According to a report released by Standard and Poor's last week, the securitization market in Japan may grow by as much as 40%, to 5 trillion this year from 3.2 trillion last year.

In part, S&P expects that the market will pick up as a result of increased regulatory pressures, which force banks to reduce their balance sheet risks. According to some market sources, deals that came to market last year, such as Shinsei Funding and Aiful, may have established a new securitization landscape for this year. The 1.437 trillion Shinsei deal, led by Nikko Salomon Smith Barney of Tokyo, (see ASR 11/26/01) was the first deal to go further than any other in Japan's market history with regard to the level of disclosure. Additionally, it was the first public CLO to employ the recently established idea of a master trust.

While some banks may begin relying on CDOs and synthetic structures to alleviate balance-sheet issues, deals like Shinsei may not be that easy to get done. "I think it will be very tough because I saw all the work that Shinsei did and I think that will be hard for other companies to replicate," said one market source.

In the same way, Aiful, a 2.3 trillion consumer-loan deal led by Morgan Stanley, also set new standards in the Japanese market as the first consumer loan transaction using a true-sale structure completed by a top consumer loan company. "[Aiful was] reluctant to securitize because they get bragging rights based on how big their assets are and once you securitize, the assets come off and you can't brag as much," said the source. "And, that may have opened up the floodgates a bit because when one person does it, the rest are less reluctant to, so we might see additional consumer-loan deals in the public markets."

According to S&P, while there will likely be an influx of CLOs, credit default swap transactions, bank repackagings of loans to create cash and synthetic CDOs, issuance in 2002 will also include its share of debt backed by real estate assets and securitization of various loans in the consumer-finance sector.

Consumer-finance securitization was the highlight of 2001 in Japan, as finance companies found it to be a very effective means of funding. This asset class accounted for about 17% of total ABS issuance in 2001, compared with less than 3% in 2000.

"I'm pretty optimistic about Japan this year," said the market source. "It appears that credit spreads are widening out; a big hurdle has been that there hasn't been enough spread in the market for insurers or to get a cross-over of investors from other places. With spreads widening out, it could become a lot more attractive to a lot of different people."

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