FinanceAsia Achievement Awards 2000 - Best Asset-Backed Deal

Korea Asset Funding 2000?2001 Ltd., $367 million secured FRN

Deutsche Bank, UBS Warburg

No transaction better exemplifies a country's attempts to sort out its non-performing loan (NPL) problem than the Korea Asset Management Company's (Kamco) international asset-backed deal. Structured as a true sale collateralized loan obligation (CLO), the issue ranks as Asia's first cross-border NPL securitization, Korea's largest international securitization and the region's second largest such deal ever. Kamco hopes that the benchmark transaction will not be its last and believes too that it has set a template for others in the Korean Republic to follow.

For the borrower, the transaction was said to provide a convenient, cost-effective means of financing over 87% of its dollar and yen portfolio, as well as opening a new source of available capital for future funding requirements. And it was able to do so because underpinning the whole deal is the creditworthiness of the Korea Development Bank (KDB).

In essence, the transaction comprised a portfolio of 135 restructured corporate loans purchased by Kamco from six local banks including KDB, which contributed 60% of the total. In addition, the government-owned bank provided a facility for credit support and liquidity coverage, representing 30% of the original principal amount.

Such strong backing enabled the deal to achieve a coveted investment grade rating at Korea's sovereign ceiling and provided its key selling point. In the same way that Hanvit Bank's bond deal had been sold as a high yield sovereign play earlier in the year, Deutsche and UBSW followed suit with Kamco.

It was to prove a successful strategy, with books closing over four times oversubscribed. For investors a 200bp spread over Libor represented an attractive proposition compared to then trading levels of outstanding KDB debt, which stood at about 90bp over a like-for-like basis. An additional structural innovation that made the deal unique was its series of put options that reverted back to the originating banks in the event of a loan default. This meant that whereas with a typical CLO structure, a default on the underlying portfolio extends bond maturity, in this case it would shorten it because investors would be re-paid early.

The leads were also proud of the fact that the deal incorporates Asia's first controlled pass-through structure. This meant that in the event of excess cash flow being generated by the underlying assets, principal amortizes to the benefit of both the borrower and investors. The borrower sees overall costs reduced, while investors see their pay-down schedule secured.

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