Mortgage – Home Re 2021-1 Ltd. — Moody’s assigns provisional ratings to mortgage insurance credit risk transfer notes issued by Home Re 2021-1 Ltd.
Rating Action: Moody’s assigns provisional ratings to mortgage insurance credit risk transfer notes issued by Home Re 2021-1 Ltd.
Global Credit Research – 26 Jan 2021
New York, January 26, 2021 — Moody’s Investors Service, (“Moody’s”) has assigned provisional ratings to four classes of mortgage insurance credit risk transfer notes issued by Home Re 2021-1 Ltd.
Home Re 2021-1 Ltd. (the issuer) is the fourth transaction issued under the Home Re program to date and the first such issue in 2021, which transfers to the capital markets the credit risk of private mortgage insurance (MI) policies issued by Mortgage Guaranty Insurance Corporation (MGIC, the ceding insurer) on a portfolio of residential mortgage loans. The notes are exposed to the risk of claims payments on the MI policies, and depending on the notes’ priority, may incur principal and interest losses when the ceding insurer makes claims payments on the MI policies.
As of the cut-off date, no mortgage loan has been reported to the ceding insurer as in two payment loan default (i.e. two or more monthly payments delinquent) and 0.07% (by unpaid principal balance) is subject to forbearance but is not currently delinquent. To the extent, based on information reported on or prior to the cut-off date, that a mortgage loan no longer satisfies the eligibility criteria as of a date subsequent to the cut-off date, such mortgage loan will not be removed from the offering and the coverage for the related MI policy will continue to be provided by the reinsurance agreement.
On the closing date, the issuer and the ceding insurer will enter into a reinsurance agreement providing excess of loss reinsurance on mortgage insurance policies issued by the ceding insurer on a portfolio of residential mortgage loans. Proceeds from the sale of the notes will be deposited into the reinsurance trust account for the benefit of the ceding insurer and as security for the issuer’s obligations to the ceding insurer under the reinsurance agreement. The funds in the reinsurance trust account will also be available to pay noteholders, following the termination of the trust and payment of amounts due to the ceding insurer. Funds in the reinsurance trust account will be used to purchase eligible investments and will be subject to the terms of the reinsurance trust agreement.
Following the instruction of the ceding insurer, the trustee will liquidate assets in the reinsurance trust account to (1) make principal payments to the notes as the insurance coverage in the reference pool reduces due to loan amortization or policy termination, and (2) reimburse the ceding insurer whenever it pays MI claims after the Class B-2H coverage level is written off. While income earned on eligible investments is used to pay interest on the notes, the ceding insurer is responsible for covering any difference between the investment income and interest accrued on the notes’ coverage levels.
Transaction credit strengths include strong loan credit characteristics, including the fact that the MI policies are predominantly borrower-paid MI policies (97.8% by unpaid principal balance). Transaction credit weaknesses include predominantly high loan-to-value (LTV) ratios, as well as a limited third-party review scope and lack of representations and warranties (R&Ws) to the noteholders.
The complete rating actions are as follows:
Issuer: Home Re 2021-1 Ltd.
