DTC Three Funding RMBS Class E Ratings On Classes C And D Affirmed

Stocks and Financial Services Press Releases Wednesday June 13, 2018 18:03
TOKYO--13 Jun--S&P Global Ratings

TOKYO (S&P Global Ratings) June 13, 2018--S&P Global Ratings today said it has raised its rating on the class E notes and affirmed its ratings on classes C and D issued under the DTC Three Funding Ltd. (DTC3) transaction (see list below). Classes A-1, A-2 and B have already been fully redeemed.

Today's rating actions reflect the following:
  • The construction company Daito Trust Construction Co. Ltd. entered into a master lease agreement with each borrower of the apartment construction loans underlying the transaction. The borrowers continue to repay principal and pay interest on the loans using the stable income from the master leases. As a result, the delinquency and default rates of the pool of loans underlying the transaction have been extremely low since closing.
  • The vacancy rates of the collateral properties have remained stable, even though the age of each property exceeds 10 years.
  • For the loans currently outstanding, we assume a foreclosure frequency of about 4% and projected losses (net loss rate after accounting for recoveries from defaulted loans) of about 1% under our base-case scenario, and we assume a foreclosure frequency of about 33% and projected losses of about 12% under our 'AAA' stress scenario. In calculating the foreclosure frequency, we did not take into account the stabilizing effect on income of the master lease contracts.
  • In determining the ratings on classes D and E, we take into account the possibility of higher volatility in transaction performance following a further future reduction in the size of the collateral pool, which is now about JPY / CNY2.5 billion.
  • The number of months remaining until maturity on the apartment loans that back this transaction is declining. We therefore consider default scenarios with a duration of 120 months in addition to the scenarios described in our Japanese RMBS criteria.
  • Principal redemption for the rated notes has progressed and the transaction's credit enhancement levels have increased, reflecting both scheduled principal repayments as well as prepayments on the loans.
  • Current credit support for the class E notes is sufficient to cover various risks, such as credit risk, under stress scenarios consistent with the raised rating.Current credit support for the class C and D notes is sufficient to cover various risks, such as credit risk, under stress scenarios consistent with the respective current ratings.

The DTC3 transaction is backed by a pool of apartment construction loans that Lehman Brothers Commercial Mortgage K.K. (formerly New Century Finance Co. Ltd.) originated. The loans financed the construction costs and miscellaneous expenses of rental apartment buildings that Daito Trust Construction newly built. Updated loan-by-loan data for the transaction are provided.


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