While Japan faced a local currency sovereign downgrade from Moody's Investors Service last month to Aa3' from Aa2,' the asset-backed market seems to be pushing ahead without any constraints.
Adding a bit of variety to the market, consumer credit firm, Jaccs Co., launched a 6.25 billion ($46.8 million) auto-loan deal last week. Mitsubishi Trust and Banking Corp. led the deal and the transaction benefits from overcollateralization in the form of a cash reserve. Rating and Investment Information, Inc. (R&I) has provided a preliminary triple-A rating to the deal. Mitsubishi Trust will issue trust certificates backed by the transferred auto-loan claims, divided into senior and subordinated trust certificates. After an additional transfer to form a cash reserve, the senior trust certificates are sold to investors via Tokyo-Mitsubishi Securities Co., Ltd.
Also among several deals circulating is Hitachi Capital Corp., a frequent issuer. Hitachi is bringing a 4.71 billion ($35.2 million) lease-backed transaction featuring a pass through structure. Hitachi Capital ABL No.12 has been assigned a triple-A rating from R&I and benefits from overcollateralization.
Interestingly, The Government Housing Loan Corp. is also in the market with another deal. The 50 billion ($374 million) mortgage-backed transaction is being led by The Dai-Ichi Kangyo Bank Ltd. According to sources, the Government is attempting to switch gears to develop a program similar to that of the U.S. government-sponsored entities Fannie Mae/Freddie Mac, whereby it would become more involved with providing guarantees in the secondary market. R&I has also assigned a triple-A rating to this transaction.
According to a recent report from Merrill Lynch, after the country's recent Moody's downgrade, Japan is now facing the reality that its local currency debt may in fact fall into the single-A rating category, in which case, ABS ratings could exceed the sovereign rating by more than four notches. However, Merrill said a further sovereign downgrade would not have a direct impact on ABS transactions, provided that the financial system remains technically functional. "The downgrade of ABS ratings should only take place when asset performance deteriorates exceeding the stress-case analysis by the rating agencies," the report said.
According to market sources, Japan, with a relatively diversified market, issued about 3 trillion ($22.5 billion) last year and is expected to increase issuance by as much as 25% to 50% in 2002. "It's gotten to be a reasonably liquid market," said one market analyst.