Cl. M-1A, Provisional Rating Assigned (P)Baa2 (sf)
Cl. M-1B, Provisional Rating Assigned (P)Baa3 (sf)
Cl. M-1C, Provisional Rating Assigned (P)Ba2 (sf)
Cl. M-2, Provisional Rating Assigned (P)B2 (sf)
Summary Credit Analysis and Rating Rationale
We expect this insured pool’s aggregate exposed principal balance (AEPB) to incur 2.09% losses in a base case scenario-mean, a baseline scenario-median loss of 1.76%, and 16.28% losses under a Aaa stress scenario. The AEPB is the portion of the pool’s risk in force that is not covered by existing quota share reinsurance through unaffiliated parties. It is the product, for all the mortgage loans covered by MI policies, of (i) the unpaid principal balance of each mortgage loan, (ii) the MI coverage percentage, and (iii) the existing quota share reinsurance percentage. Reinsurance coverage percentage is 100% minus existing quota share reinsurance through unaffiliated insurer, if any. By unpaid principal balance, approximately 24.5% of the pool has zero quota share reinsurance, 70.4% of the pool has 30% reinsurance and 5.1% of the pool has 65% reinsurance. The ceding insurer has purchased quota share reinsurance from unaffiliated third parties, which provides proportional reinsurance protection to the ceding insurer for certain losses.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of residential mortgage loans from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We increased our model-derived median expected losses by 15% (mean expected losses by 13.4%) and our Aaa losses by 5% to reflect the likely performance deterioration resulting from a slowdown in US economic activity beginning in 2020 due to the COVID-19 outbreak.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
We calculated losses on the pool using our US Moody’s Individual loan Analysis (MILAN) model based on the loan-level collateral information as of the cut-off date. loan-level adjustments to the model results included, but were not limited to, adjustments for origination quality.
The mortgage loans in the reference pool have an insurance coverage effective date (in force date) from August 1, 2020 to December 31, 2020 (inclusive, respectfully). The reference pool consists of 195,208 prime, fixed- and adjustable-rate, one- to four-unit, first-lien fully-amortizing, predominantly conforming mortgage loans with a total insured loan balance of approximately $55 billion. There are 6,703 loans (4.8% of total unpaid principal balance) which were not underwritten through GSE guidelines. All loans in the reference pool had a loan-to-value (LTV) ratio at origination that was greater than 80% with a weighted average (WA) of 90.6% (by unpaid principal balance).
By unpaid principal balance, the borrowers in the pool have a WA FICO score of 751, a WA debt-to-income ratio of 35.0% and a WA mortgage rate of 3.0%. The WA risk in force (MI coverage percentage net of existing reinsurance coverage) is approximately 17.2% of the reference pool unpaid principal balance.100% of insured loans were covered by mortgage insurance at origination with 97.8% covered by BPMI and 2.2% covered by LPMI based on risk in force.
MGIC is an insurance company domiciled in the State of Wisconsin. MGIC received its initial certificate of authority from the Wisconsin Office of the Commissioner of Insurance in March 1979. MGIC is one of the leading private mortgage insurers in the industry. MGIC is an approved mortgage insurer of loans purchased by Fannie Mae and Freddie Mac, and is licensed in all 50 states, the District of Columbia and the territories of Puerto Rico and Guam to issue private mortgage guaranty insurance. MGIC has $238.9 billion of insurance in force as of September 30, 2020, with more than 4,500 originators and/or servicers utilized MGIC mortgage insurance in the last 12 months. MGIC is the primary insurance subsidiary of MGIC Investment Corporation, a Wisconsin corporation whose stock trades on the New York Stock Exchange under the symbol “MTG.” MGIC Investment Corporation is a holding company which, through MGIC, MGIC Indemnity Corporation and several other subsidiaries, is principally engaged in the mortgage insurance business. MGIC is rated Baa1 (insurance financial strength) by Moody’s with stable outlook.
We took into account the quality of MGIC’s insurance underwriting, risk management and claims payment process in our analysis.
Most applications for mortgage insurance are submitted to MGIC electronically, and MGIC relies upon the lender’s R&Ws that the data submitted is true and correct when MGIC makes its insurance decisions. At present, MGIC’s underwriting guidelines are broadly consistent with those of the GSEs. MGIC accepts the underwriting decisions made by the GSEs’ underwriting systems, subject to certain additional limitations and requirements. MGIC had several overlays to GSE underwriting requirements which pre-dated Covid-19. During Covid-19, MGIC added a temporary overlay making cash-out transactions and investment property no longer eligible for MGIC insurance.
