Korea's biggest insurance company, Samsung Life Insurance, will soon bring some welcome diversity to the cross-border securitization market with the launch of the eagerly awaited first international mortgage backed deal to come out of the country. Morgan Stanley is acting as lead manager on the $465 million transaction with Lehman Brothers and Samsung Securities brought in as co-arrangers.
A banker close to the deal said that roadshows have already been conducted in the major financial centres in Asia, Europe and the United States with pricing expected next week, although the banker would not be drawn on the day.
The banker would also not offer an indication of what yields can be expected. "I would rather not comment at this stage," he says. "Yield will obviously depend on market conditions and with this being a new asset class for Korea, that is something you also have to factor into the pricing."
One head of Asian securitization at a rival bank was more forthcoming, and suggested that pricing should be inside the two 144A public credit card deals completed in 2002 (the $500 million deals issued by KEB Card via CSFB and Woori Card via UBS Warburg), both of which priced just south of 50bp over Libor.
"From what I hear, this deal is going to have an average life of between two and three years and legal maturity of 30 years," says the banker. "The average lives are much shorter than the credit card deals, which were around 4.5 years, so for starters that should mean tighter pricing. Added to that, the quality of mortgage assets is much higher than credit cards. Even though this is a new asset class, I think it is reasonable to expect pricing between 7bp to 10bp inside the credit card transactions."
The deal - to be issued out of Bichumi Global 1, a special purpose vehicle registered in the Cayman Islands - securitizes 22,781 mortgage loans originated by Samsung with a current balance of around W646 billion ($532.9 million). The average remaining term of the loans is 144.8 months with weighted average seasoning of 25 months and average current loan-to-value of 63.55%.
Moody's has given an underlying rating of A3 to the deal, but the monoline wrap provided by Ambac brings the deal up to triple-A status.
Morgan Stanley has employed the structure common to most international deals from Korea. First, Samsung Life sells the card receivables to a Korean incorporated entity, Bichumi Korea 1 Limited (the purchaser), which then issues a $465 million bond to the Cayman Islands SPV and swaps the proceeds into Won to buy an equivalent amount of receivables.
In addition, the purchaser issues a subordinated junior note to be retained by the originator equal to 10.5 % credit enhancement for the deal. A cash reserve will offer additional support.
The notes will pay quarterly interest, and if they have not been redeemed in full or the remaining portfolio has not been bought back by Samsung Life by 2007, there will be a step up in the coupon rate.
The final maturity date for the notes is March 2033 and some bankers felt that this might be a stumbling block given getting swaps beyond five or six years for Korean deals has proved difficult in the past. Luckily for Morgan Stanley and the issuer, ING - aided by a swap guarantee from Ambac - has decided to boldly go where no bank has gone before and provide the 30-year swap.
"This is the first residential MBS from Korea and the tenor is very, very long for emerging Asia," admits a banker from ING's structured products group. "Having said that, the swap market for between five and 10 years has evolved far more in the last nine months than many people expected. It is tough to stretch it to 30 years, but we were able to find counterparties prepared to take on that risk."
