Korea First Bank is hitting the market for the third time this year with what will be the largest securitization ever from non-Japan Asia, as BNP Paribas, Calyon and Royal Bank of Scotland are joint arrangers on the 550 million ($717.5 million) MBS, with Calyon also providing the swap to mitigate currency and interest rate mismatches.
Following roadshows at the major European centers, books opened last week, the same day the leads began Asian roadshows in Hong Kong, Singapore and Tokyo. Pricing is due this Monday; according to a banker involved in the deal, adding he believed it would be the tightest pricing for a public cross-border issue from Korea to date.
That mark was also set by KFB on its first MBS in March this year (see ASR 4/5/04). The $499.6 million deal, arranged by UBS, featured 1.79-year paper that priced at 38 basis points over Libor and 5.79-year notes with a 58 points pick-up, for an all-in cost of 45 basis points.
With few exceptions, Asian originators doing international deals have typically issued in dollars. But as the dollar continues to fall against major currencies, the decision to do a euro-denominated offering might suggest that investors are looking for alternative assets. While the real impact of the dollar slide is negligible in this context, offering to execute transactions in other currencies is sometimes used as a marketing strategy when pitching, added bankers not involved in KFB 3.
In the case of this deal, however, they pointed to the leads being European houses, with strong client bases on the continent, as being one factor. In addition, the increasing participation of European investors in other Asian ABS deals and current tight spreads on European ABS paper might result in lower costs to KFB.
As was the case with KFB's debut, the latest deal features an Ambac wrap, enabling it to get triple-A ratings from Fitch Ratings, Moody's Investor's Service and Standard & Poor's. Issued out of the same Ireland-registered Korea First Mortgage vehicle, the floating rate notes reach legal maturity in 2036.
The deal follows the standard structure for Korean deals whereby an offshore SPV uses proceeds from the bonds to buy a purchaser senior note issued from a Korean SPV, First Home Loan No.3. The onshore SPV then uses the sale of both the senior note and a junior note - equal to 10% subordination and the main form of credit enhancement - to buy the loan portfolio.
The transaction is backed by a static pool of 16,488 first-lien loans, mostly for apartments, with an outstanding balance of W1.329 trillion ($1.25 billion) and average loan size of W81 million. The portfolio has a weighted average loan-to-value of 53.3% and seasoning of 9.3 months.
KFB, in which U.S. private equity fund Newbridge Capital has a controlling stake, completed its second international MBS in August, a $325 million private placement structured and purchased by Merrill Lynch.
Staying with Korean MBS, the state mortgage company Korea Housing Finance Corporation continues its dominance of the domestic scene. The agency, established in March by the Korean Government and Bank of Korea, last week launched a W360.1 billion ($338.7 million) MBS via Daewoo Securities, Hana Securities and Hanyang Securities.
The deal is Korea Housing Finance's fifth of 2004, all effectively government-guaranteed and launched through the MBS 2004 Trust. Since its debut in June (see ASR 6/28/04), Korea Housing Finance has raised W2.3 trillion through securitization - 63% of all MBS issued in Korea - funding its own origination program and acquisition of mortgage portfolios from banks.
This has led to some suggestion Korea Housing Finance is crowding out private banks from the mortgage business and securitization market. Ultimately, Korea Housing Finance seeks to raise W70 trillion from MBS deals by the end of 2008.
Despite the concerns, the agency believes its transactions benefit the Korean MBS market by setting an easily comparable benchmark as well as lowering housing costs.
Its latest offering features six tranches, rated triple-A by Korea Information Service and Korea Ratings, with maturities of between three and 20 years. The underlying pool has an outstanding balance of W353.5 billion. Pricing is expected this week.
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