1 Taiwan Begins to Clean Up its NPLs May 24, 2002 Y AMATO S ERVICING K.K.
2 Table of Table of Contents Introduction to Yamato Servicing K.K. Outline of Cerberus Group Comparison of NPLs Precedent in USA and in Japan Necessity for Taiwan to Quick Resolve NPLs How to Liquidate NPLs? Benefit of 3 rd Party Servicer Role of Servicer Work Flow of Servicer Resolution Method of Servicer Market Volume of Servicing in Japan Comparison of Japanese Servicer Rating Outline of Yamato Servicing K.K.
3 Leading special servicer in Japan Servicing portfolio UPB JPY2.3 trillion (US$18 billion) Clients Cerberus, overseas private equity funds and Japanese mega financial institutions. Staffs/Offices 50 staffs, with 10 to 25 years’ servicing experience. Servicer Rating CSS2- Yamato Servicing K.K. is at the top of the rated servicers in Japan. History Incorporated in April 1999. Shareholder Yamato is one of the Cerberus Group companies. Introduction to Yamato Servicing K.K.
4 The leading long-term fund in the world in the niche market of corporate restructuring and distressed asset management. It has approximately $8 billion under management and has invested over US$ 25 billion during the last 10 years Cerberus is one of the largest managers of NPLs in Japan and Korea (approximately $30 billion of NPLs in Asia alone) In Taiwan, Cerberus acquired the first pool of distressed debt sold through public auction. Cerberus is in active discussion with the Government about how Cerberus can further contribute to financial sector recovery. Outline of Cerberus Group
5 Consign Investment ＾ ＾ Capital Cerberus Fund Banks Insurance Companies Pension Funds Fund of Funds Banks Insurance Companies Pension Funds Fund of Funds Institutional Investors Wealthy Individuals Institutional Investors Wealthy Individuals Recovery Fund Financing Company Property Fund Financing Fund Asia Fund Cerberus Capital Management L.P. Cerberus Asia Capital Management LLC, etc. 【 Investment in Taiwan, Japan and in Asia 】 Cerberus Capital Management L.P. Cerberus Asia Capital Management LLC, etc. 【 Investment in Taiwan, Japan and in Asia 】 Fund Investors Amount;USD 8 Billion Investment In Asia Performing Loans EquityProperty ＭＢＯＭＢＩ Corporate Recovery CorporateReorganization Financing Bad Loans Cerberus Group Cerberus, established in USA in 1992, is one of the largest private equity fund in the world specializing in corporate restructuring. Cerberus family of funds currently consists of 11 different funds and separate accounts. Funds under its management is USD 8 bill, of which USD 3 billion is for Asia including Taiwan. Outline of Cerberus Group 2
6 Taiwan (as of Sept 2001) Total Bank Lending : NT$14 trillion (US$412 billion ) Bad Assets : NT$ 1.1trillion (US$32 billion) Bad Assets Ratio : 7.8% (MOF base) Japan (as of Sept 2001) Total Bank Lending : JPY485 trillion (US$3.7 trillion) Risk Control Assets : JPY35.7 trillion (US$275 billion) Risk Control Asset Ratio : 7.4% Some source estimates that real bad asset ratio is 10 times higher than the ratio stated above. vs Comparison of NPLs (Taiwan vs Japan) NPLs: Non performing loans
7 What happened in USA? By 1989, 750 S&Ls were bankrupted due to high NPL ratios. In 1990, RTC was incorporated to purchase S&L’s NPLs. RTC was dissolved in 1995 when its mission was over by selling NPLs to investors (who then consigned servicing to servicers). It is widely believed, that major reason of quick resolution of S&L problem was utilization of private equity funds and servicers who are specialists of investment and collection. Precedent in USA and in Japan
8 What happened in Japan? 12 years since bubble economy burst. In the past 8 years, JPY68 trillion yen (US$523 billion) bad assets were resolved, according to Japanese Government’s statistics. Bulk sale of "Category 4" loans (bankrupted borrowers) started in 1997, then proceeded to bulk sale of "Category 3“. Resolution of "Watch list" borrowers has just started. Since 1998, series of new legislations were promulgated to resolve NPLs, of which Servicer Law is one of the most important. Even today, as much as JPY35.7 trillion (US$275 billion: it is believed to be understated) bad assets are still booked at Japanese banks’ balance sheets. Precedent in USA and in Japan
9 What if resolution on NPLs will be postponed? Banks’ unable to extend new loans High bankruptcy rate More bad assets Higher unemployment rate Economic downturn Weaker currency Lose creditworthiness to foreign investors Advantage of Taiwan in resolving NPLs Low public sector debt – 30% of GDP (2000.12) (Japan’s ratio is 125%), strong fundamentals. Injecting public money is not a heavy burden for Taiwan Beneficial to taxpayers in the long term. Necessity for Taiwan to Quick Resolve NPLs
10 Method Nationalization followed by Government’s Sale of banks, bulk sale of loans, and sale of individual loans Private sector’s conducting the same as above Process Due Diligence Evaluation of loans and collaterals Income approach, cost approach, sales comparison approach Discounted cash flow method Submission of pricing Documentation Closing (assignment of loans and collaterals) Servicing by assignee’s servicer starts How to Liquidate NPLs?