MGIC’s primary mortgage insurance policies are issued through one of two programs. Lenders submit mortgage loans to MGIC for insurance either through delegated underwriting or non-delegated underwriting program. Under the delegated underwriting program, lenders can submit loans for insurance without MGIC re-underwriting the loan file. MGIC issues an MI commitment based on the lender’s representation that the loan meets the insurer’s underwriting requirement. Lenders eligible under this program must be pre-approved by MGIC’s risk management group and are subject to random and targeted internal quality control (QC) reviews. In this transaction, approximately 73% of the mortgage loans were originated under a delegated underwriting program.
Under the non-delegated underwriting program, insurance coverage is approved after underwriting by the insurer. Some customers prefer MGIC’s non-delegated program because MGIC assumes underwriting responsibility and will not rescind coverage if it makes an underwriting error, subject to the terms of its master policy. MGIC seeks to ensure that loans are appropriately underwritten through QC sampling, loan performance monitoring and training. In this transaction, approximately 27% of the mortgage loans were originated under a non-delegated underwriting program.
Overall, the share of delegated and non-delegated underwriting in this pool is reflective of the corresponding percentage in MGIC’s overall portfolio (approximately 70% and 30%, respectively). MGIC maintains a primary underwriting center in Milwaukee, Wisconsin, along with geographically disbursed underwriters. Although MGIC’s employees conduct the substantial majority of its non-delegated underwriting, from time-to-time, MGIC engages third parties to assist with certain clerical functions.
As part of its ongoing QC processes, MGIC undertakes QC reviews of limited samples of mortgage loans that it insures under both delegated and non-delegated underwriting programs. Through MGIC’s quality control process, it reviews a statistically significant sample of individual mortgages from its customers to ensure that the loans accepted through its underwriting processes meet MGIC’s pre-determined eligibility and underwriting criteria. The QC process allows MGIC to identify trends in lender underwriting and origination practices, as well as to investigate underlying reasons for delinquencies, defaults and claims within its portfolio that are potentially attributable to insurance underwriting process defects. The information gathered from the QC process is used by MGIC in its ongoing policy acquisitions and is intended to prevent continued aggregation of Policies with insurance underwriting process defects.
Submission of Claims
Unless MGIC has directed the insured to file an accelerated claim, the master policy requires the insured to submit a claim for loss no later than 60 days after the earliest of (i) acquiring the borrower’s title to the related property, (ii) an approved sale or (iii) completion of the foreclosure sale of the property (under the 2014 master policy the insured may elect to file the claim after expiration of the redemption period).
Prior to claim payment, an investigative underwriter investigates select claims to review for origination fraud. The investigation focuses on uncovering facts and evidence related to loan origination and determines whether certain exclusions from the master policy apply to a given loan or claim. When the investigative underwriter finds issues, MGIC may rescind coverage. When no issues are found, the investigative underwriter will close the investigation case and release the claim for final processing. Investigative underwriters analyze the origination documentation as well as documentation from a variety of sources and determine if there is a significant defect.
MGIC engaged Opus Capital Markets Consultants, LLC to perform a data analysis and diligence review of a sampling of mortgage loans files submitted for mortgage insurance. This review included validation of credit qualifications, verification of presence of material documentation as applicable to the mortgage insurance application, updated valuation analysis and comparison, and a tape-to-file data integrity validation to identify possible data discrepancies. There was no compliance tested due to the nature of the review, which was to ensure the mortgage insurance application met all applicable company guidelines. MGIC is a mono-line mortgage insurance company not a mortgage lender.
The size of the diligence sample was determined by the third-party diligence provider using a 95% confidence level applied to the total pool of 195,208 mortgage loans to be covered by the reinsurance agreement, a 2% precision interval applied to the confidence level and a 5% error rate applied to the final result, with the resulting number rounded up. The diligence sample consisted of 325 mortgage loans to be covered by the reinsurance agreement.
