S&P Assigns Prelm AAA to AMBAC-Guaranteed Korean ABS.

Business Editors

HONG KONG--(BUSINESS WIRE)--Standard & Poor's

Aug. 31, 2001--Standard & Poor's today assigned its preliminary triple-'A' rating to Hanareum International Funding Ltd.'s US$278 million guaranteed floating rate notes.

The notes are ultimately backed by a portfolio of performing leases and loans acquired by the seller in 1998 from 14 failed Korean merchants banks.

The preliminary rating is based on information as of Aug. 30, 2001. Subsequent information may result in the assignment of a final rating that differs from the preliminary rating.

The notes are guaranteed by Ambac Assurance Corp. (AMBAC), representing AMBAC's first involvement in a Korean transaction and demonstrating renewed interest on the part of monoline insurers in the Korean market. The triple-'A' rating on the notes reflects the quality of AMBAC's surety bond, which guarantees the timely payment of interest and the full repayment of principal by the transaction's legal final maturity.

This transaction also marks the end of a long hiatus of lease-backed securitizations out of Korea. Through this transaction, Hanareum Mutual Savings & Finance Co. (HMSF) seeks to raise US$278 million through the securitization of the portfolio of performing loans and leases prior to its dissolution on Sept. 15, 2001. HMSF acquired the portfolio through a merger with Hanareum Banking Corp. (HBC). The loans and leases were originally transferred to HBC from 14 failed Korean merchant banks. HMSF is a wholly owned subsidiary of Korean Deposit Insurance Corp. (KDIC), which has been assigned a triple-'B' long-term foreign currency rating by Standard & Poor's.

The portfolio to be securitized comprises leases and loans worth US$470.9 million, of which about 2.87%, or an amount equivalent to US$13.5 million, is denominated in Korean won. The portfolio consists of a carefully selected subset of well-seasoned, performing assets that have been sample audited to confirm that they meet specified legal and eligibility criteria. The transaction is also supported by a letter of commitment by KDIC relating to certain asset representations and warranties to be given by HMSF.

Diane Lam, director of Standard & Poor's Structured Finance group in Hong Kong described the issue as "epic", underscoring the tremendous effort by all parties to bring this unusual and complex transaction to market.

"The portfolio carries highly concentrated risk with some 67% of the risk exposure to the top 10 obligors, exposure concentration to Hyundai Motor and Hyundai Group and industry concentration. These risks are largely mitigated by the demonstrated and good payment history in the portfolio, which weathered the 1997-1998 Asian financial crisis, and by credit support in the form of structural subordination," Ms. Lam said.

HMSF intends to transfer all of the rights, interests, and title to the portfolio to Hanareum 1st Receivables Ltd., a Korean-based special-purpose vehicle established for the purpose of this transaction. Hanareum 1st Receivables will issue US$278 million senior notes to be purchased by Hanareum International Funding, a special-purpose company established in the Cayman Islands, and subordinated notes to be purchased by HMSF. Hanareum International Funding will fund the purchase of the senior bond using the proceeds from the sale of the US$278 million rated notes. The transfer of assets in this transaction is perfected against third-party claims under Korea's ABS act.

Note payments ultimately depend on collections from the underlying loans and leases, and on the surety bond provided by AMBAC. Because HMSF is scheduled to dissolve following the closing of this transaction, servicing of the underlying receivables will be performed by KDB Capital Corp., with Deutsche Bank AG contracted as back-up servicer.

Copyright 2001, Standard & Poor's Ratings Services