19-D-1216

March 10, 2020
Social Bond Evaluation b y Japan Credit Rating Agenc y, Ltd.
Japan Credit Rating Agency, Ltd. (JCR) annouces the Social Bond Evaluation results as follows.

JCR assigned Social 1 to synthetic SME CLOs
by Japan Finance Corporation
Subject:

Synthetic CLO of Regional Financial Institutions(Clover, LLC. 2020) Series One Class A Unsecured Notes, Series One Class
B Unsecured Notes, Series One Class C Unsecured Guaranteed Notes

Type

:

Synthetic CLO

Issue Amount:Interest rate:

Issue Date:

March 10, 2020

Final Redemption
Date:

May 31, 2024

Method of
Repayment:

Use of Proceeds:

Series One Class A Unsecured Notes: JPY 20.3 billion
Series One Class B Unsecured Notes: JPY5.894 billion
Series One Class C Unsecured Guaranteed Notes: JPY6.0 billion
Series One Class A Unsecured Notes: 3 Months TIBOR + 0.22%
Series One Class B Unsecured Notes: Not in public
Series One Class C Unsecured Guaranteed Notes: 3 Months TIBOR + 0.11%

Series One Class A and B Unsecured Notes: 3-month pass-throughredemption
Series One Class C Unsecured Guaranteed Notes: In principle, bullet
redemption at maturity (however, redemption may commence and beredeemed sequentially after the redemption of Series One Class A and B.)
credit risks associated with unsecured loans to SMEs provided by 30
participating financial institutions<Social Bond Evaluation Results>
Overall evaluation

Social 1

Social Impact Evaluation(use of proceeds)
Management, Operation andTransparency Evaluation

s1
m1

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Chapter 1: Evaluation Overview
1. About Japan Finance Corporation
Japan Finance Corporation (JFC), the originator of this issue, is a policy-based financial institution established on
October 1, 2008, under the Japan Finance Corporation Act (JFC Act), through the integration of National Life
Finance Corporation, Agriculture, Forestry and Fisheries Finance Corporation, Japan Finance Corporation for
Small and Medium Enterprise, and international finance function of the Japan Bank for International Cooperation.
JFC is committed to supplementing the financing provided by ordinary financial institutions. In the field of SME
business, one of JFC's core operations, the government supports the growth and development of SMEs throughfinance, supplementing private-sector financial institutions, in particular as policy-based financial institutions
specializing in SMEs, in order to provide financial support to relatively higher-risk areas, such as the developmentof new businesses, business revitalization, business succession, and overseas expansion, which are regarded asimportant measures in Japan's policy-based finance. The government also serves as a safety net, as well as
providing support for the growth and development of SMEs through finance. SME businesses are divided into
three pillars: (1) providing stable, long-term, fixed-interest loans for the stable supply of funds required for thedevelopment of SMEs; (2) insurance underwriting of debt guarantees for borrowing to support the smoothprocurement of funds by SMEs and micro-enterprises; and (3) securitization support services to facilitate theprovision of unsecured funds to SMEs.
2. Subject
This time, JCR shall evaluate whether the synthetic type of regional financial institutions CLO (loan receivablebacked securities) (LLC Clover 2020), which is one of JFC’s securitization and refers to unsecured loans to small
and medium-sized companies. JCR shall evaluate whether the notes issued under the CLO, meet the corecomponents of Social Bond Principles (2018) 1 and is consistent to SDGs goals2. In the JFC’s Small and Medium
Enterprise Business, the CDS agreement3 is concluded with 30 regional financial institutions and the limited
liability company (SPC) will acquire some of the notes that the SPC is planning to issue. However, the remaining
notes are scheduled to be sold to investors. The Series One Class A Notes issued under the CLO, the Series One
Class B Notes, and the Series One Class C Notes guaranteed by the JFC are subject to evaluation.
3. Social Impact Evaluation
JFC aims to achieve two social improvement effects through the implementation of the CLO. The first is the effects
of regional revitalization, such as the maintenance and creation of employment, through the smooth provision offunds to SMEs through unsecured loans provided through regional financial institutions. The second is the support
for stable management of regional financial institutions through the assumption of part of the risks associated with
unsecured loans to SMEs by JFC and investors under CDS agreements with JFC. Looking at the borrowers ofloans from participating financial institutions, which are the reference obligations of the CLO, more than 40% of
the total loans are to SMEs with small-scale demand for funds, with JPY 10 million or less. Currently, local
governments are facing social issues such as the hollowing out of local economies due to the population decline
and depopulation in rural areas, and business succession. JCR acknowledges that the development of local
industries and the survival of regional financial institutions supporting them from the financial side are importantmeasures for revitalizing Japan's local communities in order to resolve these issues. Based on the above, JCR
concludes that the use of proceeds contributes to the "access to essential services (financial services)" and "employment generation including through the potential effect of SME financing and microfinance " among the1

