[non-NRSRO] Handset Installment Sales Receivables Securitization — Moody’s assigns provisional rating to Handset Receivables ABS

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Rating Action: Moody’s assigns provisional rating to Handset Receivables ABSGlobal Credit Research – 15 Mar 2021JPY50.0 billion in Debt Securities affectedTokyo, March 15, 2021 — Moody’s SF Japan K.K. has assigned a provisional rating to a handset installment sales receivables ABS.The complete rating action is as follows:Transaction Name: Handset Installment Sales Receivables SecuritizationClass: Senior Trust CertificatesRating: (P)Aaa (sf)Issue Amount: JPY50,000,000,000Scheduled Dividend Rate: FixedClosing Date: March 31, 2021Final Maturity Date: January 16, 2023Underlying Asset: Handset installment sales receivablesTotal Amount of Receivables: JPY65,000,826,175 (JPY64,749,053,329 in principal, as of February 1, 2021)Beneficiary of Asset Trust/Trust Certificates Trustee/Trust Administrator/Private Placement Dealer: Sumitomo Mitsui Trust Bank, LimitedArranger: Sumitomo Mitsui Trust Bank, LimitedRATINGS RATIONALEThe Originator as both the Settlor and Asset Trustee entrusts a pool of handset installment sales receivables under Item 3 of Article 3 of Japan’s Trust Law (Declaration of trust). In turn, the Settlor receives the Securitization Trust Certificates and Settlor Trust Certificates.The Originator, as the Seller, entrusts the Securitization Trust Certificates and cash to the Trust Certificates Trust. In turn, the Seller receives the Senior Trust Certificates, Mezzanine Trust Certificates, Subordinated Trust Certificates and Seller Trust Certificates. The Originator, as a Beneficiary of Asset Trust, hold the Settlor Trust Certificates.The Seller transfers the Senior Trust Certificates and Subordinated Trust Certificates to investors through the Private Placement Dealer and holds the Mezzanine Trust Certificates and Seller Trust Certificates. The transfers of the Senior Trust Certificates and Subordinated Trust Certificates are perfected against the relevant obligors and third parties by obtaining the Trust Certificate Trustee’s approval in writing with a certified date under Article 94 of Japan’s Trust Law.Credit enhancement is mainly provided by the senior/subordinated structure.Subordination for the Senior Trust Certificates comprises approximately 10.4% of the total principal balance of the Senior, Mezzanine and Subordinated Trust Certificates at the closing date.The interest and principal collection of installment sales receivables are allocated to the dividends and principal redemption on the Securitization Trust Certificates and Settlor Trust Certificates on a pari passu basis, in accordance with the ratio of initial outstanding amounts in each of the Trust Certificates.The dividend and principal of the Securitzation Trust Certificates are allocated to the dividends and principal redemption on the Senior, Mezzanine and Subordinated Trust Certificates.The Senior, Mezzanine and Subordinated Trust Certificates are redeemed in a monthly amortization manner. The principal redemption of the Mezzanine Trust Certificates is suspended until the full redemption of the Senior Trust Certificates. The Subordinated Trust Certificates are redeemed to the extent that certain conditions are met.If any of the underlying installment sales receivables defaults, interest corrections up to the defaulted amount is transferred to the principal account (default trapping mechanism). If the interest collections are insufficient in covering the defaulted amount, the outstanding amounts of the Subordinated and Mezzanine Trust Certificates are written off by the insufficient amount in a certain manner.If any trustee replacement preparation event occurs, the Beneficiaries of the Asset Trust are required to prepare for the appointment of a new asset trustee, special servicer and back-up servicer.Key trustee replacement preparation events include the downgrade of the rating of Asset Trustee or its parent company to a certain level.If any trustee replacement events occur, the Beneficiaries of the Asset Trust can dismiss the Asset Trustee and appoint a new asset trustee, special servicer and back-up servicer. In preparation for asset trustee replacement, liquidity is provided in the form of a cash reserve at closing. If any trustee replacement preparation events occur, additional liquidity is provided.Commingling risk is mitigated by the required advance payments, which is conducted if any trustee replacement preparation trigger event occurs.The rating is based mainly on the credit quality of the receivables, the transaction structure and the Originator/Initial Servicer’s experience and credit quality.The underlying assets are handset installment sales receivables originated by the Settlor. The portfolio is highly granular with a large number of consumer obligors.Moody’s estimates the annualized expected default rate of the underlying assets at approximately 0.8%, taking into consideration the receivables’ attributes, historical data on the Settlor’s entire pool, 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 rating, Moody’s also conducted a cash flow analysis by adding stress consistent with the assigned rating 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 Initial Servicer’s bankruptcy — is sufficiently minimized to achieve the rating assigned.Moody’s considers the Settlor is sufficiently capable of servicing the underlying pool, as the Settlor has substantial experience as a servicer in the mobile telecommunications carrier industry.The principal methodology used in this rating 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 an upgrade or downgrade of the rating:The primary factors that could lead to a downgrade of the rating are the worse performance of the underlying assets than Moody’s had expected and the deterioration of the Settlor’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 0.8% to 2.4% and 4.0%, and other assumptions remained unchanged, the model-indicated output of the senior portion would change by 0 and 0 notch.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 coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world’s economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in Japanese economic activity.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.REGULATORY DISCLOSURESFor 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. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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 Vice President – Senior 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. 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