Japan is about to see one of the biggest CMBS issues of the year, as Merrill Lynch brings a 75 billion ($689 million) securitization backed by Seibu Corp.'s flagship store in Tokyo, market pros in Japan said.

The domestic sale and leaseback-style transaction, which will allow Seibu to continue to operate the store, arises because Seibu is part of the Credit Saison group. Saison also owns a property developer called Seiyo Corp., which has just filed for liquidation after suffering considerable losses since the bursting of the bubble economy at the start of the 1990s.

Saison has to come up with cash to cover its share of the losses, and is using Seibu's securitization as a way of raising the money.

The deal, which is being rated by Moody's Investors Service, will be split into four tranches. There will be two Aaa-rated tranches, both worth 20 billion; an Aa1 piece, worth 26.3 billion; and a Ba2 chunk, worth 11.8 billion. All the tranches have expected maturities of September 2005 and final maturities two and a half years later in order to allow the properties to be disposed of if the deal gets into trouble and the expected maturity is missed.

The transaction is backed by Seibu's flagship store, a well-known landmark connected to Ikebukuro Station in central Tokyo, with annual sales of 151 billion in 1999, Moody's said.

According to the agency, the deal is structured by Seibu entrusting the property to Yasuda Trust & Banking and then transferring the resulting trust certificates to an SPC that finances the purchase by raising non-recourse loans provided by the Development Bank of Japan. These loans collateralize the notes issued to investors by the ultimate SPC, called Kabushiki Kaisha Japan Retail.

Credit enhancement comes from the subordination, plus overcollateralization, cash liquidity reserves and a cash trap mechanism.

Seibu is also looking at further securitizations backed by its stores, two elsewhere in Tokyo and one in Sapporo, experts said. It hopes to raise an additional 20 billion to 30 billion.

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