ICMA (International Capital Market Association) Social Bond Principle, 2018.
Social bond principles are not binding as they are "principles" voluntarily published by the International Capital Markets Association and are notregulations. However, they are referenced when judging the social value of financing instruments on a global basis. Therefore, evaluation shall be
conducted in accordance with these principles.
3
CDS agreements = Credit Default Swap Agreements. A type of loss indemnification agreement.
2

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https://www.jcr.co.jp/eneligible social project categories listed in the social bond principles. In addition, among the SDGs targets of 8
"Decent Work and Economic Growth," the objective is consistent to target No. 8.3., “Promote developmentoriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation,and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including throughaccess to financial services” and target No. 17.17., “Promote the development, transfer, dissemination and diffusionof environmentally sound technologies to developing countries on favourable terms, including on concessional andpreferential terms, as mutually agreed.” In the "Specific Measures to Achieve SDGs" formulated by theGovernment of Japan, JCR confirmed that the use of proceeds is consistent with "the strong economy that creates
hope, and the challenge of raising productivity by motivated individual businesses will be supported by support
agencies such as the government, business associations, regional SME associations, and regional financial
institutions," which are listed as measures closely related to SDGs8, etc. JCR concludes that JFC’s policy is
consistent to these international and national policy/initiatives.
4. Management, Operation and Transparency Evaluation
JCR confirmed that the proceeds in lieu of the issuance of the notes are appropriately allocated for the use of funds
in accordance with the methodologies stipulated in the Company Bond Memorandum, CDS agreement, and otheragreements related to this matter. In addition, JFC's business operations are evaluated annually by an evaluationand examination committee composed of outside experts in accordance with the JFC Act, and JCR evaluates thatthe management and operation systems are transparent.
5. Overall Evaluation Results
As a result, based on the JCR Social Finance Evaluation Methodology, JCR assigned "s1" for the "Social Impact
Evaluation (Use of Proceeds)" and "m1" for the "Management, Operation and Transparency Evaluation."
Consequently, JCR assigned "Social 1" for the overall “JCR Social Bond Evaluation.” Detailed evaluation results
are discussed in the next chapter. The notes also fully meet the standards for the requirements of the Social Bond
Principles and are consistent with the SDGs Objectives and concrete measures for the SDGs Goals of theGovernment.

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Chapter 2: Current Status of the project on each evaluation factor and JCR's
evaluations
Evaluation Phase 1: Social Impact Evaluation
JCR assigns "s1", the highest grade, to "Evaluation Phase 1: Social Impact Evaluation".
Rationale: 100% of the proceeds is eligible as a social project.

(1) JCR's key consideration in this factor
In this section, JCR first assesses whether the proceeds will be allocated to social projects that have a clear social
improvement effect. Next, JCR assesses whether an internal department/division which is exclusively in charge ofenvironmental or social issues or a third party prove it sufficiently and have taken necessarily workaround or
mitigation measures, in case of possibility on use of proceeds have adverse social and environment impact.
Finally, JCR confirms consistency with the Sustainable Development Goals (SDGs).

(2) Current status of evaluation targets and JCR's Evaluation<Overview of the Use of Proceeds>
The subject of evaluation is the synthetic CLO (synthetic type of regional financial institutions CLO (LLC Clover2020)) that refers to loans to SMEs offered by participating financial institutions under JFC's purchase-typesecuritization scheme. Using the CLO, JFC concludes a CDS agreement with 30 regional financial institutions
and acquires some of the notes that are scheduled to be issued by the SPC. However, JFC plans to sell theremaining notes to investors.
a.

