LG Card, one of Korea's biggest credit card companies with around 18 million cardholders, looks set to be the first Korean entity to complete a cross-border securitization in 2003. Bank of America is arranging the $300 million deal - LG's second international offering following a $500 million transaction in December 2001.
According to bankers, LG's latest deal is still waiting for approval from Korean regulators but the company hopes to get everything signed off by the end of January. Reports suggest the transaction will not be wrapped by a monoline insurer or be rated by credit rating agencies and the bonds are likely to be sold into a conduit via private placement.
That news should not surprise given the growing concerns over default rates in the Korean credit card and consumer finance markets. The concerns impacted the securitization market in the fourth quarter of 2002. When Kookmin Card issued its second $500 million deal through Banc One in early December, spreads had shifted out to 60bp over Libor. This was 10bp outside similar sized offerings earlier in the year from Korea Exchange Bank - via CSFB - and Woori Card's deal led by UBS Warburg.
In any event, none of this is likely to dampen Bank of America's satisfaction at securing the LG mandate. The bank was something of a surprising choice to many ABS professionals given that it has had no prior involvement in the lucrative Korean cross-border business, the source of nearly all international issuance from ex-Japan Asia in the last couple of years. Furthermore, when the bank's entire securitization team - then headed by Warren Lee - defected in July to join Standard Chartered's newly established structured finance group, it seemed that Bank of America had given up on securing ABS business.
The fact that LG Card's deal is likely to be sold into a conduit will no doubt evoke skeptical mutterings among some ABS bankers who argue that the true test of execution skills is arranging publicly offered 144A term deals. However, some market observers feel that the year ahead is more likely to be characterized by conduit/ private placement issuance.
"The deepening of the swap markets as well as the understanding of Korean consumer credit card securitization has enabled more conduit sponsors to take these assets into their asset-backed conduits on either a wrapped or unwrapped basis," says Diane Lam, a director at S&P's structured finance group in Hong Kong. "In our opinion, this development is a natural evolution of the Korean securitization market, but at the current time institutional investors still have heightened concerns about Korean consumer credit cards and continue to want a wrap and/or demand a higher premium."
LG Card opted for a public offering with its first cross-border deal in 2001, which was jointly led by CSFB and UBS Warburg. The five-year issue, which was wrapped by Financial Security Assurance to enable triple-A ratings from Moody's and S&P, priced at 55bp over Libor and was recently trading just inside that in the secondary markets.