First Korean cross-border primary CBO gets warm reception

CSFB arranges the fastest ever international ABS term deal from Asia.

Credit Suisse First Boston has closed Korea's first international primary collateralized bond obligation (CBO) in tandem with two government agencies, the Korea Development Bank (KDB) and the Korea Technology Credit Guarantee Fund (KOTEC).

The $250 million transaction is notable for the speed in which CSFB was able to get it to market. The bank was only mandated in mid-October, so for CSFB to structure and fully place the deal in just over month makes it the fastest international ABS term deal to emerge from Asia.

One of the main reasons for the quick execution was down to KDB already having had experience in issuing domestic CBOs, so it knew exactly what type of deal it and KOTEC wanted to do.

"The KDB has already done a number of successful domestic primary CBOs where the proceeds have been used to fund small and medium sized entities in Korea," comments one observer. "This deal is being done for the same reason but the two agencies had greater ambitions with this and wanted to expand to a cross-border deal."

The deal was structured so that a Cayman Islands-registered special purpose vehicle (SPV), called Korea Credit Guarantee CBO Limited, used the proceeds of the deal to buy a purchaser note issued by KOTEC.

KOTEC then used the $250 million to buy a portfolio of 51 convertible bonds originated by LG Investment & Securities and Daewoo Securities specifically for this transaction.

Small and medium-sized technology companies which may have otherwise found it difficult to raise funds through the capital markets issued these bonds, worth W331 billion.

Moody's rated the transaction Baa2 because the deal comes with an unconditional and irrevocable credit facility from the KDB, also rated Baa2. This guarantee covers all allowable fees and expenses and any payments needed from the swap agreement.

The deal priced at 125bp over three month Libor and has an average life of three years. "I think the pricing is very fair and sets a benchmark for the market," adds the observer. "I don't think that it's comparable to the cost of the domestic CBOs the KDB has done as domestic funding is completely different. The objective was to take the deal to international investors and this was achieved.

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