The Japanese securitization market was relatively quiet in the first half of April after the rush to close deals in the run-up to the financial year-end on April 1. The most significant deal was the first domestic, public residential mortgage-backed securitization (ASRI 4/10/2000 p.1). The transaction, originated by Fuji Bank and arranged by Fuji Securities, was called Mortgage Asset Return Investment Opportunity Corp. and worth 32.9 billion ($316 million).

The deal was split into six senior tranches rated Aaa by Moody's Investors Service and a subordinated tranche rated A2. The senior tranches had maturities from 10 months to five years and 10 months and paid interest rates from 0.265% to 1.626%. The subordinated tranche has a maturity of eight years and four months and a coupon of 2.09%. All were placed with investors, a Fuji bank official said.

The transaction avoided the problem of cleanly transferring the security interest of the mortgages to the SPC - a difficulty that has hindered the growth of residential MBS in Japan - by declining to seek any benefit from the value of the underlying properties in the rating of the senior notes and only seeking partial credit of that value for the subordinated notes.

It was structured as a pass-through security, though with in-built protection against high levels of prepayment. The initial principal balance of the mortgage pool was 44 billion.

The spurt of activity before the financial year-end saw as many as a dozen CMBS transactions and several deals backed by other assets. The frantic year-end issuance is not in itself unusual, what was different was that this time it was property companies, rather than banks, that bit the bullet and securitized some of their assets.

Many will have to book losses on the deals as the proceeds of the securitizations are unlikely to match the price they paid to buy or develop their properties at the height of the property price bubble, sources said.

The companies have been encouraged to securitize by accounting changes, which mean that they have to "mark-to-market" their investments and consequently will have to book losses whether they securitize or hold the assets on their books.

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