KDIC securitization to finally see light of day

The first international securitization from Korea''s KDIC is expected to launch in mid-September following months of legal difficulties.
Following months of legal wrangling, the first international securitization by the Korea Deposit Insurance Corp. (KDIC), one of the government agencies responsible for restructuring the financial sector, has finally been given a launch date, rumored to be September 13 according to a well-placed source.

A banker at one of the leads says that if all goes to plan, the transaction — backed by a portfolio of around $750 million performing leases — will go ahead in the middle of next month. "It is moving OK, we believe we have sorted out the potential difficulties and we are on track to get it finished by mid-September," he says.

The mandate for the deal, jointly held by Credit Suisse First Boston, Daewoo, Hyundai Securities and SG, was awarded in November last year with the deal targeted for launch by March 31 so that it could be completed by the end of the last financial year.

At the time the mandate was awarded, some regional securitization experts said it was going to be impossible to complete the deal in the targeted timescale. Various legal problems related to some of the issuer's subsidiary companies needed to be resolved and the timeframe for launch was then put back to the end of June.

It was also felt in some circles that having four lead managers was totally unnecessary and would create additional complications. The two local houses were deemed especially superfluous to an international deal, but were brought in specifically at the behest of the issuer.

After the most recent delay, and in light of escalating costs, all parties are keen to wrap up the transaction — set to raise between $300 million and $400 million for KDIC — as soon as possible.

Even so, it is believed there is still one outstanding legal issue remaining and the lead managers are taking a flier on announcing the September launch.

Legal costs are already believed to be in the region of $2 million, and in addition to fees for the four arrangers as well as the premium paid to monoline insurer Ambac to wrap the deal, KDIC must be wondering whether the deal is worth doing at all.

One local securitization banker believes the deal has been unwisely handled from start to finish. "The lead managers knew all about the legal issues when they took on the deal so it shouldn't be any surprise that it's taken so long," he claims. "That and the fact that staff at one of the lead managers, CSFB, changed almost immediately so that you had London staff who had never done a deal in Asia, meant that there were problems from the word go.

"Admittedly this wasn't the easiest portfolio to securitize, but this was clear and what KDIC did not need was arrangers trying to build a Rolls Royce deal when what it really needed was a Hyundai," the banker continues. "Expectations were set too high and it has become an expensive deal."

Quite how expensive, cannot be accurately gauged without seeing documentation, but the banker was prepared to guess. "Let's say that the deal prices at 30 basis points over Libor. Then you've got a monoline wrap to get a triple-A rating, that's another 150 basis points. So it's already 180 over. Add on another 70 basis points because it is a one and a half year deal, and another 50 basis points for fees and you are looking at the issuer paying 300 over Libor.

"There is no rational for doing the deal, because even as a triple-B risk, the issuer's paper trades at around 55 over," the banker adds. "As an asset backed deal, the premium over that should only be around 100 over that."

Nonetheless, the banker still believes there will be no problem in placing the deal. "It should be straightforward placing the paper because it's triple-A rated and offers a good premium," he concludes. 

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