On the social Contribution effects of the projecti. 100% of funds are used to CLOs backed by unsecured loans to SMEs. Facilitating the provision offunds to SMEs contributes to the objective of encouraging motivated individual businesses to take on
the challenge of raising productivity through support agencies such as regional financial institutions, inorder to create a "strong economy that generates hope," which is one of the concrete measurespertaining to Japan's own SDGs goals. JCR identifies that this project is highly effective in improving
the social issues.
According to the report published by Japan Finance Corporation, the securitization support business provided
a total of ¥318.3 billion in unsecured funds to 11,760 SMEs in cooperation with a total of 235 financial
institutions from the commencement of operations in July 2004 to March 2019. This CLO scheme has been in
effect since 2004. One of the social issues facing Japan is the risk of business succession problems due topopulation decline and hollowing out of local economies. In order to enable inclusive development as statedin the SDGs philosophy, it is essential to realize strong hopeful economies and to support the challenge ofraising productivity by motivated individual businesses with the support of regional financial institutions, etc.
in order to revitalize local economies in the future. In addition, JFC and the SPC assume part of the risks
associated with unsecured lending to SMEs under the CDS agreements with JFC contributes to thesustainable operation of regional financial institutions. Given the unavoidable need to rely on guarantees andcollateral for loans to SMEs, the support of unsecured loans provided through the CDS agreements withJapan Finance Corporation enables the provision of loans focusing on the business potential and growthpotential of SMEs, which is considered to play an important role in the development of SMEs. Looking at theactual size of CLO originations over the past three years, there has been a remarkable year-on-year increase in
the amount of loans to JPY 33.23 billion in 2019, JPY 34.6 billion in 2018, JPY 27.03 billion in 2017 and the
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financial institutions to 30 in 2019, 25 in 2018, 22 in 2017, indicating that there is a strong need for funds for
SMEs under this scheme.
In fiscal 2019, the CLO
were characterized by aTransition of the CLO's Scale
2,500

35

scale loans of up to JPY30
No. of Loans

30

2,000

25

Financial Institutions

25

22
1,693

1,500

10 million, accounting for
47 % of the total. About
80% of companies that

1,793
20

18

large demand for small-borrow loans have 30 or
fewer

15

1,000

9

1,009

1,095
10

500

524

5

employees,

75% of enterprises earnsales of 500 million orless. It is obvious fromthenumbers,

0

0

2016

2017

2018

2019

2020
(scheduled)andrelatively

aforementioned
loans

to
small

enterprises account forthe majority. Looking at

the geographical distribution, the number of participating financial institutions is 30, and the number ofborrowers is distributed to 35 prefectures, which responds to the funding needs of SMEs and microbusinesses of various sizes and types.

(Reference) Financial Institutions Participating in the CLO
Yamagata Bank, 77 Bank, Shimizu Bank, Tajima Bank, Kita-Nippon Bank, Fukushima Bank, Tochigi Bank,
Nagano Bank, Shizuoka Chuo Bank, Minato Bank, Hokkaido Shinkin Bank, Tomakomai Shinkin Bank,
Asahikawa Shinkin Bank, Obihiro Shinkin Bank, Fukushima Shinkin Bank, Asahi Shinkin Bank, Saikyo
Shinkin Bank, Johnan Shinkin Bank, Tama Shinkin Bank, Toyama Shinkin Bank, Hokuriku Shinkin Bank,
Tsuruku Shinkin Bank, Takayama Shinkin Bank, Osaka Shinkin Bank, Himeji Shinkin Bank, Tottori Shinkin
Bank, Tokushima Shinkin Bank, Kanonji Shinkin Bank, Kumamoto Shinkin Bank, Niigata-Ken Shinkumi Bank
Based on the above, JCR considers the underlying assets of the CLO to be a social project that is necessary
for solving social issues in Japan.
ii. The use of proceeds falls under the categories of "access to essential services (financial services)" forrelatively small-sized "SMEs" and "job creation through the potential effects of SME financing"among the eligible social project categories in the social bond principles.

