Bangkok--18 May--Moody's
USD667 Million and ?465 Million of mortgage-backed securities rated
Moody's Investors Service has assigned definitive ratings to the floating rate secured notes (the "Notes") issued by Korea First Mortgage No. 7 Limited (the "Issuer") and which are ultimately backed by residential mortgage loan assets originated by Standard Chartered First Bank Korea Limited ("SCFB"). Standard Chartered Bank brought the transaction to the market.
The complete rating action is as follows:
Issuer: Korea First Mortgage No. 7 Limited
USD170 million Class A-1a Floating Rate Secured Notes due 2038, rated Aaa
?215 million Class A-1b Floating Rate Secured Notes due 2038, rated Aaa
USD409 million Class A-2a Floating Rate Secured Notes due 2038, rated Aaa
?250 million Class A-2b Floating Rate Secured Notes due 2038, rated Aaa
USD52 million Class B Floating Rate Secured Notes due 2038, rated Aa2
USD36 million Class C Floating Rate Secured Notes due 2038, rated A2
The ratings address the expected loss posed to the investors by the legal final maturity. The structure allows for timely payments of interest and ultimate payment of principal at par on or before the rated final legal maturity date. The expected loss only takes into account the scheduled yield and the principal repayment on the notes, but does not consider the step-up margin payments, which will be paid on a when-available basis to the noteholders, if the notes are not fully repaid in May 2015. The ratings do not address the likelihood and timeliness of the step-up margin payments. The assigned definitive ratings hereby replace the previously assigned provisional ratings.
Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed, but may have a significant effect on yield to investors. In assigning the ratings, Moody's considered, among other things, the following factors:
1. the credit quality of the underlying residential mortgage loan assets;
2. the subordination level provided to each class of notes;
3. the transaction's structural features, which include the cash flow mechanism, the presence of a pre-funded reserve fund, and the cross-currency swaps;
4. the experience of SCFB as the originator and servicer and the availability of a back-up servicer; and
5. the legal integrity of the transaction.
TRANSACTION SUMMARY
The Notes issued by the Issuer are collateralized by a purchaser senior note issued by First Home Loan No. 7 Limited (the "Purchaser"), which is, in turn, backed by a portfolio of residential mortgage loans originated by SCFB.
The Issuer purchases the purchaser senior note from the Purchaser with the Notes issuance proceeds. The Purchaser uses the purchaser senior note proceeds - together with proceeds from the issuance of the purchaser junior note - to acquire a portfolio of residential mortgage loans from SCFB.
The Issuer will use the payments it receives under the purchaser senior note to fulfill its obligations on the Notes on a quarterly basis.
Principal collections during the first year are used to purchase additional mortgage loans, subject to certain conditions. Starting from the fifth payment date in August 2008, principal collections will be paid on a pass-through basis to the purchaser senior note and then to the Notes on a sequential basis and in alphabetical order, starting from Class A1. The purchaser junior note will only be repaid when all the Notes are fully redeemed. Two swap arrangements with Standard Chartered Bank have been established to mitigate the currency and interest rate mismatches -- one between the mortgage loans and purchaser senior note, and the other between the purchaser senior note and ?-denominated Notes. In rating the transaction, Moody's considered, among other factors, the mortgage loan-by-loan information and the environment for the Korean residential property market. Moody's also took into account the impact of set-off risk and commingling risk on the transaction.
Moody's believes that the various levels of subordination provided to each class of rated Notes, the presence of the reserve fund, coupled with the structural features built into the transaction, sufficiently covers any losses incurred by a set-off event, a commingling event, or potential defaults in the mortgage loans and that they are consistent with the notes' respective ratings.
A more detailed analysis of the transaction is available at Moody's
website: http://www.moodys.com
THE COMPANIES
The Issuer is a newly established, bankruptcy-remote, special purpose company incorporated under the laws of the Cayman Islands. The Purchaser is a newly set-up limited liability company incorporated under the laws of Korea.
SCFB (A2/Prime-1/D+) is both the originator and servicer. Although the bank has a short history in the residential mortgage lending business, which it started only in June 2000, Moody's believes that it has adequate capacity as a servicer based on its performance in its previous six cross-border RMBS transactions.
Kookmin Bank (A1/Prime-1/C) is the back-up servicer. It will assume the role of the servicer in the event that SCFB ceases to be the servicer.
Moody's Investors Service is a publisher of rating opinions and research. It is not involved in the offering or sale of any securities, nor is it acting on behalf of the offering party. This release is not a solicitation or a recommendation to buy, hold or sell securities.
Hong Kong
Jerome Cheng
VP - Senior Credit Officer
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Hong Kong
Marie Lam
Vice President - Senior Analyst
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121