Prospectus dated 17 June 2008
KOREA ACE MORTGAGE COMPANY
(incorporated with limited liability in the Cayman Islands)
US$228,000,000 SECURED FLOATING RATE NOTES DUE 2038
Issue price: 100%
The U.S.$228,000,000 Secured Floating Rate Notes due 2038 (the “Notes”) of Korea ACE Mortgage Company, a company incorporated under
the laws of the Cayman Islands (the “Issuer”), will be issued on or about 17 June 2008 (such issue date being the “Closing Date”) pursuant to
a trust deed (the “Trust Deed”) dated 17 June 2008 between the Issuer and Capita Trust Company Limited (the “Note Trustee”).
From the Closing Date, the principal asset of the Issuer will be the U.S.$228,000,000 Purchaser Senior Floating Rate Notes due 2038 (the
“Purchaser Senior Notes”) issued by Hanmi Mortgage Securitization Specialty Company (the “Purchaser”). The Issuer will apply the net
proceeds of the offering of the Notes (the “Offering”) to purchase the Purchaser Senior Notes on the Closing Date. The Purchaser Senior Notes
will represent direct debt obligations of the Purchaser. The Issuer, together with various other parties as set out in further detail in the Transaction
Documents (as defined herein), will have the benefit of security granted by the Purchaser and the holders of the equity of the Purchaser (the
“Equityholders”) which will be created pursuant to a pledge agreement (the “Pledge Agreement”), an equity pledge agreement (the “Equity
Pledge Agreement”), a security assignment deed (the “Security Assignment Deed”) and an account assignment (the “Account Assignment”
and, together with the Pledge Agreement, the Equity Pledge Agreement and the Security Assignment Deed, the “Purchaser Security
Agreements”). For a description of the Purchaser Security Agreements, see “Transaction Summary — The Purchaser Notes — Purchaser
Security” below. The Pledge Agreement will comprise a pledge in favour of, among others, the Issuer of all the Purchaser’s right, title and interest
in, to and under (a) certain mortgage loan assets (the “Mortgage Loan Assets”) which include, among other things, the mortgage loan agreements
(the “Mortgage Loan Agreements” and each a “Mortgage Loan Agreement”), and the transactions constituted by, among other things, the
Mortgage Loan Agreements (the “Mortgage Loan Transactions” and each a “Mortgage Loan Transaction”), (b) certain specified Transaction
Documents governed by Korean law to which the Purchaser is a party, (c) the Korean Won-denominated bank accounts of the Purchaser and (d)
the Purchaser’s other property, assets and rights, currently existing or acquired after the date of the Pledge Agreement (other than the Purchase
Agreement, any the property, assets and rights which are the subject of any of the other Purchaser Security Agreements or in respect of Eligible
Credit Support transferred to the Purchaser under the Credit Support Annex and any related Distributions and Interest Amounts (as such terms
are defined herein)). Pursuant to the Equity Pledge Agreement, the Equityholders will pledge to, amongst others, the Issuer, by way of security,
all of their respective right, title, interest and benefit in the equity of the Purchaser. Pursuant to the Security Assignment Deed, the Purchaser
will assign by way of security to, among others, the Issuer, all of the Purchaser’s right, title, interest and benefit in, to, under and in respect of
certain specified Transaction Documents governed by English law to which the Purchaser is a party, including, without limitation, the Transaction
Administration Agreement, the Purchaser Senior Notes Subscription Deed and the Swap Agreement (other than in respect of Eligible Credit
Support transferred to the Purchaser under the Credit Support Annex and any related Distributions and Interest Amounts). Pursuant to the Account
Assignment, the Purchaser will assign by way of security to, amongst others, the Issuer, all of the Purchaser’s right, title, interest and benefit
in the US Dollar-denominated account of the Purchaser. The security for the Notes will be created pursuant to a deed of charge (the “Deed of
Charge”), which will create security interests in favour of the Security Trustee over all of the Issuer’s right, title and interest in, to and under
(a) the Purchaser Senior Notes, (b) the Purchaser Security Agreements, (c) certain other Transaction Documents to which the Issuer is a party,
(d) the US-Dollar-denominated account of the Issuer and (e) certain other property and assets of the Issuer.
