Fitch Affirms HYDRA II Funding Corp's Bonds
JPY6.46bn* Class S1 bonds affirmed at 'AAAsf'; Outlook Stable
JPY1.7bn* Class S3 bonds affirmed at 'AAAsf'; Outlook Stable
JPY1.4bn* Class J bonds affirmed at 'BBBsf'; Outlook Stable
*as of 4 March 2015
KEY RATING DRIVERS
The affirmations reflect Fitch's view that available credit enhancement (CE) levels are sufficient to support the current ratings. The delinquency and default performance of each underlying pool has been stable with no significant deterioration since the previous rating action in March 2014.
The available CE levels in Hydra II Trust have improved alongside amortisation of the bonds. However, this may be offset by potential risk of performance volatility as the underlying pools get smaller. Furthermore, the class J bonds experienced a deferral of interest in May 2012; this was due to the transaction's waterfall structure, rather than a shortage of funds. These have been taken into account in the affirmation of the class J bonds.
Japan's 'A+' Long-Term and 'F1+' Short-Term Issuer Default Ratings were placed on Rating Watch Negative on 9 December 2014; however, this has had no immediate impact on the ratings of this transaction. For further information, please see Fitch's commentary titled "No Immediate Impact on Japanese SF Ratings from Sovereign Action", dated 12 December 2014.
RATING SENSITIVITIES
An unexpected material increase in delinquencies, defaults and loss severities from defaulted loans in the underlying pools may lead to negative rating actions. The credit enhancement levels for the 'AAAsf' rated notes can support defaults at least 1.4 times higher than assumed in Fitch's 'AAAsf' stress scenario. The credit enhancement levels for the 'BBBsf' rated notes can support defaults at least 1.5 times higher than assumed in Fitch's 'BBBsf' stress scenario.
The originators include Sumitomo Mitsui Trust Loan & Finance Co., Ltd. (formerly Life Housing Loan Co., Ltd.) and SBI Mortgage Co., Ltd. (formerly GOODLOAN Co., Ltd.).
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