The Japanese securitization market took a further step forward in mid-April with a 11 billion ($103 million) privately placed residential mortgage securitization, arranged by Greenwich NatWest for Life Housing Loan, a specialized mortgage-lender owned by Long Term Credit Bank of Japan and a consumer credit company called Life.

The deal is called LHL Trust 2000-1 and received an AAA rating from Standard & Poor's. It is Japan's first non-conforming mortgage deal as, according to S&P, LHL lends primarily to borrowers who do not meet the basic lending requirements of traditional mortgage lenders, but are considered to have good credit quality. These include owners of family businesses.

Experts suggested that the parceling of non-conforming mortgages in Japan is a significant step, as the securitization of such mortgages has been the mainstay of MBS issuance in several jurisdictions, such as the U.K. and the U.S., where non-conforming mortgage lenders have been amongst the most regular securitizers.

The deal is structured as pass-through trust certificates, with principal payments passed on to investors every month. Until recently, pass-through deals have been rare in Japan, where most investors lack the necessary back-office systems to efficiently handle the unpredictable payments and maturities. Recent months have seen an upturn in such deals, though some pros suggest that investors demand slightly higher coupons to compensate for the extra work of manually booking returns.

LHL's boutique status brings a further strength to the deal. Unlike transactions from the country's major banks, a securitization from LHL carries no difficulties of assigning the security interest of the underlying properties to the SPV, as it has no affiliations with a subsidiary mortgage guarantor. Consequently, it has an undisputed first lien on the mortgages and the underlying properties

In fact, explained Yu-Tsung Chang, S&P's managing director in Tokyo, assignment and perfection are handled in much the same way as in many other markets: the receivables are transferred to the SPV and registered to perfect the transfer, while the rights to the underlying collateral are transferred but only registered in certain circumstances.

The deal is backed by mortgages worth around 12.3 billion and has a legal maturity of 2034. It also features a subordinated tranche, which provides credit support of 10.8%, and is retained by the issuer.

In another twist, the "deal is structured with a deferred-interest provision that allows interest to be postponed in the case of a shortfall and to be covered later when there is excess yield," S&P said.

The deal was sold to life insurers and other institutional investors, sources in Tokyo added.

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