korea asset management corporation 1 march 2004 the host of restructuring vehicles tried in korea

Korea Asset Management Corporation 1

March 2004

The Host of Restructuring

Vehicles Tried in Korea


I. KAMCO and Restructuring

• KAMCO’s role• Classification of NPLs• Resolution Strategies• Financial vs.Corporate Restructuring• Financial Restructuring• Business Restructuring

Table of Table of ContentsContents II. KAMCO’s NPL Vehicles

• KAMCO’s Loan Sale to various purchasers• Comparison of 3 Vehicles• JV-SPC(AMC)& JV-CRC Process• Regulatory Support for NPL Vehicles• Law Changes• KAMCO Considerations• JV Foreign Investors’ Considerations• JV SPC(AMC)• JV CRC• KAMCO Vehicles: From Fire Sale to Restructuring• KAMCO JV CRC: Also acted as Stand-Alone basis• Why CRV• JV CRV vs Cooperative CRV• Establishment of JV-CRV• KAMCO JV-CRV Structure: :Diners Club• Creditors Coop-CRV Structure:Daewoo Capital• Why CRV was difficult• The future of Workout - Corporate Restructuring Promotion Act• SK Global CPRA case: management remains


KAMCO and Restructuring


Early recovery

of public money

Provide liquidity and restore stability Revitalize Korean economy

Inject public money

Resolve NPLs

Minimize

Public burdenSupport Normalization

Assist

Restructuring

FinancialInstitutions

Investors

Government

/National Tax

Government

/National Tax

Acquire NPLs

Corporate

KAMCO’s Role in the Korean EconomyKAMCO’s Role in the Korean Economy


Loans to companies under private workout programs,which have been agreed by creditors for restructuring distressed assets

Loans to companies under private workout programs,which have been agreed by creditors for restructuring distressed assets

Loans to companies under court receivership or composition proceedings whether they are secured or unsecured

Loans to companies under court receivership or composition proceedings whether they are secured or unsecured

Classification of NPLsClassification of NPLs

Loans currently in default for 3 months or longer whether they are secured or unsecured Unlike RTC,KAMCO had little residential mortgages among ordnary loans

Loans currently in default for 3 months or longer whether they are secured or unsecured Unlike RTC,KAMCO had little residential mortgages among ordnary loans

Ordinary Loans

(27.9%)

Corporate Loans under Court Restruc- turing (37.6%)

Corporate Loans under Workout

(34.5%)


Joint VentureJoint Venture

RehabilitationRehabilitation

ReschedulingRescheduling

• Suspension of Legal Action • Suspension of Foreclosure• Lend Working Capital• Debt-to-Equity Swap• Payment Guarantee• Purchase Discount notes (CPs)

• Suspension of Legal Action • Suspension of Foreclosure• Lend Working Capital• Debt-to-Equity Swap• Payment Guarantee• Purchase Discount notes (CPs)

Corporate Restructuring Company

SPC(Asset Management Company) Corporate Restructuring Vehicle

Corporate Restructuring Company

SPC(Asset Management Company) Corporate Restructuring Vehicle

Analysisof

NPLs

• Portfolio Sales• Securitization (ABS)• Public Sales• Foreclosure Sales• Individual Loan Sales

• Portfolio Sales• Securitization (ABS)• Public Sales• Foreclosure Sales• Individual Loan Sales

DispositionDisposition

• Discount Outstanding Principal Balance

• Reduce Interest Rate• Extend Payment Maturity

• Discount Outstanding Principal Balance

• Reduce Interest Rate• Extend Payment Maturity

Principles & Policies

Speedy, Loss Minimizing and Value Upgrading Resolution

Efficient Management, Transparent Procedure and Fair Transaction

StrategiesStrategies

Resolution Resolution StrategiesStrategies


Financial vs Corporate RestructuringFinancial vs Corporate Restructuring

Korean Corporates did not own banks, but owned Non Banking Financial Institutions as subsidiaries.

-> NBFIs were one of the reasons of financial crisis in Korea

Public Fund, using Korean taxpayers’ money, could be injected to banks as non-chaebol company.