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b. Consistency with SDGs goals and Targets
The CLO is consistent with SDGs goal 8 because JFC's primary goal is to contribute to job creation and job
maintenance in the region concerned by cooperating with regional financial institutions to provide financial
support to local SMEs. In addition, JFC has realized this by taking advantage of partnerships with regional
financial institutions to provide lending to SMEs throughout the country. From this, JCR evaluates that the
CLO contributes to gola 17.
Goal 8: Decent work and economic growthTarget 8.3. Promote development-oriented policies that support productive activities,
decent job creation, entrepreneurship, creativity and innovation, and encourage theformalization and growth of micro-, small- and medium-sized enterprises, including
through access to financial services.
Goal 17: Partnerships for the goals
Target 17.17. Promote the development, transfer, dissemination and diffusion ofenvironmentally sound technologies to developing countries on favourable terms,
including on concessional and preferential terms, as mutually agreed
In addition, JCR confirmed that the social project is consistent with the following items among the "concretemeasures to achieve the SDGs" set by the Government of Japan as the SDGs achievement goal.4
Implementation Guidelines 3 Creation of growth markets, regional revitalization, and science and technology
innovation
SDGs that appears to be particularly relevant:8
Domestic measures
Outline of Measures
Strong economy thatcreates hopeTargetSupport will be provided by thegovernment, business associations,
local SME associations, regional
financial institutions, and othersupport agencies to take on thechallenge of raising productivity bymotivated individual businesses.

Indicator
Index of the "Japan 100 Million
Success Plan"
・ Approx. 1,000 projects will becreated over five years (from
FY2016) based on a target of
approx. 200 projects per year.
・ Increase the number of profitable
SMEs and micro-businesses from
700,000 to 1.4 million by 2020
(FY2011: 698,689)c.

Response to Environmental and Social Risks
While it is almost impossible to imagine the serious environmental and social risks associated with theimplementation of loans to SMEs, which are the underlying assets of the CLO, it is necessary to exclude fromthe scope of loans industries that may not lead to regional revitalization or productivity improvement, which
are the original purposes of the target SMEs. JFC excludes certain businesses that are contrary to public
morality, public order, or morality, or speculative, as a condition for SMEs to apply for loans. In addition, JFC
requests regional financial institutions to provide representation and assurance that they do not provide loans
to anti-social forces. If JFC finds it to be an anti-social force after the loan is extended, JFC will not

4Specific measures for the Guidelines for the Implementation of the Sustainable Development Goals (SDGs) established by the Headquarters for
the Promotion of the Sustainable Development Goals (SDGs), consisting of the National Ministers of State.
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compensate for the loss. Based on the above, JCR evaluates that environmental and social risks areappropriately avoided.

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Evaluation Phase 2: Management, Operation and Transparency Evaluation
JCR assigns "m1", the highest rating on JCR Evaluation Phase 2: Management, Operation andTransparency Evaluation.
Rationale: These projects will be allocated the funding and implemented the businesses asplanned through a firmly equipped management and operation system and high transparency as
described below.

1. Appropriateness and Transparency concerning selection standard and processes of
the use of proceeds(1) JCR's key consideration in this factor
In this section, JCR confirms that the objectives to be achieved through the social bond, the criteria for selecting
social projects, the appropriateness of the process, and the series of processes are appropriately disclosed toinvestors.

(2) Current status of evaluation targets and JCR’s evaluationa.

Goal
JFC aims to contribute to the improvement of people's lives by taking on the functions of the SME, MicroBusiness and Individual Unit, and Agriculture, Forestry and Fisheries Business Unit, as a supplement offinancings provided by ordinary financial institutions.
As one of the pillars of its management policies, the SME business emphasizes the maintenance and creationof employment at SMEs, which support local economies, and the development of activities rooted in local
communities, in order to contribute to regional revitalization. JFC's business management plan is
implemented annually in a manner that reviews the three-year medium-term plan, including the use of
securitization to contribute to regional revitalization and to ensure a timely and smooth stable supply of funds
through collaboration with private financial institutions. JCR evaluates that these strategies are consistent
with the implementation of the CLO.

