South Korean airline Asiana is close to launching a securitization backed by ticket receivables originated in the United States.
The nearly $75 million transaction comes via Chase Manhattan and received a BB rating from Fitch IBCA, relying largely on the fundamental strength of deals backed by future flows of airline ticket receivables. The rating is one notch above Asiana's Fitch rating of BB-minus.
Fitch argued that the extra notch is justified because such deals are likely to continue to perform even if the issuing airline struggles financially and is forced to reschedule its unsecured debts. That's because it is in the best interest of other creditors to allow the airline to continue to fly, which ensures the securitization's performance, Fitch said.
"In a future flow, the issuer's obligation to pay is operational rather than financial, which is why Fitch assesses the originating company's going concern' or survival' [status] to develop the transaction rating," said Chris Chau of Fitch's Asian structured finance team in Hong Kong. "In the case of Asiana's capital structure, the future flow is in between the secured debt and unsecured debt. While the transaction isn't delinked from the originator's credit, the structure supports a one-notch upgrade from the unsecured rating."
Chase will certainly be stressing the strength of such structures to potential investors and will be able to point to several previous deals as evidence. An unrated transaction that the bank arranged for Philippine Airlines in 1996 was unaffected by a debt restructuring. Further, similar deals for Latin American airlines Aeromexico and Varig survived such problems unscathed.
The receivables arise when customers purchase tickets with credit cards through Asiana's sales network in the United States. These receivables are transferred to a Dublin-based special-purpose vehicle called OZ Receivables PLC Series 2000-1, which issues floating rate notes to investors. Those receivables have proved remarkably resilient through the Asian financial crisis, surviving 1997 and 1998 with a decrease of only 3.2%.
Market watchers said that Asiana has been attempting to close such a deal for at least two years and the mandate has been passed around several different houses.
If the airline pulls off the deal, it will be boon to a company whose borrowing options have been extremely constrained, with the local bond markets effectively closed to second-tier Korean firms and both local and international banks unwilling to lend to Asiana.