Samsung Capital sets new benchmark for Korean cross border ABS

Merrill Lynch arranges highly successful auto loans deal for Korean entity.

Samsung Capital, the Korean consumer finance company, has completed its third international, but first publicly offered, asset-backed securitization (ABS) with a $296 million deal backed by auto loans. Merrill Lynch acted as sole lead manager on the transaction, which priced on Wednesday in New York.

Launched out of the Samsung-Capital Auto 2002-1 special purpose vehicle, registered in the Cayman Islands, the underlying portfolio consists of 47,839 loans amounting to W467.7 billion ($353.3 million). The weighted average interest of the loans is 10.03%, while the average seasoning is five months.

In common with most cross-border Korean securitizations, the deal comes complete with a monoline wrap, in this case from Financial Security Assurance, to bring it up to triple-A status with both Moody's and Standard & Poor's. However, the strength of both the issuer and the underlying structure of the transaction is reflected by Moody's giving an Aa3 shadow rating to the deal.

The structure used is standard for Korean deals. Samsung Capital sells the auto loans to a Korean-incorporated entity (Credit Creator 2002) or purchaser, which in turn issues $296 million of purchaser senior notes to the Cayman Islands SPV, and swaps the proceeds into Won to buy an equivalent amount of receivables. The purchaser then issues a subordinated bond to be retained by the originator, which in this case is equal to 19% credit support.

The underlying transaction features a three-year revolving period followed by a two-year controlled amortization period. During this time, interest collected on the loans will be used to pay interest on the senior bonds. Any surplus interest accrued will be added to the underlying pool to cover any defaults.

The bonds have a legal maturity of six years, expected maturity of five years and expected average lives of four years. The final pricing of 36bp over one-month Libor came in 2bp from the tight end of initial price talk (38bp to 40bp over), and compares favourably with the other publicly offered Korean cross-border deals.

Last December's $500 million credit card offering from LG card, jointly lead managed by CSFB and UBS Warburg, featured five-year triple-A rated bonds that priced at 50bp over Libor. And, although Hyundai Capital's $160.1 million auto loans transaction, arranged in March by JPMorgan, had pricing at 33bp over Libor, the average lives of the bonds were only 1.3 years.

Merrill held roadshows for the Samsung transaction in Hong Kong, Singapore, London, Boston, Los Angeles and New York. A banker close to the deal told FinanceAsia that the deal was bought by 14 accounts, with 70% placing in the US and the rest was evenly split between Asian investors. In terms of investor type, the main interest came from banks, insurance companies and money managers.

The banker feels the reasons for the tight pricing are straightforward. "With the wider pricing the deal was three times oversubscribed and two times oversubscribed at the closing price," he says. "The tight pricing is a result of three factors. First, the Samsung name has international recognition. Secondly, investors liked the longer tenor profile of this deal and there is good appetite for longer-dated floaters at the moment. Finally, it also reflects the strong outlook for Korea from the international investor community. That is reflected in the unprecedented level of interest from the US, where we saw a lot of first-time buyers of Korean paper."

ING Barings arranged both of Samsung Capital's previous cross-border securitizations. The first, a $200 million auto loans deal issued last March, also featured an FSA wrap, and was sold into an asset-backed commercial paper conduit. The second, completed in September 2001, was a $234 million deal backed by consumer loans. Although it was placed privately, market whispers circulating at the time suggested the transaction pays an annual coupon of 5.75%.

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