b. Selection standard
JFC has established the following participation conditions for SMEs that are able to obtain unsecured loans
from regional financial institutions to enhance their effectiveness.
(1) Being an SME as prescribed in Article 2(1)(iii) of the Japan Finance Corporation Act (Act No. 57 of
2007; including subsequent amendments);(2) having filed a blue return for two consecutive years and not having
insurance premiums.

no unpaid corporate tax and social(3) In principle, having a business history of three years or more and normal settlement for two consecutive
terms (12 months respectively; provided, however, that if a merger, etc. has been conducted during theterm, this shall be limited to those that have not had a significant impact on the business content of themerger, etc.).
(4) Numerical criteria
In principle, the financial statements for the most recent fiscal year to which the contribution was mademust meet all of the following requirements: However, even in cases that do not fall under (a) or (b), if"ordinary profit before depreciation is positive" or "profit/loss recorded is positive", the borrower may be
eligible.
i. Not in excess of debts.
ii. Recurring profit is recorded.
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(5) Where a credit transaction of a financial institution handling an institution is new, in principle, a certified
public accountant or an auditing firm shall be required to submit an audit certification, or a checklist on
the application of the "Guidelines on Accounting of Small and Medium Enterprises" issued by the Japan
Federation of CPTAs' Associations or the "Basic Guidelines on Accounting of Small and Medium
Enterprises" shall be submitted.
(6) Passing both the examination by the handling financial institution and the examination by Japan FinanceCorporation.
(7) Being an institution that contributes to the revitalization of the regional economy.
(Source: Notice of Solicitation of Participating Companies in CLO (Purchase-type Synthetic Method with Bond Guarantee in March
2020)

The participation requirements for the regional financial institutions are also clearly stipulated, including that
there are no violations of laws and regulations and that there is no relationship with anti-social forces such asorganized crime groups.
JCR considers that the above selection criteria are to enhance the effectiveness of the social projects with highsocial contributions considered in Evaluation Phase 1, based on the following conditions: strict standards are
established to prevent negative impacts on society; companies that are contrary to public order and morality or
do not necessarily lead to social improvement effects are excluded in Item 1; and companies that are explicitly
conducive to regional revitalization in Item 7.
c.

Process
The Small and Medium Enterprise Division, together with the Business Planning Division, will consider
budgeting for individual SME support projects, including securitization projects. In doing so, the department
in charge analyzes and reports on the results, as the importance of unsecured loans to SMEs, which is thesocial significance of this securitization, and the basic stance of policy-based financial requires revenue andexpenditure balance. JFC is also subject to annual evaluations and examinations of its operations andoperations from the viewpoint of whether or not operations are conducted appropriately and efficiently in linewith its policy objectives.
JCR evaluates that the selection criteria are operated with validity, based on such factors as the clear divisionof roles of each organization, passing through a department with specialized knowledge in the decisionmaking process, and receiving business evaluations from outside experts regarding the results of operations
and a series of processes.
These criteria and the process of selection and evaluation will be published in this report to investors.

2. Appropriateness and Transparency of management of the proceeds(1) JCR's key consideration in this factor
While it is usually assumed that funding management methods vary widely by borrower, JCR confirms that theproceeds are used for social projects and that arrangements and internal arrangements are in place to facilitate
tracking and management of the availability of funds.
JCR also attaches importance to assessing whether the proceeds are expected to be used for social projects at an
early stage and how funds are managed.

(2) Current status of evaluation targets and JCR’s evaluation
The proceeds are used to bear the credit risk of the loans to small and medium-sized enterprises, which aresubstantially underlying assets, through the CDS agreements. As the borrowers of the underlying assets, SMEs
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repay the principal of their loan receivables on a monthly basis, the outstanding balance of the pool of loan
receivables during the securitization period decreases. As a result, the principal amount of the notes is also
redeemed and reduced according to the terms and conditions of the corporate bond memorandum and otheragreements.
In addition, the use of credit risk in the pool of loan receivables whose underlying assets are the funds in lieu of
the issuance of the notes is clearly stipulated in the CLO agreement, and therefore tracking management is not
required.
Transactions that the proceeds are deposited in the bank and substantially bear the credit risk of loan receivables
on small and medium-sized enterprises under certain conditions by covering losses under the CDS agreements
are clearly stipulated in the agreements. Therefore, it is considered that controls are secured as long as businesses
are conducted in accordance with the agreements.
Since the entire amount of the proceeds is allocated to the payment of the amount of compensation for losses
under the CDS agreements, there is no unallocated funds. In addition, in the event of prepayment of the loan
receivables to be backed, the notes will be redeemed in accordance with the water fall stipulated in the corporatebond memorandum, etc., and therefore JCR evaluated that there is no need for re-appropriation.

