Merrill Lynch expects to launch a long-delayed aircraft loan-backed securitization from Korea this week.

The $165 million transaction is backed by seven separate loans originated by Hanvit Bank and Korea Exchange Bank for the purchase of 15 aircraft by Korean Airlines, said sources in Hong Kong. If launched, it will be the first securitization of aircraft financing in Korea, and the first securitization of a syndicated loan in Asia. At presstime the deal was awaiting final approval.

The unrated transaction comprises two tranches: a senior piece of $115 million and a subordinate piece of $50 million that will be kept by the originators. The average life of the bonds is three years and final maturity is 6.5 years. The entire issue will be privately placed with investors in Europe and Asia. Pricing was not yet determined by presstime.

Despite the upturn in Korea's economy, many investors are still reluctant to take on Korean exposure, particularly from Korean Airlines, which has suffered from financial trouble in recent years. But investors took comfort from the fact that the underlying collateral was aircraft, said one source.

"Some investors consider this to be Korean risk, while others consider it to be non-Korean risk because if worst comes to worst, you can still take back the airplanes. How they see it is up to the bank's internal guidelines," he noted.

Closure of the deal would be a triumph for Merrill, which has been working on the deal for over a year. The mandate was originally awarded last June (ASRI 6/1/98, p.1), and its long gestation period led many to believe that it had died in the pipeline along with many other Korean ABS deals. VC

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