JPY10 billion in debt securities affected
Tokyo, March 23, 2023 — Moody’s SF Japan K.K. has assigned a provisional rating to the following transaction.
The complete rating action is as follows:
Transaction Name: GC Repackaging 2023-1 Ltd. (the “Repackaging Issuer”)
Class, Issue Amount, Interest Rate, Rating
Class A Notes (the “Repackaged Notes”), JPY10 billion, Floating, (P)Aaa (sf)
Closing Date: May 12, 2023
Final Maturity Date: August 4, 2036
Collateral Asset: Class A Floating Rate Notes due 2036 (the “Underlying Notes”) issued by Trinitas CLO XXII, Ltd. (the “CLO”)
Arranger: Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
Swap Counterparty: Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (the “Swap Counterparty”)
RATINGS RATIONALE
GC Repackaging 2023-1 Ltd. is a repackaging into Japanese yen of a part (the “Repack Portion”) of the U.S.$252 million Underlying Notes to be issued by the CLO.
The rating reflects the risks due to default on the Underlying Notes, the existence of a balance guaranteed currency swap hedging foreign currency exchange risk, the credit risk of the currency swap counterparty, and the transaction’s structure.
The Underlying Notes subject the Repackaged Notes to little credit risk, consistent with the assigned rating:
The Underlying Notes subject the Repackaged Notes to little credit risk because of the strong credit quality of the Underlying Notes to which we have assigned a (P)Aaa (sf) rating. The CLO is a managed cash flow collateralized loan obligation transaction expected to close in May 2023. It is collateralized primarily by broadly syndicated first lien senior secured corporate loans. Trinitas Capital Management, LLC will manage the CLO. The CLO will have an approximately 5-year reinvestment period.
The Swap Agreement mitigates foreign currency risk:
A balance guaranteed currency swap mitigates foreign currency risk resulting from the structure of the Repackaging Issuer. The Repackaging Issuer will receive payments from the Repack Portion of the Underlying Notes in U.S. dollars and will make payments on the Repackaged Notes in Japanese yen, exposing the Repackaged Notes to foreign currency risk. To mitigate this risk, the Repackaging Issuer will enter into a balance guaranteed currency swap (the “Swap Agreement”) with the Swap Counterparty.
The risk of the Repackaging Issuer becoming unhedged is remote:
Additionally, provisions in the Swap Agreement and the Repackaging Issuer’s indenture mitigate counterparty risk from the Swap Counterparty by making remote the risk that the Repackaging Issuer will become unhedged. The risk of becoming unhedged is remote given (1) the Swap Counterparty’s current credit quality, as reflected in its A1 long-term issuer rating, (2) its obligation under the swap documentation to post credit support collateral to the Repackaging Issuer and (3) its obligation to replace itself as swap counterparty in the event of its downgrade below specified rating levels.
The transaction’s structure mitigates operational risk associated with the timing of cash flows. Under the Swap Agreement, the Repackaging Issuer will make a payment in U.S. dollars to the Swap Counterparty equal to the interest and principal amount it receives on the Underlying Notes after deducting a fixed amount of administrative expenses. The Repackaging Issuer will receive from the Swap Counterparty a payment in Japanese yen equal to the interest amount due on the Repackaged Notes, plus any principal amount calculated on the basis of an exchange rate determined by the transaction.
The Repackaging Issuer is structured to limit the bankruptcy risk and tax liabilities of the entity:
The Repackaging Issuer has been established as a special purpose vehicle under Cayman Islands law and is subject to certain contractual restrictions in the repack indenture. The contractual limitations on the Repackaging Issuer’s activities and the customary limited recourse and non-petition provisions relating to the Repackaged Notes, minimize the risk of the Repackaging Issuer becoming subject to a bankruptcy proceeding. The legal structure also reduces the likelihood of the Repackaging Issuer incurring any significant tax liability.
The principal methodology used in this rating was “Moody’s Approach to Rating Repackaged Securities (Japanese)” published in June 2020 and available at https://ratings.moodys.com/api/rmc-documents/70573. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the rating:
The rating of the Repackaged Notes is based primarily on the rating of the Underlying Notes and the credit quality of the Swap Counterparty. Accordingly, any change in the rating of the Underlying Notes or any change in the rating of the Swap Counterparty may impact the rating of the Repackaged Notes.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
The analysis focuses on the risks relating to the credit quality of the assets backing the repack and of the counterparties. Moody’s generally determines the expected loss posed to noteholders by adding together the severities for loss scenarios arising from either underlying asset default, and if applicable, hedge counterparty risk, each weighted according to its respective probability.
Moody’s did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Moody’s SF Japan K.K. is a registered credit rating agency under the Financial Instrument and Exchange Act but not a Nationally Recognized Statistical Rating Organization (‘NRSRO’). Therefore the credit ratings assigned by Moody’s SF Japan K.K. are Registered Credit Ratings to the FSA, but are not NRSRO Credit Ratings.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Kiyomine Sato
Analyst
Structured Finance Group
Moody’s SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
Yusuke Seki
Associate Managing Director
Structured Finance Group
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
Releasing Office:
Moody’s SF Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo, 105-6220
Japan
JOURNALISTS: 81 3 5408 4220
Client Service: 81 3 5408 4210
