Kookmin Card, one of Korea's biggest credit card companies, has launched the first of two planned international securitizations this year with a $500 million deal via ING. Bank One is arranging the second transaction, also for $500 million.
The deal follows hot on the heals of a $400 million transaction led by HSBC for Samsung Card, launched earlier this week, and like that issue, Kookmin's offering will be placed privately.
Kookmin's deal was launched through Plus One Ltd, a special purpose vehicle registered in the Cayman Islands, and securitizes a portfolio of roughly 500,000 accounts with an outstanding principal of around W950 billion ($777.1 million).
ING employed the standard structure for cross-border securitizations from Korea. Essentially, Kookmin sells the card receivables to a Korean incorporated SPV, Kookmin Card 10th Asset Securitization Specialty Co. (the purchaser), which then issues a $500 million bond to the Cayman Islands SPV, and swaps the proceeds into Won to buy an equivalent amount of receivables.
In addition, the purchaser - via a Korean trust - issues a subordinated bond to be retained by the originator, which is equal to 25% credit support for the deal.
The transaction features a 4.5 year revolving period, during which time interest is paid monthly, followed by a six month controlled amortization period, whereby one-sixth of the original principal is payable each month. The bonds have a final maturity of five years and expected average lives of 4.8 years.
Undoubtedly the most significant aspect of Kookmin's deal is that is not wrapped with a monoline insurer, which has been a feature of all the previous high-profile Korean credit card deals. The decision to do an unwrapped deal means that triple-A ratings cannot be attained. However, the AA/Aa3 ratings attained from Fitch and Moody's make this to date the highest rated unwrapped Korean cross-border securitization.
A source familiar with the transaction said there is evidence that shows investors are willing to look at Korean issues on their merits, without the participation of the monolines. "I think investors are definitely willing to take the risk associated with unwrapped deals, and in this case the issuer has managed to get high ratings regardless," he says. "Nevertheless, going forward we are likely to see both kinds of transactions because triple-A ratings still give you access to a bigger group of investors."
As a private placement, no details have so far emerged on the pricing of the deal, but the source said that the decision to take the unwrapped route was done for cost reasons. "When you do a wrapped deal, the issuer must factor in the wrapping fee as well as the coupon," he explains. "Kookmin only has to think of the coupon. Historically, monolines charge between 40bp and 50bp in fees, so although the coupon rate is obviously higher for double-A deals than triple-A, the all-in cost is actually less."
Another banker with experience of executing Korean cross-border transactions gave a different figure for monoline fees, so had a different assessment of the cost benefit of unwrapped deals. "Monoline fees have been around 35bp this year, so you add that on to triple-A pricing of just inside 50bp plus Libor," the banker explains. "I would expect double-A pricing to be around the 85bp to 90bp mark. If it were much wider, it would be hard to sell the idea of an unwrapped deal from an economic perspective."
Meanwhile, it emerged on Wednesday that Samsung Card achieved pricing of 55bp over one month Libor for its third international securitization, which has a legal maturity of four years and expected average life of 3.5 years.
The pricing was outside the two triple-A rated public 144a registered Korean credit card deals done this year. Korea Exchange Bank issued a $500 million deal in August via CSFN. The transaction had a 4.5-year average life and priced at par with a coupon of 49bp over Libor. Woori followed KEB earlier this month with its own $500 million offering, led by UBS Warburg. The Woori bonds, which have average lives of 4.64 years, priced at 99.778%, with a nominal coupon of 45bp over Libor, giving an effective spread of around 49.80bp.