State-run Korea Development Bank said that it would provide $4.5 billion in relief to distressed local credit card provider LG Card, which was one of the first Korean issuers to enter the cross-border ABS market with its Credipia 2001-1 class A transaction.
This most recent sign of the issuer's precarious financial state will have no impact on the deal's Aaa' rating since it is guaranteed by Financial Security Assurance, said Moody's Investors Services Vice President and senior analyst Jerome Gheng.
"However, there is a certain degree of linkage between the performance of the receivables and the survivability of the company," Gheng said. Should KDP prove unable to turn things around for LG Cards, the payment rate could suffer, he said, and this in turn could damage the rating on the underlying collateral. The shadow rating is currently holding firm at A2'. Ultimately, however, the FSA wrap would insulate investors from the fallout.
Betsy Castenir, managing director of communications at FSA, said the insurer is carefully monitoring the situation and does not expect any losses at this stage. Nonetheless, a contingency plan has been built in.
"We have a backup servicer called Kookmin Bank, which could service the portfolio if necessary," she said.
To date, the payment rate on the LG Card portfolio has typically been upwards of 40%, Gheng said.
In the wake of the troubles at LG Card, the South Korean government announced plans to limit credit card ABS going forward, according to wire reports. Without elaborating, South Korean Finance Minister Kim Jin-pyo, while speaking at a weekly news briefing, blamed the current troubles at LG Card on its ability to sell bonds backed by credit card receivables.