[SPSF] Sumitomo Mitsui Banking Corp.'s 40th RMBS Deal Assigned 'AAA (sf)' Ratings

This information is published by S&P Global SF Japan Inc. S&P Global SF Japan 
Inc. is a registered credit rating agency under Japan's Financial Instruments 
and Exchange Act (FIEA) but is not registered as a Nationally Recognized 
Statistical Rating Organization (NRSRO) under U.S. laws. Therefore the credit 
ratings assigned by S&P Global SF Japan Inc. are Registered Credit Ratings 
under FIEA but are not Credit Ratings issued by an NRSRO under U.S. laws.
OVERVIEW
  • A pool of housing loan receivables originated by Sumitomo Mitsui Banking Corp. backs the senior trust certificates issued under SMBC Residential Mortgage Trust Certificates No. 40. The class A1 and alpha senior trust certificates back the SMBC 40 RMBS ABL.
  • We are assigning our 'AAA (sf)' ratings to the class A1, A2, and alpha senior trust certificates and the class A1 and alpha ABLs issued under this transaction.
  • Our cash flow analysis indicates that, under our 'AAA' stress scenario, interest payments and principal repayments on the trust certificates and ABLs would not be delayed.
TOKYO (S&P Global Ratings) Nov. 26, 2018--S&P Global SF Japan Inc. (SPSF) 
today said it has assigned its 'AAA (sf)' ratings to the ¥48.5 billion class 
A1, A2, and alpha senior trust certificates (collectively the senior trust 
certificates) issued under SMBC Residential Mortgage Trust Certificates No. 40 
due August 2055 and to the ¥6.6 billion class A1 and alpha asset-backed loans 
(collectively the ABLs) of SMBC 40 RMBS ABL due August 2055. A pool of housing 
loan receivables that Sumitomo Mitsui Banking Corp. (SMBC) originated and 
transferred to a trust created with Sumitomo Mitsui Trust Bank Ltd. backs the 
senior trust certificates. The class A1 and alpha senior trust certificates 
back the corresponding class A1 and alpha ABLs. The transaction lacks updated 
loan-by-loan data in the surveillance period.

The ratings reflect the following:
  • We assume a foreclosure frequency for the mortgage loans outstanding of about 25.8% under a stress level sized for our 'AAA' rating and about 3.2% under our base-case ('B') scenario. In addition, we assume a loss severity rate for defaulted receivables of about 48% under our 'AAA' stress scenario.
  • Adequate overcollateralization of 8.3% and excess spread mitigate risks, including the credit risk of the underlying loan receivables.
  • Our cash flow analysis based on the foreclosure frequency and loss severity rate assumptions indicates that, under our 'AAA' stress scenario, interest payments and principal repayments on the senior trust certificates and ABLs would not be delayed.
  • Setoff risk is monitored on a monthly basis, and the transaction's structure requires additional entrustments upon the occurrence of certain events. The structure also requires additional fund transfers from excess interest in the event setoff risk grows beyond the levels estimated.
  • The transaction structure allocates cash flows from the class A1 and alpha senior trust certificates to the payment of interest and repayment of principal on the corresponding class A1 and alpha ABLs. Therefore, we link our ratings on the class A1 and alpha ABLs to our ratings on the class A1 and alpha senior trust certificates.
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