The scope of the third-party review is weaker than private label RMBS transactions because it covers only a limited sample of loans (0.16% by total loan count in the reference pool) and only includes credit, data and valuation. There was no compliance tested due to the nature of the review, which was to ensure the mortgage insurance application met all applicable company guidelines. MGIC is a mono-line mortgage insurance company not a mortgage lender. Of note, approximately 30% of the insured loans in the reference pool are re-underwritten by the ceding insurer via non-delegated underwriting program, which mitigates the risk of underwriting defects. In addition, MI claims paid will not include legal costs associated with any TRID violations, as the loan originators will bear these costs. Since the insured pool is predominantly GSE loans, the GSEs will also conduct their QC review.
After taking into account the (i) third-party due diligence results for credit and property valuation and (ii) the extent to which the characteristics of the mortgage loans can be extrapolated from the error rate and the extent to which such errors and discrepancies may indicate an increased likelihood of MI losses, we did not make any further adjustments to our credit enhancement.
The ceding insurer does not make any R&Ws to the noteholders in this transaction. Since the insured mortgages are predominantly GSE loans, the individual sellers would provide exhaustive representations and warranties to the GSEs that are negotiated and actively monitored. In addition, the ceding insurer may rescind the MI policy for certain material misrepresentation and fraud in the origination of a loan, which would benefit the MI CRT noteholders.
The transaction structure is very similar to other MI CRT transactions that we have rated. The ceding insurer will retain the senior coverage level A-H, and the coverage level B-2H at closing. The offered notes benefit from a sequential pay structure. The transaction incorporates structural features such as a 12.5-year bullet maturity and a sequential pay structure for the non-senior tranches, resulting in a shorter expected WA life on the offered notes.
Funds raised through the issuance of the notes are deposited into a reinsurance trust account and are distributed either to the noteholders, when insured loans amortize or MI policies terminate, or to the ceding insurer for reimbursement of claims paid when loans default. Interest on the notes is paid from income earned on the eligible investments and the coverage premium from the ceding insurer. Interest on the notes will accrue based on the outstanding balance of the notes, but the ceding insurer will only be obligated to remit coverage premium based on each note’s coverage level.
Credit enhancement in this transaction is comprised of subordination provided by mezzanine and junior tranches. The rated Class M-1A, Class M-1B, Class M-1C, and Class M-2 offered notes have credit enhancement levels of 5.7%, 4.5%, 3.5%, and 2.5%, respectively. The credit risk exposure of the notes depends on the actual MI losses incurred by the insured pool. MI losses are allocated in a reverse sequential order starting with the coverage level B-2H. Investment deficiency amount losses are allocated in a reverse sequential order starting with the class B-1 notes.
So long as the senior coverage level is outstanding, and no performance trigger event occurs, the transaction structure allocates principal payments on a pro-rata basis between the senior and non-senior reference tranches. Principal is then allocated sequentially amongst the non-senior tranches. Principal payments are all allocated to the senior reference tranche when a trigger event occurs.
A trigger event with respect to any payment date will be in effect if the coverage level amount of coverage level A-H for such payment date has not been reduced to zero and either (i) the preceding three month average of the sixty-plus delinquency amount for that payment date equals or exceeds 75% of coverage level A-H subordination amount or (ii) the subordinate percentage (or with respect to the first payment date, the original subordinate percentage) for that payment date is less than the target CE percentage (minimum C/E test: 7.50%).
Premium Deposit Account (PDA)
The premium deposit account will benefit the transaction upon a mandatory termination event (e.g. the ceding insurer fails to pay the coverage premium and does not cure, triggering a default under the reinsurance agreement), by providing interest liquidity to the noteholders, when combined with the income earned on the eligible investments, of approximately 70 days while the reinsurance trust account and eligible investments are being liquidated to repay the principal of the notes.
On the closing date, the ceding insurer will establish a cash and securities account (the PDA) but no initial deposit amount will be made to the account by the ceding insurer unless the premium deposit event is triggered. The premium deposit event will be triggered (1) with respect to any class of notes, if the rating of that class of notes exceeds the insurance financial strength (IFS) rating of the ceding insurer or (2) with respect to all classes of notes, if the ceding insurer’s IFS rating falls below Baa2. If the note ratings exceed that of the ceding insurer, the insurer will be obligated to deposit into and maintain in the premium deposit account the required PDA amount (see next paragraph) only for the notes that exceeded the ceding insurer’s rating. If the ceding insurer’s rating falls below Baa2, it will be obligated to deposit the required PDA amount for all classes of notes.
