Fitch Ratings says that the recent downgrade of Japan's sovereign rating to 'A' with Stable Outlook from 'A+' on Rating Watch Negative has no impact on any of the public ratings of Fitch-rated structured finance (SF) transactions in Japan.
In its commentary dated 12 December 2014, Fitch said that Japan's sovereign ratings may impact Japanese SF ratings in three areas: transactions with direct exposures where Japanese government debts are used as underlying assets of SF transactions; SF rating caps set at six notches above the sovereign's Local Currency Issuer Default Rating (IDR); and the eligibility of SF counterparties to support 'AAAsf' ratings.
No rating action resulted for the first area because there remains no structured credit transaction in Fitch's publicly rated portfolio in Japan where Japanese government bonds are used as the collateral securities.
For the second area, even after the sovereign downgrade, the difference between 'AAAsf' and Japan's Local Currency IDR is five notches; therefore, the outstanding 'AAAsf' ratings in Japan have not been affected by the six-notch SF rating caps.
Lastly, Japanese banks rated 'A' and 'F1' act as issuer account banks in some Fitch-rated SF transactions in Japan. 'A/F1' rated account banks are considered to be eligible to support 'AAAsf' ratings. The sovereign downgrade has had no impact on any of the rated Japanese financial institutions, and therefore, no event has occurred which requires counterparty replacement.
