quarter and a gradual recovery in the second half of the year.
However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.
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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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.
Yusuke Minaki 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 Yusuke Seki Associate Managing Director Structured Finance Group JOURNALISTS: 81 3 5408 4220 Client Service: 81 3 5408 4210 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
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