Korea restructured banks using Public Fund: NPL purchase by KAMCO and and capital injection by KDIC

Then Korean Banks, with enhanced financial capacity, could restructure corporates

Corporate Restructuring was the natural by-product of Financial Restructuring


Financial RestructuringFinancial Restructuring

Extend Payment Maturity By extended debt maturity, present value of debt is reducedEffective debt write-offEasier for M&A Sale

Reduced Interest Rate, especially for unsecured debt

Grace Period: Interest Only repaidElimination of Cross-Guarantees among Chaebols

Debt to Equity SWAP and Mandatary Convertibles were used in Corporate Reorganization and Workout

Debt to Equity SWAP involes risk for creditor: Lose value if debtor is liquidated, and values and controls are diluted if there is another swap

Capital reduction : More write-off for controlling shareholder than retail shareholder, in case he is responsible for default


Financial Restructuring (continued)Financial Restructuring (continued)

Korean Government supported Debt to Equity SWAP by special Law(Corporate Restructuring Promotion Act)

-Debt to Equity SWAP is free from Banks’ stock purchase limits

-By Commercial Law, stock new issue price must be higher than par (5,000 Won)

New issue price under par value is up to Court’s approval

In case of Debt to Equity SWAP, shareholders’ approval is enough, without Court approval


Business Restructuring Business Restructuring

For insolvent debtor company, M&A is difficult as Shareholders’ rights are limitedInstead, Business were reorganized, together with debt restructuring

New financial intermediaries(CRC,CRV)were introduced to induceExternal Equity Participation

Sale of Assets

Sale or Spin-off Business division(Most Deawoo major companies)->Commercial Code amended (Dec 1998) to introduced sale of business division->Special Tax Treatment Control Act amended to provide incentives for spinoff


KAMCO’s NPL Vehicles


KAMCO’s Loan Sale to various purchasersKAMCO’s Loan Sale to various purchasersPortfolio Sale

-Bulk Sale to Joint Venture SPC(SPC AMC)

-Bulk Sale to Joint Venture CRC(Corporate Restructuring Co)

-Bulk Sale to 3rd Party SPC

Individual Sale

- Sale to Joint Venture CRV(Corporate Restructuring Vehicle):

(CRV as a workout vehicle needs simple creditor status,hence

single debtor rather than a portfolio)

- Sale to 3rd Party Investor (Independent CRC etc.)


Comparison of 3 Vehicles Comparison of 3 Vehicles

Foundation Act

Legal Entity

Paid-in Capital

Manager Role

Sponsor

Target Assets

Corporate RestructuringInvestment Company LawOct 2000

Paper Company(Limited Life)

KRW500million

Specialized Manager withPaid-in capital KRW2bil

More than 3 sponsors including 2 or more creditors Cash Investor

Single Credit: Wide Portfolio: work-out company debts and All assets pursuant to swapped shares only Securitization Law

CRCCRC

Industry Development Lawor Venture Capital License

Independent co

KRW7billion

self-managed

Wide Portfolio: all corporates assetsfor restructuring

Paper Company

Specialized Manager with paid-in capital KRW 1bil

Asset Securitization Law

KRW 10million

MandatoryRestructuringBusiness

20% of asset,to be sold within

7 years

100% mandatory, within 5 year life(1 year

extendable) Optional

CRVCRV SPC (AMC)SPC (AMC)


JV-SPC(AMC) & JV-CRC ProcessJV-SPC(AMC) & JV-CRC Process

KAMCO:Seller JV-Investor

VehicleSeller 50% : Investor 50%

NPLs : 100%

50% :

cash

•Seller and Investor form a JV to warehouse NPL for future restructuring•KAMCO delivers NPL and received Notes issued by The Vehicle•Investor pays cash and receive Vehicle Notes , rather than NPLs direct•CRV, with Workout Creditors’ participation, has more participants than two

•Seller and Investor form a JV to warehouse NPL for future restructuring•KAMCO delivers NPL and received Notes issued by The Vehicle•Investor pays cash and receive Vehicle Notes , rather than NPLs direct•CRV, with Workout Creditors’ participation, has more participants than two

50% :

SPV equity +

SPV Notes

50% :

SPV equity +

SPV Notes

50% :