The required PDA amount for each class of notes and each month is equal to the excess, if any, of (i)(a) the coupon rate of the note multiplied by (b) the applicable funded percentage, (c) the coverage level amount for the coverage level corresponding to such class of notes and (d) a fraction equal to 70/360, over (ii) two times the investment income collected (but not yet distributed) on the eligible investments.
We believe the requirement that the PDA be funded only upon a rating trigger event does not establish a linkage between the ratings of the notes and the IFS rating of the ceding insurer because, 1) the required PDA amount is small relative to the entire deal, 2) the risk of PDA not being funded could theoretically occur only if the ceding insurer suddenly defaults, causing a rating downgrade from investment grade to default in a very short period, which is a highly unlikely scenario, and 3) even if the insurer becomes insolvent, there would be a strong incentive for the insurer’s insolvency regulator to continue to make the interest payments to avoid losing reinsurance protection provided by the deal.
To mitigate risks associated with the ceding insurer’s control of the trust account and discretion to unilaterally determine the MI claims amounts (i.e. ultimate net losses), the ceding insurer will engage Opus Capital Markets Consultants, LLC as claims consultant, to verify MI claims and reimbursement amounts withdrawn from the reinsurance trust account once the coverage level B-2H have been written down. The claims consultant will review on a quarterly basis a sample of claims paid by the ceding insurer covered by the reinsurance agreement. In verifying the amount, the claims consultant will apply a permitted variance to the total paid loss for each MI Policy of +/- 2%. The claims consultant will provide a preliminary report to the ceding insurer containing results of the verification. If there are findings that cannot be resolved between the ceding insurer and the claims consultant, the claims consultant will increase the sample size. A final report will be delivered by the claims consultant to the trustee, the issuer and the ceding insurer. The issuer will be required to provide a copy of the final report to the noteholders and the rating agencies.
Unlike RMBS transactions where there is typically some level of independent third-party oversight by the trustee, the master servicer and/or the securities administrator, MI CRT transactions typically do not have such oversight. As noted, the ceding insurer not only has full control of the trust account but can also determine, at its discretion, the MI claims amount. The ceding insurer will then direct the trustee to withdraw the funds to reimburse for the claims paid. Since the trustee is not required to verify the MI claims amount, there could be a scenario where funds are withdrawn from the reinsurance trust account in excess of the amounts necessary to reimburse the ceding insurer. As such, we believe the claims consultant in this transaction will provide the oversight to mitigate such risks.
Factors that would lead to an upgrade or downgrade of the ratings:
Levels of credit protection that are insufficient to protect investors against current expectations of loss could drive the ratings down. Losses could rise above Moody’s original expectations as a result of a higher number of obligor defaults or deterioration in the value of the mortgaged property securing an obligor’s promise of payment. Transaction performance also depends greatly on the US macro economy and housing market. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud.
Levels of credit protection that are higher than necessary to protect investors against current expectations of loss could drive the ratings of the subordinate bonds up. Losses could decline from Moody’s original expectations as a result of a lower number of obligor defaults or appreciation in the value of the mortgaged property securing an obligor’s promise of payment. Transaction performance also depends greatly on the US macro economy and housing market.
The principal methodology used in these ratings was “Moody’s Approach to Rating US RMBS Using the MILAN” published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1201303. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody’s evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the rated instrument.
Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
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 ratings tab on the issuer/entity page for the respective issuer on www.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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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 www.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 www.moodys.com.
Please see www.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 ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Philip Rukosuev Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Padma Rajagopal Vice President - Senior Analyst Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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Additional terms for Japan only: Moody’s Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody’s Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.