S&P Assigns Preliminary Ratings to ICRJ-III's NPL-Backed Notes

Apr 11, 2001, 01:00 ET from Standard & Poor's

    TOKYO, April 11 /PRNewswire/ -- Standard & Poor's today assigned its
 preliminary ratings to International Credit Recovery - Japan III Ltd.'s
 (ICRJ-III) JPY31.5 billion floating-rate structured notes, classes A-D. (See
 list below).
     The preliminary ratings are based on information as of April 12, 2001.
 Subsequent information may result in the assignment of final ratings that
 differ from the preliminary ratings.  The preliminary ratings address the full
 and timely payment of interest and the ultimate repayment of full principal by
 the transaction's legal final maturity date in 2006.
 
     The preliminary ratings are based on:
 
     -- The quality of the mortgage and fee assets in the property portfolio
        that ultimately secures the rated notes;
     -- The credit support provided by the subordinate classes of notes;
     -- The ability of the servicers and asset managers to realize proceeds
        from the liquidation of the assets in a timely manner;
     -- The liquidity provided by the reserve account; and
     -- The soundness of the legal structure.
 
     Standard & Poor's analysis of the transaction includes a conservative
 assessment of the value of the real estate portfolio that ultimately secures
 the notes, the diversity of real estate asset types within the portfolio, a
 resolved cash balance of approximately JPY5.27 billion generated from income
 from portfolio properties and resolutions of assets as of March 31, 2001, and
 an evaluation of the management strategy and operations of Morgan Stanley
 Realty Inc.'s (MSRI) subsidiaries, affiliates, and indirectly held entities
 (MSRI entities).  The analysis also takes into consideration the experience of
 the servicers and asset managers, and the strong performance to date in the
 resolution of assets from prior portfolios, including the performance of
 International Credit Recovery-Japan One Ltd. (ICRJ One) and International
 Credit Recovery-Japan II Ltd. (ICRJ-II), both of which were rated by Standard
 & Poor's. ICRJ One closed in December 1999, and was fully redeemed in
 November 2000.
 
     Strengths
     -- The proven experience of MSRI entities in purchasing and disposing of
        nonperforming loan (NPL) portfolios as well as fee assets, and a fee
        structure that provides incentives for the participants to achieve
        faster resolutions at higher proceeds;
     -- A liquidating, fast-pay transaction structure in which excess proceeds
        remaining after interest payments on the notes will be used to repay
        principal sequentially and distribution to TK investors is withheld
        until amortization targets are satisfied;
     -- Conservative underwriting on the underlying assets, which were
        purchased at a steep discount to original book value;
     -- MSRI's proven success in Japan with workout strategies and its strong
        track record of recovery to date;
     -- Stable cash flow from fee and real estate-owned (REO) assets, which
        comprise 34.9% of the total allocated purchase price;
     -- A diversified portfolio by property type, with residential properties,
        which are relatively more liquid than other property types, accounting
        for the highest concentration at 40% of the total allocated purchase
        price;
     -- Geographic diversification in the asset pool, with the heaviest
        concentration of assets in Tokyo, the most stable real estate market in
        Japan;
     -- The presence of many smaller assets in the securitized portfolio, which
        have a very high recovery potential stemming from existing demand for
        these types of assets mainly due to the broad range of prospective
        buyers;
     -- Many completed resolutions, with estimated cash proceeds of about
        JPY5.27 billion, or 17% of the initial rated debt;
     -- The predictability of the timing and proceeds of resolutions sought
        through the Japanese court auction system;
     -- Stabilization in some real estate values and increasing financial
        liquidity in the Japanese market overall, which supports potential real
        estate buyers; and
     -- Cash reserves and an interest liquidity facility.
 