SPV equity +

SPV Notes

•KAMCO pe-qualified bidder group and then among them selected a JV-Partner on a particular NPL portfolio by the highest bid price NPLs are kept under Vehicle’s title and ownership


Regulatory Support for NPL Regulatory Support for NPL VehiclesVehicles

Same as SPC(CRCs usually use securitizationprocess)

Same as SPC

Funding atVehicle Level

Lending to Debtors

Stock holding limitby Creditor Bank

- Issuing corporate bonds up to 10 times of its equity capital- Borrowing up to 200% of its equity capital

Lending and Guarantee to thework-out company within limit ofits assetNot applied by CRPA Act

- Issuing corporate bonds up to 10 times of its equity capital

-Can securitize as originator

Not allowed

Applied if bank acquires CRC shares

Halved for physical asset purchase

CorporateTax

Exempt until 2003Halved from 2004until 2006

Transfer

Tax

Applied but SPC shareamounts are minimal

Not allowed

N.A except Issuing of ABSup to SPV’s asset Purchase Price

Exempt until 2006

AcquisitionTax

Cannot acquire physical asset

90% dividend deducted from taxable income

Same as SPCTaxed, but capital gain fromcapital injection are deductedand some allowance provided

CRCCRC CRVCRV SPC (AMC)SPC (AMC)


Law Law Changes Changes Oct 1998 Securitization Law could not introduce Tax Benefit

Dec 1999 Tax Law amended-SPC Corporate Tax Benefit (90% dividednd tax free) provided->Foreign investors preference of Offshore SPC waned -CRC (Feb 1999 Act) was provided Capital Gain exemtion

Dec 2000 Tax Law amendedCRV (Oct 2000 Act) was provided same tax benefit as SPC

Jul 2001 CPRA Act passed

Jan 2001 CRC Law amended: minimum restructuring asset requirementraised from 10% to 20%


KAMCO’s Considerations KAMCO’s Considerations

• KAMCO’s Accounting of ‘Vehicle equities’: adopted ‘Equity Method’, not consolidated

• Whether KAMCO is a ‘Holding Co’ under Korean Fair Trade Law There are many limitations if KAMCO is a‘Holding Co’

• CRC Law exemptions CRC is exmept from leverage limit of 100% Also exempt from minimum holding requirementof 50% (30% if listed Co)

• CRV Law exemptions CRV is completely free from Fair Trade Law


JV Foreign Investor’s JV Foreign Investor’s Considerations Considerations If foreign investor acquires CRC or CRV stake, the foreigner shall reportto the relevant government authority in advance(Foreign Investment Promotion Act Article 5)

Thin CapitalizationIf foreign investor acquires both CRC/SPC equity and note in package-> Note issue terms and condition should be at arm’ length-> Note should not be more than 600% of equity -> If not, interest payment on note is denied for expense and regarded as dividend(Adjustment of International Taxes Act)

Foreigners notification of Purchase of NPLs though SPC/CRC/CRV securities to Bank of Korea


JV SPC(AMC)JV SPC(AMC)

The 1st AMC: Deutsche Bank+Samsung LifeThe 1st AMC: Deutsche Bank+Samsung Life

Bid Date 12/21/99 SizeKRW 484 Billion (USD 403.3 Million:

Secured56%,Restructured Corporate44%)

The 2nd & 3rd AMC: Morgan StanleyThe 2nd & 3rd AMC: Morgan Stanley

Bid Date 05/9/00 SizeKRW 978 Billion (USD 815 Million:

Secured 57%,Restructued Corporate43%)

The 4th AMC: Colony CapitalThe 4th AMC: Colony Capital

Bid Date 06/20/01 SizeKRW 531 Billion (USD 442.5 Million:

Secured 35% Restructued Corporate65%)

(USD 1 = KRW 1,200)


JV CRCJV CRC

The 1st CRC:Lehman BrothersThe 1st CRC:Lehman Brothers

Bid Date 05/23/00 Size610 Bil KRW (USD 508.6 Million:

Secured 27%,Restructured Corporate73%)

The 2nd CRC: Colony CapitalThe 2nd CRC: Colony Capital


Secured 21%,Restructued Corporate 79%)

The 3rd CRC:Morgan StanleyThe 3rd CRC:Morgan Stanley


Secured 30%,Restructured Corporate 70%)

