Amid the recent consumer credit scare on the Korean peninsula, Hyundai Motor Co. recently priced the first-ever cross-border auto ABS backed by Korean-originated loans. The deal, led by stateside neophyte Standard Chartered Bank, was done with a senior/subordinate structure, unlike the only other Korean cross-border transaction, issued by a vehicle of LG Card in December 2001.
Pricing without a wrap, the two-tranche deal achieved a rating of Aa3' from Moody's Investors Service - the only rating agency on the transaction. Subordination on the transaction totals 27%, and is in the form of a certificated bond retained by the issuer.
Additionally, the relatively seasoned collateral - some loans were originated up to 54 months ago - and relatively short-dated paper allow for a relatively rapid amortization of the bonds. The two-tranche offering consists of a half-year A1 class and a 1.6-year senior A2 class.
The A1 class, with a 0.5-year average life priced at 35 basis points over one-month Libor, with the 1.6-year A2 class pricing at 51 basis points over.
Due to the heavy seasoning of the underlying loans, a key concern about the structure is the negative carry that could result should loan balances be paid faster than expected due to trade-ins or outright auto sales, according to a presale report issued by Moody's. The average remaining term is 31 months.
With this structure in the pipeline for some time, a main hurdle had been allowing the loans to be considered a true sale, for which the issuer petitioned the Korean regulatory body, the Financial Supervisory Commission, to pass the Act on Asset Backed Securitization.
The primary servicer is Hyundai Capital Services Inc., an unrated unit of the parent, with A3' rated Kookmin Bank as backup servicer. Kookmin is also the backup servicer for the aforementioned LG Card deal, which carries a full MBIA wrap (See ASR 1/19/04).
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