Interest will accrue on the Notes from and including the Closing Date and will be payable quarterly in arrear on each Note Payment Date on the
principal amount of the Notes outstanding at the beginning of the related Note Interest Period. The first Note Payment Date (as defined herein)
will be on 5 September 2008. The rate of interest for the Notes for each Note Interest Period will be LIBOR (as defined herein) for such Note
Interest Period plus the relevant Note Margin (as defined herein) plus, after the Step-up Date (as defined herein), the Step-up Margin (as defined
herein). Unless previously redeemed in full or cancelled, the Notes will mature on the Note Payment Date falling in June 2038 (the “Note
Maturity Date”). The Notes may be subject to quarterly principal repayments, in part, on each Note Payment Date. The Notes will also be subject
to mandatory redemption in full in certain circumstances (as more fully described herein). Payment of interest on the Notes will be made subject
to withholding tax (if any) applicable to the Notes, and the Issuer will not be required to pay additional amounts in respect of the Notes as a
result of any amounts withheld (see “Tax Considerations” below).
The Notes will constitute secured limited recourse obligations of the Issuer and will not be obligations or responsibilities of any other person
or entity other than the Issuer. In particular, the Notes will not be obligations or responsibilities of, or insured or guaranteed by, the Note Trustee,
the Security Trustee, the Security Agent, the Servicer, the Back-up Servicer, the Seller, the Purchaser, the Swap Counterparty, the Spot Bank,
the Designated FX Bank, the Purchaser Transaction Administrator, the Purchaser Corporate Administrator, the Issuer Transaction Administrator,
the Agents, the Lead Arranger or the Co-Managers (each defined herein) or any affiliate of any of the foregoing entities.
This document constitutes a prospectus for the purposes of the Directive 2003/71/EC.
Application has been made to the Irish Financial Services Regulatory Authority as competent authority under Directive 2003/71/EC, for
the Prospectus to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List
and trading on its regulated market. There is no assurance that listing will occur on or prior to the Closing Date.
Investing in the Notes involves certain risks. See “Risk Factors” beginning on page 56.
THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”) AND, SUBJECT TO CERTAIN EXCEPTIONS, MAY NOT BE OFFERED OR SOLD WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S
UNDER THE SECURITIES ACT (“REGULATION S”)). THE NOTES ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED
STATES TO NON-U.S. PERSONS IN RELIANCE ON REGULATION S AND WITHIN THE UNITED STATES TO “QUALIFIED
INSTITUTIONAL BUYERS” IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”). PROSPECTIVE
PURCHASERS ARE HEREBY NOTIFIED THAT SELLERS OF THE NOTES MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A.
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OF THE
NOTES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE IN THE UNITED STATES. FOR A DESCRIPTION OF THESE AND CERTAIN FURTHER RESTRICTIONS
ON OFFERS, SALES AND TRANSFERS OF THE NOTES AND DISTRIBUTIONS OF THIS PROSPECTUS, SEE “SUBSCRIPTION
AND SALE” AND “TRANSFER RESTRICTIONS” BELOW.
Citi
Deutsche Bank
HSH Nordbank AG
Merrill Lynch International
The date of this Prospectus is 17 June 2008
TABLE OF CONTENTS
TRANSACTION STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
TRANSACTION OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
CASHFLOW DIAGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
TRANSACTION SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
SUMMARY OF PROVISIONS RELATING TO NOTES IN GLOBAL FORM. . . . . . . . . . . . . . . . .
74
TERMS AND CONDITIONS OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94
THE SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96
DESCRIPTION OF THE MORTGAGE LOAN ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
THE SWAP COUNTERPARTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
AVERAGE LIFE OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
THE KOREAN RESIDENTIAL MORTGAGE INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
KOREAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS . . . . . . . . . . 126
KOREAN LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
CERTAIN ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
CLEARANCE AND SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
TRANSFER RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
MASTER DEFINITIONS SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
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This Prospectus contains only limited information in relation to, and does not constitute an offer of, or an
Prospectus in relation to, any of the Purchaser Senior Notes and the Purchaser Junior Note.
