Korea Air Lines, the country's largest air carrier and part of the Hanjin Group, is set to launch its second cross-border securitization via Citigroup Global Markets. The 20 billion ($191.1 million) deal is scheduled to launch and price on Friday, according to a well-placed source, which will predominantly securitize future cargo receivables on Korea Air's various Japan routes.

The source said initial price guidance for the three-year deal was in the 38 to 48 basis point range over one-month Yen Libor, although it was anticipated that spreads would narrow once book building begins. As it will be a Regulation S-

eligible offering, most of the paper is expected to be placed primarily with Japanese investors, with additional interest expected from other Asian countries and Europe.

Even if pricing ends up at the wide end of the current indicative range, it will still be massively inside where Korea Air's first cross-border offering yielded. The 27 billion issue, which priced in September 2003, priced via Nomura Securities at 110 points over the same benchmark.

Aside from the fact Korea Air is securitizing cargo rather than passenger receivables this time around - plus a few minor structural differences - the two deals are similar. Both have three-year final maturities and 1.6 year weighted average lives and, more importantly, both feature credit facilities from the quasi-government agency Korea Development Bank.

For the latest deal, Fitch Ratings based its single-A rating primarily on the facility, which can be drawn upon throughout the life of the deal. Rival bankers feel Korea Development Bank's involvement is the prime attraction of the transaction. Fitch attributes the expected price difference between the deals to the contraction of Korea Development Bank debt spreads, largely a result of improving investor sentiment towards Korea.

The tightest pricing for an offshore straight debt issue from Korea was established last week by Kexim, and further evidence of this is anticipated with Korea First Bank's upcoming MBS deal - its' fourth. Even with rumored pricing of 12 to 14 basis points over Libor - which would be a new benchmark for Korean ABS, a banker involved with the transaction said he anticipated "massive demand" for the deal.

Looking beyond the Korea Development Bank guaranty, Korea Air's cargo business has performed robustly enough to suggest meeting its obligations to investors will not be difficult. Monthly revenues have increased from 4 billion in January 2002 to 7 billion in December 2004, while the company has a debt service coverage ratio of 13 to one.

Meanwhile, Korea Air's main domestic rival, Asiana Airlines recently completed its third international deal. The 9 billion offering was backed by the excess cashflows generated on an 10 billion future ticket receivables issue completed by Asiana in December 2003. Citigroup also acted as lead arranger for Asiana's transaction.

The unrated, privately placed Asiana deal had a three-year maturity and two-year expected average life, according to Citigroup, which would not disclose pricing details.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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