International investors have given the thumbs up to Korea First Bank's $499.6 million mortgage securitization deal despite concerns surrounding political turmoil and a consumer credit crisis still fresh in many investors' minds.
The impeachment of South Korea's president, Roh Moo-hyun, split the country and destabilized parliament just as KFB's deal was pricing. Bankers selling the offer also had to contend with the fact that this was the first monoline wrapped cross-border securitization to go on sale since the collapse in Korea's consumer credit industry, which was previously the mainstay of the Asian securitization market.
However, investors kept cool heads even while members of the political establishment seemed to be losing theirs. Overall, the two-tranche deal was three-times over-subscribed and priced at 45bp over Libor, which is inside all of the credit card deals to have come out of Korea. It has also come inside the 2002 Samsung Life mortgage deal - the only other cross-border mortgage offer from Korea, which priced at 50bp.
The deal, lead managed by UBS, is issued through the Korea First Mortgage special purpose vehicle and securitizes 22,483 residential mortgage loans originated by Korea First Bank, with a current balance of KRW874.1 billion. The average remaining term is 194.9 months, with average seasoning of 18.8 months and loan-to-value of 46.61%.
Appetite for the deal, which is the first ever cross-border mortgage deal from a Korean bank, was bolstered by a monoline wrap from by Ambac, which ratcheted the deal up to a triple-A rating from Moody's and Standard & Poor's. Without credit enhancement the notes would have weighed in at A2. The deal also features 15% subordination.
The A1 notes, valued at $328 million, are priced at 38bp and have an average life of 1.79 years. The A2 notes, valued at $171.6 million, are priced at 58bp and have an average life of 5.79 years.
These numbers give the deal a fairly similar look to the Samsung Life offer, though that deal proved a tough sell despite offering richer pricing to some of the credit card deals. Nevertheless, it is the nearest real comparison and still trades at around the same 50bp level today. Where it differs, and this is likely a reflection of the way the market has changed, is in the geographic allocation. Whereas the Samsung Life deal was mainly placed with US accounts, KFB was bought up predominantly by Asian investors. The A1 notes were split 52:30:18 between Asia, the US and Europe while the longer-dated A2 notes split 61:34:5.
All in all, KFB is paying a fair market rate, which is a great success in the circumstances. However, asset-backed specialists weren't watching the pricing too closely. Most are happy just to see a deal come out of Korea. "It's most important in terms of opening the Korean space again," says one banker.