S&P upgs 51 classes of Tokai Labour Bank series 4 RMBS

May 14 - Standard & Poor's Ratings Services today raised its ratings on 51 classes of Tokai Labour Bank's Series 4 Residential Mortgage Backed Trust Certificates (see list below). At the same time, Standard & Poor's assigned its 'BBB' rating to the class 64 to 66 subordinate certificates. In addition, Standard & Poor's affirmed its ratings on 17 classes of certificates issued under the transaction (also listed below). The senior trust certificates, mezzanine trust certificates, and subordinate certificates are backed by a pool of housing loan receivables originated by Tokai Labour Bank and entrusted with Sumitomo Trust & Banking Co. Ltd. (A+/Stable/A-1).

The rating actions reflect an increase in the subordination level that provides credit support for the mezzanine and subordinate trust certificates subject to the upgrades and assignment, in light of steady repayments on the senior trust certificates.

The ratings address the full and timely payment of interest and ultimate full repayment of principal for the senior trust certificates, the ultimate full payment of interest and repayment of principal for the mezzanine trust certificates, and the ultimate full repayment of principal for the subordinate trust certificates by the transaction's legal final maturity date of December 2041.

The ratings are based on: -- The good quality of the housing loan receivables; -- The provision of credit support via overcollateralization, which sufficiently covers credit risk and negative carry risk in the transaction; -- In order to cope with commingling risk, the advance payment of the expected collection proceeds; -- The absence of interest rate mismatch risk, given that the senior trust certificates and mezzanine trust certificates bear fixed-rate interest, and that all the housing loans in the asset pool bear fixed-rate interest for the entire period. Overcollateralization covers the negative carry risk that may arise due to a higher fixed-interest rate on interest payments than the interest rate of the housing loan receivables pool;

-- A payment structure that uses excess interest to cover defaulted receivables (a default trap mechanism) and redeem principal on the senior trust certificates, mezzanine trust certificates, and subordinated trust certificates;

-- A payment structure that allows loan principal collections to be used to cover temporary shortfalls in interest payments on the rated certificates;

-- The establishment of accelerated amortization trigger events to allow all excess interest to be used to redeem principal on the rated senior trust certificates, mezzanine trust certificates, and subordinated trust certificates (turbo redemption);

-- Monthly monitoring of set-off risk, and a structure that allows additional entrustments upon the occurrence of certain events;

-- The establishment of backup servicer appointment trigger events, under which Sumitomo Trust, the trustee for the transaction, will start the process of selecting a backup servicer and enter into a backup servicing agreement. The trustee also functions as the servicer of last resort;

-- The concentration of loan pool obligors in three prefectures in the Tokai region. However, this concentration is not a concern due to the variety of economic activity in these regions; and

 -- Ample cash reserves established at the trust at closing to
cover liquidity risk and expenses needed for obligor perfection.
RATINGS RAISED
Tokai Labour Bank Series 4 Residential Mortgage Backed Trust
Certificates
Series 4 residential mortgage backed trust certificates due
December 2041
Class                                   To    From  Issue amount
Mezzanine trust certificates 2-3*       AA+   AA    JPY1.0 bil.
(each tranche)
Subordinate trust certificates 1(4)      AA+   AA    JPY0.1 bil.
Subordinate trust certificates 2-12(4)   AA    A     JPY0.1 bil.
(each tranche)
Subordinate trust certificates 13-23(4)  AA-   A     JPY0.1 bil.
(each tranche)
Subordinate trust certificates 24-34(4)  A+    A     JPY0.1 bil.
(each tranche)
Subordinate trust certificates 45(4)     A     BBB   JPY0.1 bil.
Subordinate trust certificates 46-52(4)  A-    BBB   JPY0.1 bil.
(each tranche)
Subordinate trust certificates 53-59(4)  BBB+  BBB   JPY0.1 bil.
(each tranche)
RATING ASSIGNED
Class                                    Rating  Issue amount
Subordinate trust certificates 64-66 (4)  BBB     JPY0.1 bil.
(each tranche)
Class                                    Coupon type
 Subordination level
Subordinate trust certificates 64-66 (4)  Fixed        3.7%
RATINGS AFFIRMED
Class                                   Rating  Issue amount
Senior trust certificates Class 1       AAA     JPY35.0 bil.
Senior trust certificates Class 2       AAA     JPY25.0 bil.
Mezzanine trust certificates 1*         AAA     JPY1.0 bil.
Subordinate trust certificates 35-44(4)  A       JPY0.1 bil.
(each tranche)
Subordinate trust certificates 60-63(4)  BBB     JPY0.1 bil.
(each tranche)
*Deferred interest
(4)No dividends
NOTES
The basic approach to calculating the Subordination Level is as
follows:
1-(A+B)/(C-D-E)
A: the rated obligations and equally ranked obligations
B: prior obligations to the rated obligations
C: underlying assets (including cash)
D: liquidity reserves
E: obligations, except for senior or mezzanine or subordinated
obligations (seller's interest etc.)
In the case of a master trust structure, the series base value
should be applied.

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