ING Barings has just completed an unusual - for Asia at least - securitization of auto loans receivables originated by Samsung Capital, the Korean consumer finance company. However, in a move that is becoming less unusual in an era of greater transparency, lead manager ING Barings would not release full pricing details of the $200 million transaction.
Samsung was able to pierce the sovereign ceiling with its the deal because it is guaranteed by Financial Security Assurance (FSA), rated triple-A by both agencies. As a monoline insurer, whose sole business is to guarantee timeliness of interest payments for bond deals, FSA was brought in to provide extra security for investors.
Under the terms of the deal, the notes issued by Samsung will be purchased by an asset-backed commercial paper (ABCP) conduit, rated A1+, operated by ING. This is also the first time an ABCP program has involved a Korean issuer and won-denominated receivables. These will be swapped into US dollars by ING before being parceled, along with other asset-backed notes into ABCP.
The bank would not disclose the coupon carried by the Samsung bonds, which have expected average lives of 3.6 years and legal maturity of five years.
Another interesting aspect of this transaction is that it employs a revolving structure, again a first in that this feature has never been used by a Korean company in a cross-border transaction. Essentially, this adds flexibility to the deal because collections on existing receivables can be used by Samsung to originate new auto loans. The revenues of these can be added to the underlying pool that backs the bonds.
An official at ING emphasizes that the structure was beneficial to both Samsung and investors. "The conduit has a higher credit rating, plus there is the benefit that you can put lots of receivables in one place and parcel it up to be sold to investors," he says. "It also gives Samsung access to cheaper funding and opens it up to the international capital markets."
The official says it is important for Korean companies to seek new methods of financing in the current climate and believes others may follow the route taken by Samsung. "Unlike other Asian countries, the Korean government is taking a hard line over corporates debt problems," he argues. "They've basically taken the position that they aren't going to bail out companies and we're seeing a lot under threat of going under.
"Companies are facing stark choices. This deal shows that there is a non-government route to fund the balance sheet and bringing in an FSA guarantee lends it weight and scores points with international investors, which could benefit the company in the future."
Cross-border securitizations are very rare in Korea and Asia. State-owned Korea Asset Management Company (Kamco), launched the first ever Asian cross border deal backed by non-performing loans last year.
The $367 million deal, issued through the Korea Asset Funding 2000-2001 special purpose vehicle, was lead managed by Deutsche Bank and UBS Warburg, and won the best asset-backed deal award in FinanceAsia's end of year review.
Kamco plans to hit the international market twice more this year, with one scheduled before the end of the first half and another planned before the end of the year.
