SBI Leasing Services Co., Ltd.

If the business condition of borrowers (lessees) such as airlines deteriorates and lease payments to the SPC are delayed, fund revenue may deteriorate, potentially impairing the principal of investors' contributed capital. This could reduce investors' willingness to invest, decreasing sales of fund interests and thereby affecting the Group's business results and financial position. The Company follows a policy of carefully conducting lessee selection and risk screening, and taking measures such as selling leased assets to third parties when legal insolvency proceedings commence.

If the lessee does not purchase the leased asset at the end of the lease term, the asset is sold to a third party through the market; if it can only be sold at a price below the initially assumed level, fund revenue may deteriorate, potentially impairing the principal of investors' contributed capital. The Company adopts an objective estimated sale price provided by an external valuation company at the time of deal formation, but if the price declines, it could lead to a decrease in subsequent sales of fund interests, etc.

The Company records anonymous partnership investment interests as "merchandise contributions" on the balance sheet, and under the voluntary partnership scheme as "aircraft held for sale," etc. If the value of leased assets declines, the lessee's creditworthiness deteriorates, or exchange rates fluctuate such that the value falls below the acquisition cost, the Company must recognize a valuation loss or loss on transfer. Furthermore, if the assets cannot be transferred within a certain period, the Company will not only fail to earn fee income but will also bear the fund risk itself, potentially resulting in the inability to recover all or part of the investment amount.

Fees received by the Company from SPCs and part of the proceeds from the sale of aircraft held for sale, etc. are denominated in foreign currency. In a yen appreciation phase, the amount received may fall below initial expectations, and deteriorating economics of JOLCO products may reduce investors' willingness to invest. Conversely, in a yen depreciation phase, investor demand for foreign-currency-denominated leased assets and fund interests may decline, potentially making sales difficult. The Company seeks to mitigate the impact through forward foreign exchange contracts, but complete hedging is difficult.

Since the leased assets handled are limited to aircraft, vessels, and marine containers, capital expenditure trends and business deterioration in the aviation and shipping industries directly lead to a decrease in the number of funds formed and a decline in investors' willingness to invest. In addition, much of the arrangement of aircraft deals is outsourced to ABL Aviation, and if the relationship with ABL Aviation becomes difficult to maintain, there is a risk that fund formation and sales will be suspended. The Company maintains a policy of preserving a good relationship with ABL, but securing alternative means is limited.

Forming an operating lease fund requires reaching agreement among multiple parties, including the arranger, seller, and lessee, and the timing of leased asset acquisition may be delayed from initial expectations due to individual circumstances of each party or delays in reaching agreement. In particular, since the sale of aircraft held for sale, etc. to voluntary partnerships involves large amounts per transaction, delays in fund formation and sales can significantly impact revenue for the current period, risking a deferral of income to subsequent periods.

Fund interests, etc. constitute deemed securities under Article 2, Paragraph 2 of the Financial Instruments and Exchange Act, requiring registration as a Type II Financial Instruments Business Operator. If statutory requirements (Article 52 of the same Act) are met, the Company may face revocation of registration or a business suspension order. In addition, funds formed based on current tax, accounting, and legal frameworks may see investors' willingness to invest decline due to future legal amendments or changes in tax treatment, potentially making sales of fund interests, etc. difficult. The Company addresses this through the development of internal regulations, use of external experts, and obtaining legal opinions, but the risk of legal amendments cannot be eliminated.

The Company procures part of its fund formation capital and working capital through financial institution borrowings and bond issuances, and if such procurement becomes difficult due to deteriorating economic conditions, there is a risk that fund formation will be suspended. In addition, if the Company violates financial covenants attached to commitment line agreements or overdraft agreements, it may lose the benefit of term and face deteriorating cash flow. The total balance of syndicated loans arranged by SBI Shinsei Bank stood at ¥5,000 million at the end of the period.

The Company handles confidential information of investors and lessees, and if information is lost, leaked, misused, or subject to unauthorized external access, it may face damages claims or reputational damage that impedes business activities. The Company has established, operated, and monitored information security regulations and personal information protection regulations, and provides ongoing training for officers and employees, but it is difficult to completely eliminate unforeseen incidents.

SBI Holdings, Inc. indirectly holds 61.96% of the Company's total issued shares, and may exert significant influence over shareholders' meeting resolutions such as officer appointments, organizational restructuring, and articles of incorporation amendments. There is also a reputational risk that negative impressions arising from the financial condition, creditworthiness, or business performance of SBI Group companies could spill over onto the Company. Furthermore, the license to use the "SBI" trademark presupposes the continuation of the relationship with SBI Holdings, and if the Company ceases to be a subsidiary or affiliate, use of the trademark may be restricted.