Demand for back-up servicing is growing in Japan, as increasingly sophisticated investors absorb the lessons of the Japan Leasing Corporation's (JLC) collapse and begin to realize the importance of having a back-up servicer in place in case a deal hits trouble, according to market experts in Tokyo.
That demand means new business opportunities for back-up servicers, a fact reflected in several new ventures. Most recently, Orient Corporation (Orico), a leading consumer credit company and Japan's biggest non-bank ABS issuer, announced a tie-up between its servicing subsidiary and Dai-Ichi Kangyo Fuji Trust & Banking Co. to form a comprehensive back-up servicing company that will collect on both performing and non-performing assets.
Servicing is also one of the business aims of General Motors Acceptance Corp., which last month announced that it would take over the operations of Nippon Asset Management, the former JLC. And earlier this summer, Chase Trust Bank teamed up with Nippon Shinpan, another consumer finance company, to provide back-up servicing for Japanese ABS deals.
Orico's experience in credit collection and the growing importance placed on back-up servicing by domestic investors led to the setting up of the new venture, said Yuji Kazama, senior manager in the finance department.
"Securitization is dramatically increasing in Japan, and there's a big need for trust banks and securities companies to have back-up servicing," he explained. "Given the risk that the originator can go into bankruptcy or default, [back-up servicing] is a critical part. Most investors do consider this."
Not long ago, the presence of a back-up servicer was an uncommon feature in Japanese ABS. But the collapse last year of JLC, which had several securitizations outstanding, served as a wake-up call for Japan's ABS community. "A few years ago, issuers were in a position of power and even sick originators could get a cold back-up servicer for a nominal fee," commented one ABS banker in Tokyo. "But after JLC went down, we've seen more cases of people wanting to go to the Euromarket and serious attention given to back-up servicing."
Having a back-up servicing solution can help the transaction achieve the desired ratings, added another securitization expert.
The boom in servicing operations in Japan also stems from the passage of the servicer law in April, which expanded the range of entities allowed to perform servicing, added Kazama. Before passage of that law, only lawyers could engage in the collection of claims for a third-party creditor.