The 4th CRC: Colony Capital The 4th CRC: Colony Capital


Restructured Corporate & Workout 100%)

(USD 1 = KRW 1,200)


KAMCO JV-Vehicles: From Fire Sale to KAMCO JV-Vehicles: From Fire Sale to RestructuringRestructuring

KAMCO’s 1st Vehicle was 1st SPC(AMC) with Deutsche in Dec 1999

SPC(AMC), with Restructuring Mandate optional, preferred securedloans, the easier side of NPL market

JV-CRCs, with mandatory Restructuring Mandate, put more than 70% in restructured corporate loans from the start (May 2000)

The 4th CRC with Colony Capital, was 100% restructured corporate loan and workout loans(Aug 2003)

CRV was introduced wholly for Workout loans(Oct 2000)


KAMCO JV CRC: Also acted Stand-KAMCO JV CRC: Also acted Stand-Alone basis Alone basis KAMCO selected JV partner through competitive bidding among eligible candidates : KAMCO was both seller and investorof NPLs

But KAMCO’s JV CRC was not Captive : KAMCO JV- CRC bid for other Banks’ NPL auctions

KAMCO-LB CRC won Cho Hung 316 bil KRW NPL (2000.12)

KAMCO-LB CRC won KAMCO’s individual loan sale (Borneo

Furniture under ‘Corporate Reorganization’, 2000.8)


CRV CRV

One Company per one CRV:

to avoid complicated multi-

debtor,multi- creditors status

in CRC

CRV Asset

management company

should be equipped

with expertise and

experience in M&A

and Workouts.

CRV, as a limited life paper co,

is an investment vehicle

enjoying tax/leverage

benefit

KAMCO and Banks

sell loans/ shares

(acquired by swap),

and in return receive

cash or

CRV shares

Joint Venture between

Creditors and 3rd Party investor


Why CRV: Workout Decisions were Difficult Why CRV: Workout Decisions were Difficult to Achieve to Achieve

Table: Debt Restructued for Workout (Tril KRW,source:KDI)

Workout Decisions, such as Loan rescheduling is subject to 75% of secured creditors’ approval, separate from 75% of all creditors’ approval -As creditors had limited capacity to absorb loss, 42 Debtors had one rescheduling while 43 debtors had twice or more -2nd reschduling usually involved business restructuring`

Interest Rate Reduced

Normal Interest Rate

Equity Convert

CB Convert

Setoff Guarantee Discounted-Payoff

Total

66.1 5.8 14.9 3.3 7.6 97.9


Why CRV: How to handle ‘Holdout’ Why CRV: How to handle ‘Holdout’ Creditor in Workout Creditor in Workout In Daewoo case, there were holdouts from 480 foreign creditorsIn Daewoo case, there were holdouts from 480 foreign creditors-> KAMCO agreed to purchase 36.9 bil USD at 43% average price in the “Cash B-> KAMCO agreed to purchase 36.9 bil USD at 43% average price in the “Cash Buy Out(CBO)” program in May 2000.uy Out(CBO)” program in May 2000.

By revised Bankruptcy Law(Apr, 2001), ‘Pre-packaged Bankruptcy System’ was By revised Bankruptcy Law(Apr, 2001), ‘Pre-packaged Bankruptcy System’ was introducedintroduced-> If Reorganization package is agreed between creditors before applying -> If Reorganization package is agreed between creditors before applying for Korean Chapter 11, Court approves quicker hence minimizing negative for Korean Chapter 11, Court approves quicker hence minimizing negative effects of Chapter 11.effects of Chapter 11.-> Prepack was first used in Haitai Confectionery M&A case in 2001-> Prepack was first used in Haitai Confectionery M&A case in 2001

Buy Out pursuant to Corporate Restructuring Promotion Act Buy Out pursuant to Corporate Restructuring Promotion Act -> Workout creditors(to fulfil 75%) purchase loans from holdout creditors -> Workout creditors(to fulfil 75%) purchase loans from holdout creditors -> Third Party pricing (accounting firm) -> Third Party pricing (accounting firm) -> Formalized ‘workouts’ by providing legal mechanisms for bailing-in holdouts.-> Formalized ‘workouts’ by providing legal mechanisms for bailing-in holdouts.


