Hong Kong: Freshfields Bruckhaus Deringer, Hong Kong, Completes Fourth Korean Securitisation Transaction for 2002
Last Updated: 29 August 2002

The securitisation team at Freshfields Bruckhaus Deringer, Hong Kong, has acted for Financial Security Assurance Inc (FSA) as monoline guarantor (issuing a note guarantee and two swap guarantees) in the securitisation of credit card receivables originated by Korea Exchange Bank Credit Service (KEBCS).

The KEBCS deal is the fourth Korean securitisation transaction completed this year, and the most recent of seven major Korean securitisations to be completed by the team in the past twelve months, with a total value of nearly US$2.5bn.

The structure used in the KEBCS deal is similar to the one used in the award-winning LG Card transaction (where we also advised FSA in wrapping the deal), although the KEBCS transaction adopted a dual SPV structure rather than the single SPV structure used in the LG Card transaction. In the KEBCS transaction, the receivables were placed in a Korean trust, which issued trust certificates to a Korean SPV (special purpose vehicle) and KEBCS. The Korean SPV funded the purchase of its trust certificate by issuing a US dollar bond to a Cayman Islands SPV which, in turn, issued US$500m notes to investors.

"This trust structure is likely to become the norm for securitising credit card receivables in Korea as it is more suitable for dealing with the constant fluctuating principal balance of credit card receivables," said Clive Rough, partner, Freshfields Bruckhaus Deringer.

This transaction is also unique in that the Korean SPV hedges its foreign exchange exposure (its income is denominated in Korean won but it is obliged to pay US dollars under the bond it issued to the Cayman Islands SPV) by entering into two identical swaps with two different swap providers.

"This in turn required two identical swap guarantees to be issued by FSA," explained Clive. "Using two swaps did cause some complexities in the structure, in particular if one of the swap providers was to default when the other is performing. We have, however, now worked through these difficulties and could use the technique again if required."

With the wrap by FSA, the notes are rated AAA/Aaa by Standard & Poor’s and Moody’s respectively. The notes will start to amortise on the fifth year after closing, with a final legal maturity of six-and-a-half years after issuance.

Freshfields Bruckhaus Deringer team members were Clive Rough, partner, and associates Elton Cheung and Vanessa Kwong.


Notes for Editors

Freshfields Bruckhaus Deringer is a leading international law firm with over 2,400 lawyers and a total of 29 offices in 19 countries. In Asia it has nearly 220 lawyers based in eight offices providing clients with a full range of business legal services.

Freshfields Bruckhaus Deringer is widely regarded as having one of the leading securitisation practices in the region. In Asia, we have handled securitisation transactions since the market’s inception in the early 1990’s. Since then, members of our Asian securitisation group have worked on a significant proportion of the largest and most complex Asian securitisation transactions (including those with a large multi-jurisdictional element) that have completed in Asia.

We have represented all parties typically involved in a transaction, including originators, lead managers and arrangers, liquidity and other facility providers, insurers, swap counterparties, rating agencies and trustees. We also have considerable experience in dealing with regulators, rating agencies, accountants and other professional advisers involved in securitisation in Asia.

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