TEXT-S&P Report Says Rated Japan Structured Issuance Up 50% In 2011

(The following was released by the rating agency)

TOKYO (Standard & Poor's) Feb. 3 - Standard & Poor's Ratings Services said in a Japanese-language report released today that it had assigned ratings to Japanese securitization transactions worth JPY3,372.3 billion in 2011, representing a 49.7% year-on-year increase from 2010.

In contrast, the number of securitization transactions rated by Standard & Poor's in 2011 declined 26.8% year on year to 52. The above figures exclude credit derivative products that didn't involve issuances of bonds or trust certificates. The surge in total rated issuance in 2011 marked a turnaround after four consecutive years of decline.

However, total rated issuance in the fourth quarter (October to December) of 2011 was down 11.3% from the same quarter of 2010. This contrasted with the large year-on-year increases recorded in the first quarter (January to March) and second quarter (April to June) of 2011, which largely boosted total rated issuance for the year.

Meanwhile, the number of securitization transactions continued to decrease, indicating that a few large deals pushed up the total amount of rated issuance. Total rated issuance in 2011 was led by asset-backed securities (ABS; including asset-backed commercial paper (ABCP) and Japan business securitizations (JBS)) transactions and residential mortgage-backed securities (RMBS) deals. In particular, in the RMBS segment, Japan Housing Finance Agency (JHF; AA-/Negative/A-1+) continued to issue large amounts of regular monthly notes.

Meanwhile, as in 2010, the total rated issuance amount of ABS transactions increased year on year in 2011, boosted by relatively large issuances in this segment. In addition, a transaction was launched in 2011 in the collateralized debt obligation (CDO) segment, in which there had been no rated issuances since the fourth quarter of 2008.

The total amount of commercial mortgage-backed securities (CMBS) issuance remained low, with only one transaction launched in this segment in 2011. JHF's RMBS issuances represented about 71% of the total amount of rated issuance in 2011, indicating that the agency's share of total issuance remains high. Nevertheless, we expect the total amount of rated issuance to decline in 2012, given that JHF stopped applying the preferential interest rate for Flat 35 mortgage loans in September 2011.

As for the performance of rated transactions, although downgrades of CMBS transactions continued in 2011, there were far fewer downgrades than in 2010 in that segment. Meanwhile, regulatory reform proposals for the securities market continued to attract attention around the world in 2011. On Oct. 31, 2011, Standard & Poor's was registered as a credit rating agency in the EU. This registration enables us to endorse all the credit ratings that we assigned in Japan for use in the EU.