TOKYO, Feb. 4 /PRNewswire/ -- Standard & Poor's has refined its criteria
related to bank account eligibility for structured financings in Japan to
include the concept of bank survivability -- in addition to the
long-relied upon short-term counterparty credit rating -- in determining
eligible bank institutions. Standard & Poor's will hold a Japanese-language
teleconference on Monday, Feb. 4, at 5 p.m. in Tokyo to discuss the revised
criteria (see below for details).
Standard & Poor's eligible account criteria are intended to ensure that a
structured financing's payments, cash proceeds, and distributions are isolated
from the potential insolvency of any bank entity that provides account
services to the transaction. Prior to the refinement, Standard & Poor's
criteria relied solely on a bank entity's short-term counterparty rating --
which addresses the likelihood of the bank defaulting on its short-term
financial commitments -- to determine its eligibility as a bank account
provider for structured financings.
In contrast to a counterparty rating, a survivability assessment is an
opinion regarding the likelihood that a bank will remain in business
performing basic banking functions, such as basic deposit and disbursement
services, regardless of whether it is solvent or not, or whether it meets all
of its financial commitments on a timely basis. (For a more in-depth
discussion of bank survivability assessments, see Standard & Poor's press
release "Bank Survivability Assessments Introduced in Japan," published
today). Recognizing that governments typically support, or grant regulatory
forbearance to, large and systemically critical banks in times of financial
system stress or incipient insolvency, Standard & Poor's assessment of a
bank's ability to survive is typically stronger than that suggested by the
bank's counterparty rating.
As such, a survivability assessment may be helpful in ascertaining the
ability of a bank to perform its account-related duties and obligations within
the context of a structured financing-at least for banks of questionable
credit standing. When banks exhibit an adequate credit risk profile, i.e., as
indicated by a short-term counterparty rating of 'A-2' or above, survivability
is not an issue, and counterparty ratings are thus the most appropriate means
of assessing risks associated to any bank party related to the transaction.
By adding the concept of bank survivability to its counterparty rating
requirements, Standard & Poor's is in effect imposing-beyond minimum standards
of credit quality-further restrictions relating to the bank's ability to
perform certain basic operations that are critical to the integrity of
structured transactions. And in the remote event of a downgrade of the bank's
counterparty rating or survivability assessment beyond the eligibility
guidelines, the replacement provisions would ensure an orderly transition to
another eligible bank
Eligible Banks.
For 'A'-minus to triple-'A' rated transactions by Standard & Poor's,
eligible institutions are restricted to banks for which:
-- Commercial paper, short-term debt obligations, or other short-term
deposits are rated at least 'A-2', and long-term unsecured debt obligations
are rated at least triple-'B'; or
-- Commercial paper, short-term debt obligations, or other short-term
deposits are rated 'A-3', or long-term unsecured debt obligations are rated
triple-'B'-minus; and the bank carries a survivability assessment of at least
'A'-minus.
For transactions rated in the triple-'B' category and noninvestment grade,
eligible institutions would be banks for which:
Commercial paper, short-term debt obligations, or other short-term
deposits are rated at least 'A-3', and long-term unsecured debt obligations
are rated at least triple-'B'-minus.
Replacement Provisions.
A substitute financial institution will promptly be found and the account
would be replaced for 'A'-minus to triple-'A' rated transactions (and in no
case in more than 20 calendar days) when:
-- The entity's short-term counterparty rating falls to 'A-3'; or the
long-term counterparty rating falls to triple-'B'-minus; and the bank has no
survivability assessment; or its survivability assessment falls below
'A'-minus, or is withdrawn or suspended.
-- The entity's short-term counterparty rating falls below 'A-3', or is
withdrawn or suspended; or the long-term counterparty rating falls below
triple-'B'-minus, or is withdrawn or suspended.
The criteria refinement extends to eligible investments as well, insofar
as these investments are limited to deposits only, and not to bank bonds,
debentures, or other forms of financial obligations, and as long as the
aggregate amount in an 'A-1', 'A-2', or 'A-3' rated entity's account is below
20% of the rated note balance of the transaction (this restriction will not
apply for transactions rated in the triple-'B' category and noninvestment
grade categories). In addition, the refinement does not affect requirements
for bank entities that provide swap agreements to structured transactions.
This refinement is prompted in part by the growing recognition in recent
months of the dire financial condition of essentially all Japanese system
banks. It is thus meant to anticipate possible investor concerns over the
integrity of rated or to-be-rated structured transactions with regard to banks
that provide account services to those transactions.
Standard & Poor's will hold a telephone conference call on Monday,
Feb. 4, at 5 p.m. in Tokyo, to discuss bank survivability assessments and the
revised account eligibility criteria. The conference call will be conducted
in Japanese, and will be led by Takamasa Yamaoka of Standard & Poor's
Financial Insitutions Ratings Group in Tokyo, and by Kenji Kondo of Standard &
Poor's Structured Finance Ratings Group in Tokyo. The telephone number and
passcode are listed below:
Number: +(81) 3-5539-7161.
Passcode: 2219450.
The conference call will begin promptly at the time indicated. Please
call at least 15 minutes beforehand to complete the precall registration
process, and provide the operator with the above passcode, the name of the
conference call you wish to join (Standard & Poor's), and the name of the call
leader (Takamasa Yamaoka). Participants will be asked to give their name,
company affiliation, and telephone and fax numbers. The conference call will
last approximately one hour. After a brief presentation by the analyst,
participants will be able to ask questions directly about Standard & Poor's
bank survivability assessments and the revised account eligibility criteria.
A replay of the call will be available for two weeks. The telephone
number and passcode for the replay are listed below:
Replay number: +(81) 3-5539-7171
Passcode: 523642
SOURCE Standard & Poor's Ratings Services
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Kenji Kondo, +81-3-3593-8590, or Michael
Petit, +81-3-3593-8701, both of Standard & Poor's, Tokyo
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