For the past year, securitization professionals in Japan have predicted that consolidation in the financial sector would provide an opportunity for a surge in issuance. It has taken longer than anticipated to get the ball rolling but the announcement of a deal securitizing property assets of the bankrupted insurance company Chiyoda Mutual Life could be the start of a new development.
Chiyoda went into liquidation last October, part of a trend in the Japanese insurance sector that has also seen major companies such as Kyoei Life and Daihyaku Life going the same way. Most of the distressed assets formerly owned by these firms have been sold through receivership or auction to players such as Shinsei Bank, the consumer credit company OREX and Manulife Century Life Insurance. The latter paid Ñ145 billion ($1.1 billion) in January for Daihyaku's distressed life insurance business.
One Tokyo-based head of securitization explains why the consolidation is causing such excitement among his peers. "Many big insurance companies have gone bust and their assets, such as real estate and loans, have been picked up by aggressive buyers," he says. "Rather than have these on their balance sheets, there is a good chance that buyers of these assets will look to refinance them through securitization."
The Chiyoda deal will be a commercial mortgage-backed securitization (CMBS) of 303 buildings, including office buildings and other properties throughout Japan, that were transferred to an investment trust in the United States with a value of around Ñ80.5 billion.
JPMorgan Securities Asia was awarded the mandate for the transaction, which will be launched in August through a special purpose vehicle to be established in the Cayman Islands. The lead manager will target overseas institutional investors to buy the bonds, according to market sources.
One deal involving consolidated assets that has already been launched was the first ever Japanese securitization-backed acquisition finance, arranged by Morgan Stanley Dean Witter for Aiful Corporation's purchase of the Life Company's assets in March.
Essentially, the Ñ273 billion issue is a loan from Morgan Stanley to Aiful that was collateralized by securitizing a Ñ300 billion portfolio of Life's consumer loans. The deal was closed towards the end of June but, and this is a common occurrence in Japan's ABS market, it was placed privately so no pricing details were made public.