3. Reporting(1) JCR's key consideration in this factor
In this section, JCR evaluates whether the reporting system to investors before and after the issuance is plannedin a detailed and effective manner at the time of the issuance of the notes.

(2) Current status of evaluation targets and JCR evaluationa.

Reporting on the funds allocation
As confirmed in the previous section, all the funds raised are used to bear the risk of loans extended to SMEs
by regional financial institutions participating in the CLO, and it is not assumed that unallocated fund will
occur.

b. Reporting on society improvement effects<Output indicators>(1) Impact reporting when issuing notes
JFC publishes attribute data on unsecured loans of SMEs, which are reference obligations. Among these,
the following is expected to be published as an output indicator for measuring the effects of social
improvement when issuing the notes.
i. Loan value distribution
ii. Reference obligation amount distribution
iii. Sales distribution
iv. Number of Employeesv.

Distribution of business historyvi.

Regional Dispersionvii.

Industry(2) Impact reporting during the period
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JFC publishes monthly and quarterly reports on the following status of the assets.
i.

Names of regional financial institutionsii.

Current status of the assets, including the number of obligors and delinquent receivables, defaults
and deductible<Outcomes measure>
Although there are no estimates specified in the CLO, the following outcome indicators (estimatedvalues) are published as social benefits obtained as a result of operations in annual performance
evaluations by outside experts for the SME business as a whole (FY2018 figures).
i.

Improvement of productivity of Japan as a wholeii.

Employment inducement

The above shows the outcomes of the provision of funds from the Small and Medium EnterpriseBusiness Unit, particularly for capital investment loans. In FY2018, JFC provided JPY 545.0 billion inloans for capital expenditures, and the total amount of capital expenditures was JPY 957.1 billion. Basedon these results, the ripple effect on the Japanese economy is calculated to induce production of JPY 2.1
trillion and employment of 128,000 people in Japan as a whole. At the end of FY2018, 651 companies
went public following transactions with the Small and Medium Enterprise Division (excerpted from the
FY2018 performance evaluation report). JFC will continue to disclose in its evaluation report what kindof social benefit it was able to provide in the performance evaluation by outside experts regarding theSME business, and the specific social benefit (estimate) of the project.
<Impact>“Contribution to the improvement of people's livelihoods”
JCR confirmed that JFC discloses detailed information on the effects of social improvement and theattributes of companies receiving loans in its regular disclosure of CLO information.

4. Organization's Social Activities(1) JCR's key consideration in this factor
In this section JCR evaluates whether JFC's management positions environmental issues as a high-priority
management issue, whether procurement policies, processes, and social project selection criteria based on the
Framework are clearly identified through the establishment of specialized environmental departments or throughcollaboration with external organizations, etc.

(2) Current status of evaluation targets and JCR evaluation
JFC's Efforts to Address Social Issues
The purpose of the JFC's Establishment Law is to supplement the financing provided by ordinary financial
institutions, and to fulfill the financial functions to support the raising of funds by the general public, small andmedium-sized enterprises, and agriculture, forestry and fisheries businesses. It is also intended to provide thenecessary financing to cope with the disruption of financial order in Japan and abroad or the damage caused bylarge-scale natural disasters, and to enable banks and other financial institutions to provide the necessaryfinancing swiftly and smoothly, thereby contributing to the improvement of people's lives. The Management

