Korea's Standard Chartered First Bank (SCFB) last week launched its latest cross-border MBS. Although the $650 million deal is the first to be issued under the SCFB banner, the company - known as Korea First Bank until its acquisition by Standard Chartered in April 2005 - completed four international securitizations in 2004 and last year.

The most recent of those was a 500 million ($606.9 million) offering in March 2005 (ASR, 04/04/05). As with that deal, StanChart, Calyon Securities and Royal Bank of Scotland are joint lead managers on the upcoming issue. StanChart will also provide a swap to mitigate currency and interest rate mismatches.

The transaction, issued through the Cayman Islands-registered Korea First Mortgage SPV, is collateralized by a pool of 10,764 loans with a weighted average loan to value of 52.9%. The low LTV mitigates, to some extent, risks associated with the portfolio. For example, 44.1% of obligors are self-employed and 91.5% of the loans are concentrated in the volatile apartment sector.

Like most other Korean cross-border deals, SCFB will utilize a double-SPV structure. A Korean-registered SPV issues a senior purchaser note and junior note (retained by SCFB) to purchase the loans, with the senior note sold to the offshore SPV, collateralizing the rated bonds.

For the first year of this deal, principal collections will be used to purchase additional loans, after which principal will be used to pay down both purchaser notes.

If the notes have not been redeemed in full by April 2014, investors will benefit from a to-be-determined step-up coupon.

Moody's Investor's Service has assigned an underlying rating of Aa3' to the deal on the basis of the credit quality of the pool and 12% subordination provided by the junior note.

However, the transaction benefits from an unconditional wrap from MBIA Insurance Corp., ensuring triple-A ratings from Fitch Ratings, Moody's and Standard & Poor's. MBIA also wrapped the March 2005 deal.

The three leads recently embarked on a series of roadshows in Europe and Asia. According to market sources, price talk is around 15 to 16 basis points over Libor. That is outside the 13 points SCFB got on its last deal - a benchmark for Korean cross-border issuance - although the market has widened since then. Final pricing is expected this week.

Most of the focus this time has centered on the monoline wrap. At the back end of last year, Samsung Card structured in enough cushion on a $300 million ABS to secure triple-A ratings on an unwrapped basis, a first for the Korean market.

Consequently, many observers expected SCFB to do the same. One crucial difference, however, between its deal and Samsung's is that the latter's was sold directly into a conduit, while SCFB has chosen to sell its deal publicly.

Some representatives of either the borrower or syndicate must have had concerns whether an unwrapped Korean deal would be so appealing to foreign investors - at least on such a large offering - and opted for the safe option of bringing MBIA on board.

According to one banker not involved, the cautious approach may end up being the more expensive option. "From various discussions, the sense is that an unwrapped deal could be done around mid-20's over Libor, high 20's at the widest," he said. "If SCFB could have structured it to get triple-A ratings unwrapped, I think investors would have gone for it because it would be at least 10 to12 basis points over European deals for what is a proven issuer.

"European investors are really looking for diversification so I do not think this would have been a tough sell," the banker added. "And I'm assuming the wrap cost between 15-20 basis points. Add this to the investor spread and there is no cost benefit to a wrapped deal."

Whatever the outcome, the Korean residential mortgage sector is likely to offer further opportunities throughout 2006. Chances are SCFB will place at least one more deal, while Korea Housing Finance Corp., Samsung Life, Hana Bank and Kookmin Bank have also been linked to cross-border transactions.

Also in Korea, the country's biggest credit card firm Samsung Card last week leaked pricing details of its latest $300 million ABS. Royal Bank of Scotland is arranger on the three-year deal.

Although the transaction has not yet closed, Samsung told local media it had secured a spread of 17 basis points for the notes, rated triple-A by Moody's and S&P. That matches the pricing it achieved on a $300 million offering arranged by StanChart last November.

RBS declined to comment on pricing or distribution. However, bankers not involved anticipate the deal will be sold into a conduit, as has been the case on nearly all Samsung's previous offerings.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

http://www.asreport.com http://www.sourcemedia.com

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.