     Concerns
     -- Assets refinanced from previous securitizations, which could be more
        difficult to liquidate, representing 53% of the total allocated
        purchase price for the portfolio;
     -- The concentration of large assets that tend to have less liquidity in
        the market, with the 30 largest assets accounting for approximately 41%
        of the portfolio value as determined by Standard & Poor's;
     -- The concentration of borrowers, with the top five borrowers
        representing 39% of the allocated purchase price;
     -- A heavier concentration of assets that tend to be more difficult to
        liquidate, in particular entertainment-related properties and golf
        courses, which respectively account for about 17% and 4% of the total
        allocated purchase price;
     -- Unpredictable cash flow streams stemming from the potential for delays
        in resolutions, or the receipt of lower-than-expected sale proceeds;
     -- A complicated collateral structure involving various types of security
        arrangements; and
     -- A complicated transaction structure in which multiple entities hold the
        assets.
 
     Mitigating Factors
     -- Less uncertainty over the resolution of refinanced assets as a result
        of borrower negotiations and asset marketing already performed to date
        and underwriting values that were revised accordingly;
     -- Extensive flexibility in determining exit strategies as a result of the
        low purchase price-to-book value ratio of the portfolio;
     -- The speedy resolution of assets of under JPY50 million, which to date
        far exceeds the business plan's projected proceeds and timing;
     -- Additional stress to resolution timing for assets with complicated
        workout strategies;
     -- Additional discounts made by Standard & Poor's to the value of assets
        that are deemed to lack adequate legal protection for noteholders; and
     -- Appropriate legal and structural arrangements to minimize legal risks
        and issues concerning lack of perfection.
 
     A copy of Standard & Poor's presale report for this transaction will soon
 be available on RatingsDirect, Standard & Poor's premier Web-based credit
 analysis system, at http://www.ratingsdirect.com.  The report will also be
 available on Standard & Poor's Web site at http://www.standardandpoors.com.
 Under Presale Reports, select Structured Finance, then Commercial
 Mortgage-Backed Securities.  A Japanese-language presale report will be
 available on Standard & Poor's Japanese Web site at
 http://www.standardandpoors.com/japan. -- CreditWire
 
     PRELIMINARY RATINGS ASSIGNED
     International Credit Recovery Japan-III Ltd.
     JPY31.5 billion nonperforming loan-backed notes due 2006
 
     Class               Amount                       Rating
     A                   JPY20.5 billion                AAA
     B                   JPY4.8 billion                 AA
     C                   JPY3.9 billion                 A
     D                   JPY2.3 billion                 BBB
 
 

SOURCE Standard & Poor's
    TOKYO, April 11 /PRNewswire/ -- Standard & Poor's today assigned its
 preliminary ratings to International Credit Recovery - Japan III Ltd.'s
 (ICRJ-III) JPY31.5 billion floating-rate structured notes, classes A-D. (See
 list below).
     The preliminary ratings are based on information as of April 12, 2001.
 Subsequent information may result in the assignment of final ratings that
 differ from the preliminary ratings.  The preliminary ratings address the full
 and timely payment of interest and the ultimate repayment of full principal by
 the transaction's legal final maturity date in 2006.
 
     The preliminary ratings are based on:
 
     -- The quality of the mortgage and fee assets in the property portfolio
        that ultimately secures the rated notes;
     -- The credit support provided by the subordinate classes of notes;
     -- The ability of the servicers and asset managers to realize proceeds
        from the liquidation of the assets in a timely manner;
     -- The liquidity provided by the reserve account; and
     -- The soundness of the legal structure.
 
     Standard & Poor's analysis of the transaction includes a conservative
 assessment of the value of the real estate portfolio that ultimately secures
 the notes, the diversity of real estate asset types within the portfolio, a
 resolved cash balance of approximately JPY5.27 billion generated from income
 from portfolio properties and resolutions of assets as of March 31, 2001, and
 an evaluation of the management strategy and operations of Morgan Stanley
 Realty Inc.'s (MSRI) subsidiaries, affiliates, and indirectly held entities
 (MSRI entities).  The analysis also takes into consideration the experience of
 the servicers and asset managers, and the strong performance to date in the
 resolution of assets from prior portfolios, including the performance of
 International Credit Recovery-Japan One Ltd. (ICRJ One) and International
 Credit Recovery-Japan II Ltd. (ICRJ-II), both of which were rated by Standard
 & Poor's. ICRJ One closed in December 1999, and was fully redeemed in
 November 2000.
 
