Morgan Stanley Dean Witter's second securitization of Japanese non-performing real estate loans is nearing the final straight, according to sources close to the deal. The transaction, called International Credit Recovery-Japan Two, is expected to resemble the first highly successful deal, which closed in December last year (ASRI 12/13/1999 p. 1 and p. 12, 11/29/1999 p. 3, 11/15/1999 p. 2, 11/1/1999 p. 1).

The precise timing is uncertain because the bank's real estate arm in Japan, which is gathering the portfolio, may decide to add more purchases to the pot before the deal is launched. If the decision is taken to go ahead soon, the transaction will be worth around $300 million and is scheduled for July. If the decision is taken to delay, the total could be considerably bigger.

The first transaction was a Euro/144A deal, received triple-A ratings for the senior tranche, which made up 55% of the deal, and Morgan Stanley is hoping that that pattern will be repeated if not bettered. "The portfolio is as good or better as the last time in terms of clear security interest and in terms of the type of real estate," the source said, adding that there are more properties with only temporary structures, meaning that the value is easier to assess.

ICRJ-2 is part of an on-going series which could see Morgan Stanley launch deals two or three times a year for the foreseeable future. Market pros estimate that the Japanese banking system has non-performing real estate loans with a total face value of between $400 billion and $500 billion. It only needs for a relatively small proportion of that to be securitizable to keep Morgan Stanley and its competitors busy for some time to come.

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