LG Card, the Korean credit card company, has priced its inaugural cross border issue of securitized bonds. The $500 million, five-year deal was priced at 50bp over Libor in New York at lunch time on Wednesday. The deal was lead managed by UBS Warburg and CSFB.
The bonds are rated triple-A by Moody's and S&P because they have a monoline wrap by specialist insurer Financial Security Assurance. The all-in cost to the issuer, including the price paid for the wrap, is said to be less than 100bp over. This is far cheaper than the company could have raised money if it went out unsecured into the international corporate bond market, validating the company's decision to securitize.
One interesing feature to the deal is that its has a soft bullet repayment at five years. This makes the whole transaction easer to manage for the issuer when it comes to swapping the proceeds back into Korean won. The issuer also struck a first when the bonds were issued out of Korea, rather than through a Cayman Island SPV, which hitherto has been the norm.
The bonds were sold to around 20 different accounts, mainly banks, money managers and insurance companies. 50% of the investors were US based, 40% came from Europe and 10% were from Asia.
The assets which LG Card has securitized are its future credit card receivables. The company has seen huge growth in the last few year. This is mainly due to government encouragement for Koreans to get and use credit cards as a means of boosting domestic consumption after the 1997-1998 financial crisis. LG Card has been doubling its balance sheet every year since 1998. It has also been active in the domestic securitization market having done 22 Won securitizations this year alone.
This is the first cross border ABS the company has done, and the first public cross border Korean securitization done this year. "LG Card wanted to give a message to the Korean investors that they have lots of other funding options than just the domestic market," says one banker close to the deal.
This issue is the latest in a string of Korean debt deals to have hit the market this year. As Korean companies dicover the joys of balance sheet efficency, more such securitizations are likely. "You will see more Korean cross border ABS deals early next year," says one banker. "Arguably this segment of the market could become the biggest sector of the Asian debt universe. It's a bit of stretch but you can see that there is lots of potential here."
