Hanvit Bank, Korea's largest commercial bank, has hit the asset backed securitization (ABS) market once again with its tenth domestic deal. ABN Amro acted as lead manager on the W280 billion ($216 million) transaction.
Issued through the Hanvit-10 ABS special purpose vehicle (SPV), the offering is the first Korean ABS to be backed by documents against acceptance. These are short-term revolving credit facilities provided by banks to manufacturing companies, in this case Daewoo Electronics and Saehan Media.
In addition, the underlying assets also include (NPL's) non-performing loans originated by Hanvit (NPL) to Hyundai Petrochemical and SsangYong Cement.
The issuer was facilitated by a two-tier revolving trust structure, giving extra flexibility as it allows different asset types to be securitized from the same SPV. It also allows new assets to be added to the underlying pool if necessary.
Without any external credit enhancement, the senior W160 billion two-year notes have been rated AA/AA+ by local rating agencies KIS and KMCC. Normally, Korean deals backed by NPL's have required third party guarantees from triple-A rated banks to encourage investors.
In this case however, Hanvit was not keen to incur the extra costs that a third party guarantee involves, and both issuer and lead manager were confident that the sound structure of the deal would be enough to encourage investor interest.
In the end, the senior bonds, which priced at par, carry a spread of 20bp over the two-year corporate yield benchmark set by the Korean Securities Dealers Association. At close of play yesterday, the market-to-market base yield was 5.86% on double-A rated corporate bonds.
Two subordinated three-year tranches were also structured into the transaction, giving extra enhancement on the senior notes. The first, rated BB-, carries a fixed coupon of 12%, while the single B- piece pays 13% per annum.
A well placed source said that the deal would most likely be marketed to investors prepared to move down the credit spectrum. "A lot of ABS deals normally get bought up by insurance companies which want longer-term triple-A paper," the source comments. "But a lot of investors want better value single-A and double-A paper. This, and its unique structure, will probably ensure good interest from trust companies and fund managers."
Hanvit Bank, rated BB- by Standard & Poor's and Ba1 by Moody's, was formed in January 1999 following the merger of Commercial Bank of Korea and Hanil Bank. It currently has assets worth around W100 trillion.
In October 2000, Hanvit tapped foreign ABS investors for the first time with a $240 million securitization of its foreign currency loans, which was priced at 150 bp over Libor plus.