Bangkok--5 Apr--Moody's
Moody's Investors Service has assigned a Aaa rating to the Class A floating rate secured notes (Class A notes) and a
Aa2 rating to the Class B floating rate secured notes (Class B notes, together with the Class A notes, the notes) issued by Frontier VIII Limited. The transaction is brought to the market by The Royal Bank of Scotland plc. The complete rating action is as follows:
Issuer: Frontier VIII Limited
USD270,000,000 Class A Floating Rate Secured Notes due 2010, rated Aaa
USD30,000,000 Class B Floating Rate Secured Notes due 2010, rated Aa2
The ratings address the expected loss posed to investors by the legal final maturity date in January 2010. In assigning the ratings, Moody's considered, among other things, the following factors:
1. the credit quality of the underlying auto loan and credit card receivables;
2. the subordination provided to each class of notes;
3. the fully funded reserve to cover certain liquidity requirements such as interest shortfalls or expenses arising in the event of servicer transfer;
4. the KRW/USD cross-currency and interest rate swap provided by The Royal Bank of Scotland plc (RBS) as the swap counterparty;
5. the transaction's structural features, including the various triggers involved in servicer termination events and early amortization events;
6. the legal protections provided in the transaction, including registration under the Act on Asset-Backed Securitization;
7. the experience of Samsung Card Co., Ltd. (Samsung Card) as the originator and the servicer; and
8. the experience of Kookmin Bank as both the trustee and back-up
servicer.
Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks, such as those associated with the timing of principal prepayments, have not been addressed, and they may have a significant impact on the yield to investors.
TRANSACTION SUMMARY
The note issuer, Frontier VIII Limited, uses the notes proceeds to subscribe for the floating rate bond (the bond) issued by Challenger VIII Asset Securitization Specialty Co. (the bond issuer). The bond issuer, in turn, uses the bond proceeds to subscribe for the investor interest from a Korean trust (the trust). In addition to the investor interest, the trust also issues subordinated seller interest and seller interest and Samsung Card subscribes for both.
Samsung Card has entrusted a pool of auto loan and credit card receivables to the trust. Collections from the underlying receivables will be used to purchase credit card receivables only. Hence, the portfolio will have fewer and fewer auto loans, and more and more credit card receivables.
The transaction has to maintain a seller interest to absorb dilution and fluctuations in the receivables balance.
The revolving period will end in June 2008, and the controlled amortization period will follow. The notes pay monthly interest at the rate of 1-month Libor plus their respective spread. The principal will be repaid during the controlled amortization period on a sequential basis, and will start from the Class A notes.
With the occurrence and declaration of any of the early amortization triggers, the revolving or the controlled amortization periods will end immediately, and the principal collections will be passed through to the bondholder and used to accelerate principal repayments on the notes.
RBS provides a swap to mitigate currency and interest rate mismatches arising from the differences in the currencies and interest rates between the underlying receivables and the notes. The swap also protects against non-transferability and inconvertibility risks.
The auto loan receivables are for the purchase of new cars. The credit card receivables comprise amounts owed by cardholders for their purchases of merchandise and services as well as cash advance services.
From its analysis, Moody's believes that the subordination provided by each class of notes offers sufficient protection to the noteholders against potential defaults in the underlying receivables and that it is consistent with the notes' respective rating.
A more detailed analysis of the transaction will soon be available at Moody's website: http://www.moodys.com
THE COMPANIES
The issuer is a newly established, bankruptcy-remote, special purpose company incorporated in the Cayman Islands. Samsung Card is the originator and servicer of the underlying receivables and Kookmin Bank is the back-up servicer and the trustee. Moody's believes that both Samsung Card and Kookmin Bank are capable of performing their duties and satisfying the requirements laid out in the transaction documents.
Hong Kong
Min Ye
Managing Director
Structured Finance Group
Moody's Asia Pacific Ltd.
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