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Policy and Operational Plan also aim to support policy-based finance for regional revitalization and to provide
timely and smooth funding in cooperation with private financial institutions.
JFC sets the following business objectives in its operational management plan.
1. Reconstruction Assistance from the Great East Japan Earthquake
2. Meticulous management to safety net demand, stable supply of funds, and cooperation with private
financial institutions
3. To provide funds in strategic growth areas
4. Contributing to the revitalization of local communities by leveraging the collective strengths of the
JFC
5. Improve customer service and demonstrate policy
6. Appropriate management of credit risk
Through the CLO, JFC aims to contribute to the target 2, stable supply of funds, collaboration with private
financial institutions, and Target4, the revitalization of local communities. Specific initiatives related to theseobjectives are also referred to in the future work of the Governor's Message.
(Governor's Message from the 2019 Disclosure Magazine)“This year, we will continue to enhance our efforts to assist our customers in solving their problems andrevitalize the local community, and collaborate with private financial institutions.”
JFC's overall businesses are evaluated annually by an examination committee composed of outside experts, andits securitization support operations, including CLOs, are also included in the scope of the evaluation. In thisperformance evaluation, JFC receives a quantitative and qualitative assessment of the level of achievement of theobjectives each year, and it is evaluated that the SME business performed as expected in terms of standard
performance against the goals. In respect of the securitization support business, there was a mention that results
have been increasing year by year.
JCR considers that JFC is working as a unified organization to provide support to SMEs and regional financial
institutions for regional revitalization as a core organization of its business development, and that its basic
philosophy and initiatives will contribute significantly to solving the problem of the hollowing out of the local
economy due to the population decline, which is a social issue in Japan.

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■Evaluation Results
Based on the JCR Social Finance Evaluation Methodology, JCR assigned "s1" for the "Social Impact Evaluation(Use of Proceeds)" and "m1" for the "Management, Operation and Transparency Evaluation." Consequently, JCR
assigned "Social 1" for the overall “JCR Social Bond Evaluation.” The notes also meet the standards for therequirements of the Social Bond Principles and the SDGs Objectives and specific measures for the SDGs Goals of
the Government.
[JCR Social Bond Evaluation Matrix]
Management, Operation, and Transparency Evaluation

Social Impact Evaluation

m1

m2

m3

m4

m5

s1

Social 1

Social 2

Social 3

Social 4

Social 5s2

Social 2

Social 2

Social 3

Social 4

Social 5s3

Social 3

Social 3

Social 4

Social 5

Not qualified

s4

Social 4

Social 4

Social 5

Not qualified

Not qualified

s5

Social 5

Social 5

Not qualified

Not qualified

Not qualified■ Scope of Subject[Assignment]
Subject

Clover 2020 1st Series A
Unsecured Notes(Limited Liability Property
Special Clause and Qualified
Institutional Investor
Limitation)
Clover 2020 1st Series B
Unsecured Notes(Limited Liability Property
Special Clause and Prohibitionof Division Clause)
Clover 2020 1st Series C
Unsecured Guaranteed Notes(Limited Liability Property
Special Clause and Qualified
Institutional Investor
Limitation)

Issue
AmountJPY
20.3
billionJPY
5.894
billionJPY
6.0
billionFinal Redemption
Date

Issue Date

March 10, 2020

March 10, 2020

March 10, 2020

Interest Rate

Evaluation

May 31, 2024

3 Months
TIBOR +
0.22%

JCR Social Bond Evaluation: Social1
Social Impact Evaluation :s1
Management, Operation and Transparency
Evaluation :m1

May 31, 2024

Not inpublicMay 31, 2024

3 Months
TIBOR +
0.11%

JCR Social Bond Evaluation: Social1
Social Impact Evaluation :s1
Management, Operation and Transparency
Evaluation :m1
JCR Social Bond Evaluation: Social1
Social Impact Evaluation :s1
Management, Operation, and Transparency
Evaluation :m1(Responsible analyst for this evaluation) Atsuko Kajiwara and Rieko Kikuchi