Until 40 days after the later of the commencement of the Offering and the Closing Date, an offer or sale of
any Notes within the United States by any dealer (whether or not participating in the Offering) may violate
the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance
with Rule 144A. U.S. broker-dealer affiliates of the Lead Arranger will be offering Notes in the United States
only to Qualified Institutional Buyers pursuant to Rule 144A under the Securities Act.
Prospective purchasers are hereby notified that the sellers of Notes may be relying on the exemption from
the registration requirements of Section 5 of the Securities Act provided by Rule 144A.
The Notes will be in registered form in the denomination of US$100,000 and integral multiples of US$1,000
in excess thereof. The Notes offered and sold in offshore transactions in reliance on Regulation S will be
represented by the Regulation S Global Note Certificate for the Notes. The Regulation S Global Note
Certificate will be deposited by the Issuer with Citibank, N.A., London Branch as custodian for the
Depositary Trust Company (“DTC”) and registered in the name of Cede & Co., as nominee of DTC for the
accounts of participants in DTC holding such interests on behalf of Euroclear Bank, S.A./N.V., as operator
of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme, Luxembourg
(“Clearstream, Luxembourg”). Up to and including the 40th day after the later of the commencement of the
Offering and the Closing Date, interests in the Regulation S Global Note Certificate may be held only through
accounts at Euroclear or Clearstream, Luxembourg which in turn, will hold such interests in DTC through
the accounts of participants in DTC holding such interests on behalf of Euroclear and Clearstream,
Luxembourg. The Notes offered and sold in reliance on Rule 144A will be represented by the Rule 144A
Global Note Certificate. The Rule 144A Global Note Certificate will be deposited by the Issuer with Citibank,
N.A., London Branch as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC.
Definitive note certificates evidencing holdings of Notes (“Definitive Note Certificates”) will only be
available in certain limited circumstances. See “Clearance and Settlement” below.
It is a condition to issuance of the Notes that the Notes are assigned, on issue, ratings of “AAA” by Fitch
Ratings Inc. (“Fitch”), “Aaa” by Moody’s Investors Service (“Moody’s”) and “AAA” by Standard & Poor’s
Rating Services, a division of The McGraw-Hill Companies (“Standard & Poor’s” and, together with Fitch
and Moody’s, the “Rating Agencies”). These ratings will relate to the timely payment of interest on the Notes
(other than Step-up Margin Payments (as defined herein), which are not rated) and the ultimate repayment
of principal of the Notes on or before the Note Maturity Date.
A security rating is not a recommendation to buy, sell or hold securities, does not address the likelihood
or timing of prepayment and may be subject to revision, suspension or withdrawal at any time by the
assigning rating organisation.
In making an investment decision, prospective purchasers must rely on their own assessment of the
information contained in this Prospectus and the terms of the Offering, including the merits and risks
involved.
The Issuer accepts responsibility for all of the information contained in this Prospectus other than the
Purchaser Information, the Seller Information and the Swap Counterparty Information (each as defined
below) (the “Issuer Information”). To the best of the knowledge and belief of the Issuer, the information
contained in the Issuer Information is in accordance with the facts and does not omit anything likely to affect
the import of such information. The Issuer, having made all reasonable inquiries, confirms that the Issuer
Information is true and correct in all material respects, that there is no omission of a material fact necessary
to make the Issuer Information, in the light of the circumstances under which it is provided, not misleading,
and that the opinions and intentions expressed in the Issuer Information are honestly held.
The Purchaser accepts responsibility for all of the information contained in this Prospectus under “The
Purchaser” and paragraphs 4 (in so far as it relates to the Articles of Incorporation of the Purchaser), 6
(insofar as it relates to financial statements of the Purchaser) and 9 under “General Information” (the
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“Purchaser Information”). To the best of the knowledge and belief of the Purchaser, the information
contained in the Purchaser Information is in accordance with the facts and does not omit anything likely to
affect the import of such information. The Purchaser, having made all reasonable inquiries, confirms that the
Purchaser Information is true and correct in all material respects, that there is no omission of a material fact
necessary to make the Purchaser Information, in the light of the circumstances under which it is provided,
not misleading, and that the opinions and intentions expressed in the Purchaser Information are honestly held.
