S&P Asgns AAA Rtg to GHLC's Ser 3 Structured Issuance.

Business Editors

TOKYO--(BUSINESS WIRE)--Standard & Poor's

Sept. 20, 2001--Standard & Poor's today assigned its triple-'A' rating to Government Housing Loan Corp.'s (GHLC) JPY50 billion Series 3 fixed-rate residential mortgage-secured pass-through notes.

The notes are ultimately secured by a pool of residential mortgage loans originated by GHLC.

Standard & Poor's rating addresses the timely payment of interest or interest distribution in the case of beneficiary certificates, allowing for a three-month grace period, and the ultimate repayment of principal by the transaction's legal final maturity in September 2036.

This transaction is the third structured note issuance originated by GHLC. The notes are backed by JPY55.4 billion of beneficiary certificates issued from a trust created with Mitsubishi Trust & Banking Corp. GHLC will entrust 2,837 residential mortgage-loan contracts worth about JPY55.4 billion to the trust, along with security rights for each mortgage.

Provided that GHLC exists and a trigger event has not occurred, GHLC will use its own funds to pay interest and principal on the notes. Upon payment of the notes, a corresponding amount of the receivables will be released by the trustee to GHLC, and the relevant proportion of the trust will be canceled. Thus, at closing the structure does not involve a complete, true sale of the collateral assets, and as such does not fully isolate the securitized assets, and thus the rated notes, from risks associated with the originator. As a result, the rating on this transaction is dependent to a certain extent on the credit quality of GHLC, and significant deterioration in GHLC's credit quality could lead to a downgrade of the notes.

The assignment of Standard & Poor's triple-'A' rating to this transaction follows recent discussions within the Japanese government, led by Prime Minister Junichiro Koizumi, on accelerating the reform of the Fiscal Investment and Loan Program (FILP), and on making the possible privatization or dissolution of GHLC, along with other organizations, a central pillar of such reform. In particular, Standard & Poor's assessment of GHLC for this transaction takes into consideration the risk that economic and political considerations, including the current debate on reforming the FILP system, could lead to a change in GHLC's status. Standard & Poor's does not believe that the current reform discussions will lead to a change in GHLC's organizational status that exceeds the rating tolerance on this transaction.

Moreover, the rating reflects appropriate levels of credit and liquidity support, and trigger events related to the status of GHLC, whereby the beneficiary certificates will cease to be the security interest on the notes, but instead will be directly held by investors, should any of the following occur:

-- Dissolution of GHLC without an entity appointed to succeed to the payment
obligations of the notes;

-- Dissolution of GHLC where the entity appointed to succeed to the payment
obligation is a kabushiki gaisha (joint stock corporation), or laws are amended
so that the appointed entity is allowed to file for corporate reorganization or
other similar bankruptcy proceedings;

-- The obligor of the notes is privatized to become a corporation or laws are
amended so that the obligor is allowed to file for corporate reorganization or
other similar bankruptcy proceedings; and

-- Payment default on the part of GHLC, taking into consideration a grace
period of seven days, on the notes or any other bond that GHLC issues under the
GHLC Law.

If any of the above events occur, ownership of the underlying portfolios of mortgage loans will conclusively be transferred to the holders of the beneficiary certificates. At that time, the rated notes will be replaced by the beneficiary certificates, and investors will collect payments on the certificates directly. The certificates will carry terms and conditions identical to those on the rated notes, allowing for a three-month grace period on interest payments following the occurrence of a trigger event.

Copyright 2001, Standard & Poor's Ratings Services