Haitai Confectionary sold to consortium comprised of CVC Asia Pacific Ltd., JP Morgan Partners Haitai Confectionary sold to consortium comprised of CVC Asia Pacific Ltd., JP Morgan Partners Asia Ltd. and UBS Capital Asia Pacific Ltd. (33.3% each) for KRW415bn (US$317mn). Asia Ltd. and UBS Capital Asia Pacific Ltd. (33.3% each) for KRW415bn (US$317mn).

Consortium secured a 7-year syndicated loan for KRW314bn (US$240mn) from JP Morgan and CConsortium secured a 7-year syndicated loan for KRW314bn (US$240mn) from JP Morgan and Chohung Bank (Sep 2001)hohung Bank (Sep 2001)

Principal Activities: Principal Activities: Food and beverage conglomerateFood and beverage conglomerate

Date Entered into Distress:Date Entered into Distress: 1997 - Declared bankrupt in 19971997 - Declared bankrupt in 1997

June 1998 - Creditors reorganise group into 3 core companies for saleJune 1998 - Creditors reorganise group into 3 core companies for sale

September 1999 - Haitai Confectionary entered into workout programSeptember 1999 - Haitai Confectionary entered into workout program

Dec 1999 - Haitai Electronics filed for court receivership processDec 1999 - Haitai Electronics filed for court receivership process

April 2001 - Haitai Confectionary filed for court receivershipApril 2001 - Haitai Confectionary filed for court receivership

Oct 2000 - Haitai Stores Corp. placed under court receivershipOct 2000 - Haitai Stores Corp. placed under court receivership

Debt Outstanding: Debt Outstanding: KRW2.3 trillion (US$2bn) KRW2.3 trillion (US$2bn)

Haitai Confectionery Prepackaged Bankruptcy M&A case in 2001Haitai Confectionery Prepackaged Bankruptcy M&A case in 2001


Haitai Confectionery Prepackaged Bankruptcy M&A case in 2001 Haitai Confectionery Prepackaged Bankruptcy M&A case in 2001 (Continued)(Continued)

• Key creditors: Chohung Bank* is largest of 31 creditors with KRW500bn exposureKey creditors: Chohung Bank* is largest of 31 creditors with KRW500bn exposure

• Solutions: Solutions:

Asset SaleAsset SaleHaitai Beverage Co. sold to a consortium led by Hikari Printing Group, Lotte Group, Asahi Breweries Ltd.,Haitai Beverage Co. sold to a consortium led by Hikari Printing Group, Lotte Group, Asahi Breweries Ltd.,Mitsui Corp. and Dentsu Inc. for KRW308.5bn (US$262.8mn) (Sep 1999)Mitsui Corp. and Dentsu Inc. for KRW308.5bn (US$262.8mn) (Sep 1999)Sale of Haitai Tigers (baseball team) to Kia Motors Corp. for an undisclosed amount (May 2001)Sale of Haitai Tigers (baseball team) to Kia Motors Corp. for an undisclosed amount (May 2001)Haitai Stores Corp. sold Haitai Department Store for KRW35bn (US$27mn) (Feb 2002)Haitai Stores Corp. sold Haitai Department Store for KRW35bn (US$27mn) (Feb 2002)

Debt HaircutDebt HaircutCreditors write-off KRW800bn (US$722mn) of group debt (June 1998)Creditors write-off KRW800bn (US$722mn) of group debt (June 1998)

Debt-for-EquityDebt-for-EquityCreditors of Haitai Confectionary swap KRW844.2bn (US$761mn) for 99% of equity (Dec 1999)Creditors of Haitai Confectionary swap KRW844.2bn (US$761mn) for 99% of equity (Dec 1999)Creditors of Haitai Stores Corp. convert KRW181bn (US$140mn) for 6.5 million new shares debt-for-prefCreditors of Haitai Stores Corp. convert KRW181bn (US$140mn) for 6.5 million new shares debt-for-preferred equity (Feb 2001)erred equity (Feb 2001)


Why CRV: KAMCO’s involvement in Workout Why CRV: KAMCO’s involvement in Workout

-Daewoos were not many in numbers but 64% in amount of whole Workout Daewoo loans constituted 66.7 tril KRW out of total 104 tril KRW