Save for the Purchaser Information, the Purchaser has not verified any information contained in this
document and makes no representation or warranty as to the accuracy, adequacy or completeness of such
information, and nothing herein shall be deemed to constitute such a representation or warranty.
The Seller accepts responsibility for all of the information contained in this Prospectus under “The Seller”,
“Description of the Mortgage Loan Assets”, “The Servicer” and “The Korean Residential Mortgage Industry”
(the “Seller Information”). To the best of the knowledge and belief of the Seller, the information contained
in the Seller Information is in accordance with the facts and does not omit anything likely to affect the import
of such information. The Seller, having made all reasonable inquiries, confirms that the Seller Information
is true and correct in all material respects, that there is no omission of a material fact necessary to make the
Seller Information, in the light of the circumstances under which it is provided, not misleading, and that the
opinions and intentions expressed in the Seller Information are honestly held. Save for the Seller Information,
the Seller has not verified any information contained in this document and makes no representation or
warranty as to the accuracy, adequacy or completeness of such information, and nothing herein shall be
deemed to constitute such a representation or warranty.
The Swap Counterparty accepts responsibility for all of the information contained in this Prospectus under
“The Swap Counterparty” (the “Swap Counterparty Information”). To the best of the knowledge and belief
of the Swap Counterparty, the information contained in the Swap Counterparty Information is in accordance
with the facts and does not omit anything likely to affect the import of such information. The Swap
Counterparty, having made all reasonable inquiries, confirms that the Swap Counterparty Information is true
and correct in all material respects, that there is no omission of a material fact necessary to make the Swap
Counterparty Information, in the light of the circumstances under which it is provided, not untrue or
incorrect, and that the opinions and intentions expressed in the Swap Counterparty Information are honestly
held. Save for the Swap Counterparty Information, the Swap Counterparty has not verified any information
contained in this document and makes no representation or warranty as to the accuracy, adequacy or
completeness of such information, and nothing herein shall be deemed to constitute such a representation or
warranty.
None of the Lead Arranger, the Co-Managers, the Note Trustee, the Security Trustee, the Security Agent, the
Agents, the Servicer, the Seller (except in respect of the Seller Information), the Back-up Servicer, the
Purchaser Transaction Administrator, the Purchaser Corporate Administrator, the Issuer Transaction
Administrator, the Swap Counterparty (except in respect of the Swap Counterparty Information), the Spot
Bank, the Designated FX Bank, the Purchaser (except in respect of the Purchaser Information), the Issuer
Corporate Administrator or the directors of the Issuer Corporate Administrator have verified the information
contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and
no responsibility or liability is accepted by any of the Lead Arranger, the Co-Managers, the Note Trustee, the
Security Trustee, the Security Agent, the Agents, the Servicer, the Seller (except in respect of the Seller
Information), the Back-up Servicer, the Purchaser Transaction Administrator, the Purchaser Corporate
Administrator, the Issuer Transaction Administrator, the Swap Counterparty (except in respect of the Swap
Counterparty Information), the Spot Bank, the Designated FX Bank, the Purchaser (except in respect of the
Purchaser Information), the Issuer Corporate Administrator or the directors of the Issuer Corporate
Administrator as to the accuracy or completeness of the information contained in this Prospectus or as to the
future performance of the Notes or the Mortgage Loan Assets.
No person is or has been authorised in connection with the issue, offering, subscription or sale of the Notes
to give any information or to make any representation not contained in this Prospectus and any information
or representation not contained in this Prospectus must not be relied upon as having been authorised by the
Issuer, the Purchaser, the Seller, the Lead Arranger, the Co-Managers, the Note Trustee, the Security Trustee,
the Security Agent, the Agents, the Servicer, the Back-up Servicer, the Purchaser Transaction Administrator,
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the Purchaser Corporate Administrator, the Issuer Transaction Administrator, the Swap Counterparty, the
Spot Bank, the Designated FX Bank or any other person. Neither the delivery of this Prospectus at any time
nor any sale or allotment made in connection with the issue of the Notes shall under any circumstances
constitute a representation or create any implication that the information contained herein is correct at any
time subsequent to the date hereof or that there has been no change in the affairs of any party herein
mentioned since that date.
