The Korean consumer finance company, has completed its first ever cross-border securitization and international financing with a $160.1 million deal backed by auto loans. JPMorgan acted as sole lead manager on the transaction, which is also the first international ex-Japan Asia securitization of 2002.
Launched through the Hyundai Capital Auto Funding special purpose vehicle (SPV), the deal securitizes a portfolio of over 40,000 loans for new passenger cars and trucks originated by Hyundai. The outstanding principal balance on the pool is approximately $233.4 million, with a weighted average interest rate of 9.93% and weighted average seasoning of 6.44 months.
The structure used on the deal is fairly standard. In terms of the underling structure, Hyundai sells the auto loan receivables to a Korean-incorporated SPV or purchaser, which in turn issues $160.1 million of purchaser senior notes to Hyundai Capital Auto Funding, the Cayman Islands registered SPV, and swaps the proceeds into Korean won to buy an equivalent amount of receivables.
The purchaser then issues a purchaser junior note to be retained by the originator, which provides 25% credit support. Further enhancement is provided by a cash reserve equal to 3% of the loan receivables. Moody's and Standard & Poor's assigned underlying ratings of Aa3 and A+ respectively.
In addition, the bonds sold to investors from the offshore SPV are wrapped by FSA, the triple-A rated monoline insurer, and are consequently rated by both agencies at the same level.
Furthermore, to mitigate interest rate and currency mismatches between the fixed rate won denominated assets and US dollar floating-rate purchaser notes, JPMorgan will provide a currency swap, while FSA will guarantee the issuer meets its obligations under the swap agreement.
Following good support for Korean cross-border securitizations in 2001, and given that this is the first to be issued this year, it should not comes as too much of a surprise that the deal was well received by global investors, ending up three-and-a-half times oversubscribed.
Around 45% of the orders came from Europe, 40% from the US with the remainder placed with Asian buyers. The main investors were banks, insurance companies and funds.
The tight pricing of 33bp over 1-month Libor for the bonds, which have average lives of 1.3 years, will definitely have pleased both JPMorgan and Hyundai, especially compared to pricing for last year's deals.
For example, the $500 million credit card deal for LG Card via CSFB and UBS Warburg, priced at 55bp over, although the timing of the deal û it closed mid-December û would have played a part in that. Samsung Card also launched a $500 million card deal last September, and although it placed privately, it is believed that it also priced in the 50bp to 55bp over Libor range.
A banker familiar with the deal feels Hyundai can be pleased with its debut ABS. He says, "This is the first cross-border securitization of Won denominated auto loans that has been sold in the capital markets [Editors note: Samsung Capital did a $200 million auto loans deal last March via ING, which was put into ING's own conduit].
"Hyundai should be happy with the deal. It priced at the tight end of what had been speculated. This can set a benchmark for the company and the asset class.
"It also met another of Hyundai objectives, which was to diversify its investor base," the banker adds. "Hyundai Capital has done four domestic ABS deals before, but this was its first international deal and it was able to attract buyers from all over the world. This bodes well for the company in future."
In trying to explain the appeal of the deal to foreign buyers, the banker agreed that monoline-wrapped deals are easier to sell, but also thought the structure of the deal was significant.
"To begin with, investors were very comfortable with the FSA guarantee," the banker asserts. "This is important, especially as it was the first time these assets were sold to the international market from a Korean company. They will have also liked the underlying structure. The prepayment risk was taken away because investors get monthly principal repayments based on scheduled amortization rather than a pass-through structure. This also stabilizes the average life of the transaction."
It will be interesting to see what, if any, precedent this deal sets for other international auto loans deals out of Korea, and interested parties will not have long to find out. Samsung Capital will return to the market in April with its own $300 million deal, for which Merrill Lynch is acting as lead manager.