-72% of Daewoo Debt was not loans, but bonds and notes (difficult to workout)-Security Holders could not provide new money on syndicate basis,hencethey needed to exit-Also foreign creditors of Daewoo Overseas subsidiaries preferred to exit -KAMCO’s 1999 purchase of Daewoo brought active involvement -KAMCO purchased Daewoo Bonds in KRW, Overseas Loans in USD: 29.5 bil USD face value at 35.86% price (USD 10.58 bil)

Non-Daewoo Workout Loans purchased: 2.17 bil USD at 23.04% (0.5 bil USD)-> KAMCO was the Natural Leader of CRV Sponsorship


JV CRV vs Cooperative CRV JV CRV vs Cooperative CRV

•M&A under Workout is difficult to achieve•There were 11 M&A cases under Workout But, for mainly medium sized corporates and mostly sold to strategic investors

JV CRV is equivalent to M&A under Workout-Cash investor taking over management through CRV AMC without overwhelming majority stake-Asset Transfer Pricing at Market

When there is no cash investor, Cooperative CRV was usedDaewoo Capital CRV was JV-CRV targetted but with no cash investor, remained as Coop CRV


Establishment of JV-CRVEstablishment of JV-CRV

• Sponsor Creditors evaluate feasibility of CRV: Going Concern Value higher than liquidation value Sponsor Creditors evaluate feasibility of CRV: Going Concern Value higher than liquidation value

• As Asset, Liability of Debtor Company decided, CRV equity is priced As Asset, Liability of Debtor Company decided, CRV equity is priced

• Sponsor creditors create CRVs: One CRV per each company restructuredSponsor creditors create CRVs: One CRV per each company restructured

• 3rd Party investors competitively bid for CRV shares 3rd Party investors competitively bid for CRV shares

• Creditor Banks have option to participate as shareholder of CRVs by investment in kind at theCreditor Banks have option to participate as shareholder of CRVs by investment in kind at the

3rd party investors’ winning bid price3rd party investors’ winning bid price

• Creditor Banks transfer their loan assets to CRVs and payment for the assets can either be in the Creditor Banks transfer their loan assets to CRVs and payment for the assets can either be in the form of cash from 3rd party investor and/or CRV equtyform of cash from 3rd party investor and/or CRV equty

InvestorInvestor

KAMCO,BanksKAMCO,Banks

FUND2

CRV1

Cash Investment

Investment in kind Asset Transfer

& Exit

Banks


INVESTOR:HyundaiCapital

KAMCO

Asset Management & Disposition Service

Fee

KAMCO JV-CRV Structure:Diners KAMCO JV-CRV Structure:Diners ClubClub

* JV with Hyundai Capital

LoanAsset Sale Loan Asset

LoanAsset sale

Cash

Option to purchaseShare

Cash

Exit

Share

Share

CRV

Creditor (Hana, NACF)

Holdout

Creditor

(Nara, SITC)

Debtor:Diners Club Card Korea

Restructurin

gAMC

(Investor)


PotentialINVESTOR:

n.a

KAMCO

Asset Management & Disposition Service

Fee

Creditors Cooperative -CRV Structure:Daewoo Capital Creditors Cooperative -CRV Structure:Daewoo Capital

LoanAsset Sale Loan Asset

LoanAsset sale

Auction failed

Exit

CashCash

Share+

CRV Note

Share+

CRV bond

CRV

Creditor (Daewoo Sec

SITC,Nara)

Holdout

Creditor

( KITC)

Debtor:DaewooCapital

Restructurin

gAMC

(Investor)

(The issuance of CRV bonds are not bounded by the limit of corporate bonds issuance)


Why CRV was difficult Why CRV was difficult

There were Holdout creditors’ cash exit cases: There were Holdout creditors’ cash exit cases: NARA and SITC in Diners Club, KITC in Daewoo Capital CRVNARA and SITC in Diners Club, KITC in Daewoo Capital CRV

Underprovisioned Creditors generally were reluctant to assign loan to Underprovisioned Creditors generally were reluctant to assign loan to CRV and realize loss (Accounting Relief was discussed but not introdCRV and realize loss (Accounting Relief was discussed but not introduced)uced)

