Japan Housing Finance Agency#s Series T-1 Structured Issuance Assigned Preliminary #AAA (sf)# Rating

Stocks and Financial Services Press Releases Monday June 18, 2018 17:26
TOKYO--18 Jun--S&P Global Ratings

TOKYO (S&P Global Ratings) June 18, 2018-- S&P Global Ratings today said it has assigned its preliminary 'AAA (sf)' rating to Japan Housing Finance Agency' s (JHF) series T-1 fixed-rate residential mortgage-secured pass-through notes. The issue amount for the notes when the transaction closes in late June will be JPY / CNY50 billion.

The JHF series T-1 notes are a securitization JHF is to issue. A pool of residential mortgage loans directly extended by JHF's predecessor, Government Housing Loan Corp. (GHLC), will ultimately back the notes. We base the preliminary rating on the notes on our view of the transaction's legal structure, credit support, and pool characteristics, among other factors.

Subsequent information may lead us to assign a final rating that differs from the preliminary rating. We will assign a final rating after JHF finalizes the amount and exact terms of the notes and we complete a full rating analysis, including a review of the final pool, cash flow modeling, final structure, transaction documents, and legal opinion.

S&P Global Ratings' preliminary rating reflects its opinion on the likelihood of the timely payment of interest, or interest distribution in the case of beneficiary certificates, allowing for a three-month grace period, and the ultimate repayment of principal by the transaction's legal final maturity date.

Our preliminary rating reflects the following:
  • We assume a foreclosure frequency for the expected loan receivables of about 15.9% under a stress level commensurate with our 'AAA' rating and about 2.6% under a stress level commensurate with our 'B' rating (base-case scenario). These rates, which reflect our view of the credit quality of the underlying assets, are prior to applying adjustments for the transaction's convertible pro rata pay structure.
  • We also assume a loss severity rate of about 17% for defaulted receivables under our 'AAA' stress scenario.
  • We apply projected losses (net loss rate after accounting for recoveries from defaulted loans) subject to a floor of 0.35% in our base-case scenario and 4.0% at the 'AAA' rating level, as set out in our Japanese RMBS criteria (Methodology And Assumptions For Rating Japanese RMBS, Dec. 19, 2014).
  • We conducted a cash flow analysis based on the foreclosure frequency and loss severity rate assumptions. As a result, under the stress level sized for our 'AAA' rating, we concluded that interest payments and principal repayments on the notes and beneficiary certificates (subsequent to a beneficiary trigger event) would be made as scheduled (allowing for a three-month grace period with respect to payment of interest, or interest distribution in the case of the beneficiary certificates).
  • Prior to a beneficiary certificate trigger event and if receivables in the collateral pool default or are delinquent for four months, JHF will eliminate these receivables from the collateral pool and amortize the notes by the amount of these receivables to maintain the initial level of overcollateralization in the trust. After a beneficiary certificate trigger event, the overcollateralization will mitigate the credit risk of the transaction's underlying mortgage loans and interest rate risk (interest on the mortgage loans less the sum of interest payments on the beneficiary certificates and transaction costs).
  • In our view, the transaction has limited exposure to setoff risk because a pool of residential mortgage loans directly extended by GHLC ultimately backs the notes and JHF is not a deposit-taking financial institution.
  • After considering the structural features of this transaction--including the transfer of collections from the collateral receivables, the level of liquidity protection, and the lack of a credit enhancement floor--we believe the rating on the notes depends to an extent on JHF's credit quality.

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