The underlying asset pool - also valued at W160 billion - comprises bonds rated locally between B and BB-plus, with the exception of a bond issued by the BBB-minus rated video producer, Cimtec. These bonds, with maturities of between one and two years, yield between 11.12% and 12.6%. According to an official at Daewoo, there is no particular concentration of issuance from any one sector.
The transaction was split into two classes of paper, including W130 billion of senior notes and W30 million of subordinated paper that will be held by SMIPC as credit enhancement for the senior bonds. The senior tranche was split into W30 billion of one-year bonds and W100 million of two-year paper. The shorter dated bonds will carry a yield of 40 basis points over the corporate bond benchmark, and the spread on the two-year notes is 50 over.
Although the deal will close officially at the end of the week, the Daewoo official says that buyers for the bonds had already been found. “The deal has been taken up by domestic investors, mainly insurance companies and investment trusts,” he says. “We achieved our targets for the pricing, and I think the yields are comparable with other Korean CBOs.”
Aside from the subordinated tranche, additional credit enhancement comes through a financial guarantee provided by the Korea Credit Guarantee Fund (KCGF). This enabled the transaction to be rated triple-A by local agencies. KCGF also worked with Daewoo in the early stages of the transaction, conducting credit checks on prospective companies to see whether their bonds were suitable for inclusion in the asset pool.