Senior Creditors were reluctant to become pari-passu with other CRV Senior Creditors were reluctant to become pari-passu with other CRV rightholders, losing seniority of direct creditorrightholders, losing seniority of direct creditor

Guarantors resisted as they have to fulfil their liabilities when loans arGuarantors resisted as they have to fulfil their liabilities when loans are transferred to CRV, which is earlier than usual loan restructuringe transferred to CRV, which is earlier than usual loan restructuring

Creditors preferred Spin-Off as easier alternative(Major Daewoos)Creditors preferred Spin-Off as easier alternative(Major Daewoos)

It was difficult to designate an Asset Manager(paid) among multiple leIt was difficult to designate an Asset Manager(paid) among multiple leading creditors (Co-Op)ading creditors (Co-Op)


•Enacted 2001 but in limited lifespan – to expire on 31 December 2005Enacted 2001 but in limited lifespan – to expire on 31 December 2005

•Workout Companies to have debt owing of KRW50+ billion (about USD40m) were Workout Companies to have debt owing of KRW50+ billion (about USD40m) were

transferred to CRP Act scheme transferred to CRP Act scheme

•Covers wider range of lenders, including branches of foreign banks in Korea Covers wider range of lenders, including branches of foreign banks in Korea

•A 3 month moratorium is imposed on CRPA creditors (extendable for one month A 3 month moratorium is imposed on CRPA creditors (extendable for one month

only)only)

•Lead Bank determines if a restructuring is appropriate, and has responsibility Lead Bank determines if a restructuring is appropriate, and has responsibility

for developing the restructuring planfor developing the restructuring plan

•Restructuring plan requires 75% approval in value of CRPA creditors to be passed Restructuring plan requires 75% approval in value of CRPA creditors to be passed

– dissenting CRPA creditors can “opt out” and seek a cash buy-out– dissenting CRPA creditors can “opt out” and seek a cash buy-out

If not approved by 75%, the case goes to formal Prepack DIP financing was given If not approved by 75%, the case goes to formal Prepack DIP financing was given

legal supportlegal support

The Future of Workout: Corporate The Future of Workout: Corporate Restructuring Promotion Act Restructuring Promotion Act


SK Global CPRA Case: Management SK Global CPRA Case: Management remains remains After CRP Act, Co-op CRV was not used any more

-> SK Global is recent outstanding CRP Act case

• ‘SK CRPA’ debt treatment was agreed between domestic creditors:44% is swapped for equity

33% is applied to CBO(Both Domestic and Foreign creditors)

23% of debt remains on the balance sheet

•Further accepted by 95.8% of Foreign Banks – only 2 Foreign Banks disagreed to 48% return by way of:

Promissory Notes (43%) repayable in full by end 2004

Bonds (5%) repayable in early 2008

Warrants to enable participation in equity upside

•The alternative was Court Receivership and Worldwide insolvency proceedings - yielding less than 20 cents and could have taken years


Appendix: Securitization vs JV-SPC(AMC) Appendix: Securitization vs JV-SPC(AMC) JV-SPC(AMC) was based on Asset Securitization Law (Oct 1998)

Securitization has developed in two directions in Korea; ‘Public’ and ‘Private’->Public (Genuine) Securitization: Financing by SPC to capital market investors, relying on assets held by SPC->Private (Joint Venture NPL Warehousing) Securitization: SPC equity and notes were pre-placed to JV-partners, who were the winner of the NPL auction NPL Auction Winner assigns status to SPC and then subscribes to ‘private placed ABS notes’ This is equivalent to JV-Partners purchase of NPLs in repackaged form

•Why JV-SPC(AMC) used securitization process?

To enjoy easier process of Mortgage Transfer and Exemption of Transfer Tax

* Mortgage Transfer process is complicated in Korea, Japan and Taiwan


Http : www.kamco.or.kr

Asem Tower, World Trade Center, 159-1 Samsung-dong, Kangnam-ku, Seoul, Korea

Phone: 82-2 2103-6800Fax: 82-2 2103-6027e-mail: [email protected]

All rights reserved, Korea Asset Management Corporation

korea asset management corporation 1 march 2004 the host of restructuring vehicles tried in korea

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