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Important explanation of Social Bond Evaluation
1. Assumptions, Significance, and Limitations of JCR Social Finance Evaluation
The JCR Social Bond Evaluation provided by the Japan Credit Rating Agency, Ltd. (JCR) is a comprehensive expression of
JCR’s current opinion on the extent to which the use of proceeds from the bonds, which are subject to evaluation, are allocatedto social projects defined by JCR and the extent to which the management, operation and transparency of the use of social Bonds
are ensured.
JCR Social Bond Evaluation assesses the plan or status of the fund allocation at the time of planning or of the issuance ofbonds and does not guarantee the status of the allocation of proceeds in the future. In addition, JCR Social Bond Evaluation does
not prove the social beneficial effect of social Bonds and is not responsible for their social effects. JCR confirms that the effectsof the funds procured from this Bond on the social issues are measured quantitatively and qualitatively by the issuer or by a third
party requested by the issuer, but in principle, JCR does not directly measure such effects.
2. Methods used in the conduct of this evaluation
The methodology used to implement this assessment is listed in the Sustainable Finance ESG section of JCR's website(https://www.jcr.co.jp/) under the JCR Social Finance Evaluation Methodology.
3. Relationship with Acts Related to Credit Rating Business
The JCR Social Bond Evaluation is determined and provided by JCR as a related business, which is different from theactivities related to the credit rating business.
4. Relationship with Credit Ratings
The evaluation differs from the Credit Rating and does not promise to provide or make available for inspection apredetermined Credit Rating.
5. Independence in Evaluation of JCR Social Bonds
There is no conflict of interest related to capital or human resources relationships between the subject of this evaluation and
JCR.
■Disclaimers

The information contained in this document has been obtained by JCR from the Borrower and from accurate and reliable sources. However, the information
contained herein, artificially, mechanically, and in this document, has been obtained by JCR from the borrower and from accurate and reliable sources. Provided,
however, that such information may be erroneous due to human, mechanical or other reasons. Accordingly, JCR makes no representation or warranty, express or
implied, as to the accuracy, results, accuracy, timeliness, completeness, marketability, or fitness for a particular purpose of such information, and JCR assumes noresponsibility for any error, omission, or result of using such information. In no event shall JCR be liable for any special, indirect, incidental or consequential
damages of any kind, including opportunity loss, monetary loss, which may arise from any use of such information, whether contractual, tort, negligence or othercause of liability, and whether or not such damages are foreseeable or unforeseeable. JCR Social Finance Evaluation does not express any opinion on the various
risks (credit risk, price fluctuation risk, market liquidity risk, price fluctuation risk, etc.) involved in the procurement of funds subject to evaluation. The JCR Social
finance Evaluation is a comprehensive statement of opinion at the present time of the JCR and is not a statement of fact and does not make any recommendations
regarding risk judgment or the decision to purchase, sell or hold individual bonds, commercial paper, etc. JCR Social finance Evaluations may be changed,
suspended, or withdrawn due to changes in information, lack of information, or other reasons. All rights to this document, including data from the JCR Social
finance Assessment, are held by JCR. Reproduction, adaptation, modification or alteration of this document, in whole or in part, including data from the JCR Social
finance Assessment, without the permission of JCR is prohibited.

■Glossary

JCR Social Bond Evaluation assesses the extent to which funds procured under this framework will be used for social projects as defined by JCR, and the extent towhich such funds will be used for management, operation, and transparency. The evaluations are graded on a five-point scale and are displayed using the Social1,
Social2, Social3, Social4, and Social5 rating symbols in order of rank.

■Sustainable finance of registration as an external reviewer of green finance and sustainable finance・ Registration of Green Bond Issuance Supporters by the Ministry of the Environment
・ ICMA (Registration as an observer of the International Capital Markets Association)■Status of registration as a credit rating agency, etc.
・ Credit Rating Agency: the Commissioner of the Financial Services Agency (Rating) No.1
・ EU Certified Credit Rating Agency
・ NRSRO: JCR has registered with the following four of the five credit rating classes of the Securities and Exchange Commission's NRSRO(Nationally RecognizedStatistical Rating Organization. (1)Financial institutions, broker dealers, (2) insurance companies, (3) general business corporations, and (4) government and local
governments. If the disclosure is subject to Section 17 g-7(a) of the Securities and Exchange Commission Rule, such disclosure is attached to the news releases
posted on the JCR website (https://www.jcr.co.jp/en).

■For further information, contact

Information Service Dept. TEL: 03-3544-7013 FAX: 03-3544-7026

Japan Credit Rating Agency, Ltd.
Jiji Press Building, 5-15-8 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel. +81 3 3544 7013, Fax. +81 3 3544 7026

Copyright © Japan Credit Rating Agency, Ltd. All rights reserved.

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