11 Independence No inter-creditor conflicts No long standing client relationship Specific experience Knowledge on cash flow lending, etc. Modern IT systems Capital availability Benefit of 3 rd Party Servicer Licensed Servicers in Japan Specialized in Asset Management and Loan Collection. Incorporated in accordance with “Servicer Law” (1998, No.126) - Servicer Law v.s. Lawyers Law One of the directors must be a lawyer. Limited Liability Companies with paid in capital not less than JPY 500 million (US$3.8 million) Regulatory Audit by Ministry of Justice under Servicer Law. As of May 2002, 65 Servicers have obtained permission from Minister of Justice.
12 Due diligence Closing procedures Collection Cash management Property management for REO (credit bid) properties Monitor asset portfolios Reporting Role of Servicer Expertise of Servicer Collection Legal execution procedure Finance Property management Information technology M&A Accounting
13 Due Diligence Due Diligence Cash Flow Management Cash Flow Management Performance Monitoring Performance Monitoring Finance & IT Team Collection Activities Collection Team Investors From Entrance to Exit of Investment Work Flow of Servicer Legal Team Property Team REO Property Management REO Property Management Cash & Information
15 Market Volume of Servicing in Japan Source: Ministry of Justice (in million)
16 As of 2002/5/1 Comparison of Japanese Servicer Rating
17 Outline of Yamato Servicing K.K. Leading special servicer in Japan Servicing portfolio UPB JPY2.3 trillion (US$18 billion) Clients Cerberus, overseas private equity funds and Japanese mega financial institutions. Staffs/Offices 50 staffs, with 10 to 25 years’ servicing experience. Servicer Rating CSS2- Yamato Servicing K.K. is at the top of the rated servicers in Japan. History Incorporated in April 1999, immediately after Servicer Law was promulgated. Shareholder Yamato is one of the Cerberus Group companies.
18 Incorporation Yamato Servicing K.K. (“Yamato”) was incorporated in 12 th April 1999 by Mr. Stephen A. Feinberg, for the purpose of acting as a servicing company for collecting loans, entrusted by non-Japanese investors investing in distressed assets in Japan Capital and Shareholding 500 million yen （ Stephen A. Feinberg 100 ％） Permission by Government Yamato has obtained Permission under the Servicing Company Act 1998 (Effective 1 st February 1999) from Minister of Justice on 1 st July 1999. Permission Number is No. 14 Servicer Rating Yamato obtained servicer rating, CSS2- from Fitch Ratings Limited in October 2001. Only few servicers are assigned CSS2- or above among more than 60 servicers in Japan. Yamato is capable to provide professional/unified services on behalf of investors from the commencement to the exit of investment. The following are the characteristics of such services. The first characteristic is to fully support due diligence upon investment made by investors. Yamato will enable investors to conduct an appropriate pricing, supported with our advice in accordance with our servicing experiences and the collection strategies based on our database. We believe that investors’ correct judgment at the time of investment is the first step for successful collection 1.COLLECTION EXPERIENCE AND NETWORK WITH EXTERNAL PROFESSIONALS Yamato has a network with external professionals concerning collection strategy development and conducting collection thereby. In addition to our internal professional staffs who have been engaging in collection services for 10 to 25 years, Yamato has a strong network with Shoichiro Niwayama Esq., our director and a senior partner of Asahi Law Offices and other legal professionals. Yamato, therefore, is capable of carrying out effective and appropriate collections 2. OUTSTANDING PERFORMANCE Since the commencement of its servicing business, Yamato has taken only 12 months to 18 months to recoup investors’ investment. This proves how capable Yamato is in developing collection strategy, in conducting collection, and how conscious Yamato is about time value for investors. 3. CONSIDERABLE SERVICING PORTFOLIO Yamato has a considerable servicing portfolio. Its servicing portfolio is approximately 2.3 trillion yen on an unpaid principal balance base, 5,000 borrowers and 10,000 loans, 130 investment pools. Such servicing portfolio is at the top level among the servicing companies in Japan. This shows that the investors have strong confidence in Yamato in all aspects of servicing, including due diligence support, collection, cash management, portfolio monitoring and reporting Yamato’s Servicing Capabilities 1. Due diligence support 2.Servicing Outline of Yamato Yamato Servicing K.K.
19 Identification and problem solving with borrowers Negotiate consensual resolution / restructuring Maximizing Collection Yamato Servicing K.K.’s Resolution Policy Try to let borrowers to survive More effective than letting borrowers to go bankrupt and starting from scratch
20 Yamato Servicing K.K. Tokyo Head Office Yusen Building 7 th Floor 2-3-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005 Telephone: 81-3-3287-2100 Facsimile: 81-3-3287-2101 Yamato Servicing K.K. Osaka Branch NM Plaza Midousuji 12 th Floor 3-6-3 Awajimachi, Chuo-ku, Osaka-shi, Osaka 541-0047 Telephone: 81-6-6232-0606 Facsimile: 81-6-6232-0607 Yamato Servicing K.K. Tokyo Head Office Yusen Building 7 th Floor 2-3-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005 Telephone: 81-3-3287-2100 Facsimile: 81-3-3287-2101 Yamato Servicing K.K. Osaka Branch NM Plaza Midousuji 12 th Floor 3-6-3 Awajimachi, Chuo-ku, Osaka-shi, Osaka 541-0047 Telephone: 81-6-6232-0606 Facsimile: 81-6-6232-0607 Y AMATO S ERVICING K.K. Toshikiyo Shimizu President of Yamato Servicing K.K. Telephone: 81-3-3287-2100 (ex 6411) Facsimile: 81-3-3287-2101 E-mail: email@example.com Toshikiyo Shimizu President of Yamato Servicing K.K. Telephone: 81-3-3287-2100 (ex 6411) Facsimile: 81-3-3287-2101 E-mail: firstname.lastname@example.org