     Strengths
     -- The proven experience of MSRI entities in purchasing and disposing of
        nonperforming loan (NPL) portfolios as well as fee assets, and a fee
        structure that provides incentives for the participants to achieve
        faster resolutions at higher proceeds;
     -- A liquidating, fast-pay transaction structure in which excess proceeds
        remaining after interest payments on the notes will be used to repay
        principal sequentially and distribution to TK investors is withheld
        until amortization targets are satisfied;
     -- Conservative underwriting on the underlying assets, which were
        purchased at a steep discount to original book value;
     -- MSRI's proven success in Japan with workout strategies and its strong
        track record of recovery to date;
     -- Stable cash flow from fee and real estate-owned (REO) assets, which
        comprise 34.9% of the total allocated purchase price;
     -- A diversified portfolio by property type, with residential properties,
        which are relatively more liquid than other property types, accounting
        for the highest concentration at 40% of the total allocated purchase
        price;
     -- Geographic diversification in the asset pool, with the heaviest
        concentration of assets in Tokyo, the most stable real estate market in
        Japan;
     -- The presence of many smaller assets in the securitized portfolio, which
        have a very high recovery potential stemming from existing demand for
        these types of assets mainly due to the broad range of prospective
        buyers;
     -- Many completed resolutions, with estimated cash proceeds of about
        JPY5.27 billion, or 17% of the initial rated debt;
     -- The predictability of the timing and proceeds of resolutions sought
        through the Japanese court auction system;
     -- Stabilization in some real estate values and increasing financial
        liquidity in the Japanese market overall, which supports potential real
        estate buyers; and
     -- Cash reserves and an interest liquidity facility.
 
     Concerns
     -- Assets refinanced from previous securitizations, which could be more
        difficult to liquidate, representing 53% of the total allocated
        purchase price for the portfolio;
     -- The concentration of large assets that tend to have less liquidity in
        the market, with the 30 largest assets accounting for approximately 41%
        of the portfolio value as determined by Standard & Poor's;
     -- The concentration of borrowers, with the top five borrowers
        representing 39% of the allocated purchase price;
     -- A heavier concentration of assets that tend to be more difficult to
        liquidate, in particular entertainment-related properties and golf
        courses, which respectively account for about 17% and 4% of the total
        allocated purchase price;
     -- Unpredictable cash flow streams stemming from the potential for delays
        in resolutions, or the receipt of lower-than-expected sale proceeds;
     -- A complicated collateral structure involving various types of security
        arrangements; and
     -- A complicated transaction structure in which multiple entities hold the
        assets.
 
     Mitigating Factors
     -- Less uncertainty over the resolution of refinanced assets as a result
        of borrower negotiations and asset marketing already performed to date
        and underwriting values that were revised accordingly;
     -- Extensive flexibility in determining exit strategies as a result of the
        low purchase price-to-book value ratio of the portfolio;
     -- The speedy resolution of assets of under JPY50 million, which to date
        far exceeds the business plan's projected proceeds and timing;
     -- Additional stress to resolution timing for assets with complicated
        workout strategies;
     -- Additional discounts made by Standard & Poor's to the value of assets
        that are deemed to lack adequate legal protection for noteholders; and
     -- Appropriate legal and structural arrangements to minimize legal risks
        and issues concerning lack of perfection.
 
     A copy of Standard & Poor's presale report for this transaction will soon
 be available on RatingsDirect, Standard & Poor's premier Web-based credit
 analysis system, at http://www.ratingsdirect.com.  The report will also be
 available on Standard & Poor's Web site at http://www.standardandpoors.com.
 Under Presale Reports, select Structured Finance, then Commercial
 Mortgage-Backed Securities.  A Japanese-language presale report will be
 available on Standard & Poor's Japanese Web site at
 http://www.standardandpoors.com/japan. -- CreditWire
 
     PRELIMINARY RATINGS ASSIGNED
     International Credit Recovery Japan-III Ltd.
     JPY31.5 billion nonperforming loan-backed notes due 2006
 
     Class               Amount                       Rating
     A                   JPY20.5 billion                AAA
     B                   JPY4.8 billion                 AA
     C                   JPY3.9 billion                 A
     D                   JPY2.3 billion                 BBB
 
 SOURCE  Standard & Poor's