Potential purchasers of the Notes should determine for themselves the relevance of the information contained
in this Prospectus or any part thereof and their purchase of any Notes should be based upon such investigation
as they themselves deem necessary. None of the Lead Arranger or the Co-Managers has undertaken,
undertakes or will undertake to review the financial condition or affairs of the Issuer, the Purchaser, the
Seller, the Swap Counterparty, the Spot Bank, the Designated FX Bank, the Servicer, the Back-up Servicer,
the Purchaser Transaction Administrator, the Purchaser Corporate Administrator, the Issuer Transaction
Administrator or any other party to the transaction on, prior to or after the date of this Prospectus and shall
not advise any investor or potential investor in the Notes of any information coming to its attention after the
date of this Prospectus.
This Prospectus does not constitute an offer and may not be used for the purpose of an offer to or solicitation
by anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or
in which it is unlawful to make such offer or solicitation. Save as mentioned under “Subscription and Sale”,
no action has been or will be taken to permit a public offering of the Notes in any jurisdiction where action
would be required for that purpose. The Notes may not be offered or sold, directly or indirectly, and this
Prospectus may not be distributed in any jurisdiction except in accordance with the legal requirements
applicable in such jurisdiction. The Issuer, the Lead Arranger and the Co-Managers require persons into
whose possession this Prospectus comes to inform themselves about and to observe any such requirements.
For a further description of certain restrictions on offering and sales of the Notes, see “Subscription and Sale”
below.
TRANSFER OF NOTES
The Agency Agreement provides that no transfer of Notes may be made unless the transferee delivers a
Transferee Letter in the relevant form set out in Schedule 2 to the Agency Agreement, certifying compliance
with certain restrictions on transfer of the Notes. In this regard, the attention of purchasers of the Notes is
drawn to “ Transfer Restrictions ” below. In particular, purchasers of Notes offered and sold in reliance on
Rule 144A should note that any person to whom it wishes to transfer an interest in the Rule 144A Notes will
be required to represent and agree either that (i) it is not and for so long as it holds Notes will not be (a) an
“employee benefit plan” (as defined under Section 3(3) of the U.S. Employee Retirement Security Act of
1974, as amended (“ERISA”)) which is subject to Title I of ERISA, (b) a “plan” as defined in Section
4975(e)(1) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and subject to Section 4975
of the Code, including individual retirement accounts or Keogh plans, (c) an entity any of whose assets are
(or are deemed for purposes of ERISA or Section 4975 of the Code, to be) assets of such an “employee
benefit plan” or “plan”, or (d) a governmental plan or church plan which is subject to any federal, state or
local law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code
or (ii) such purchase and holding of a Note will not constitute a non-exempt prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code or any substantially similar provisions of any federal, state
or local law.
The Notes have not been reviewed, recommended, approved or disapproved by the United States
Securities and Exchange Commission (the “SEC”), any state securities commission in the United States
or any other regulatory authority in the United States, nor have any of the foregoing authorities passed
upon or endorsed the merits of the Offering or the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offence in the United States.
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NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421 B OF THE STATE OF NEW HAMPSHIRE
REVISED STATUTES (“RSA 421 B”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT
THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF
NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421 B IS TRUE, COMPLETE
AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION
OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS
OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO
ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
No invitation may be made to the public in the Cayman Islands to subscribe for the Notes.
In connection with the Offering, the Lead Arranger may over-allot or effect transactions with a view
to supporting the market price of the Notes at a higher level than that which might otherwise prevail
for a limited period. Such stabilising, if commenced, may be discontinued at any time and must be
brought to an end after a limited period. For a description of these activities, see “Subscription and
Sale” below.
ENFORCEMENT OF FOREIGN JUDGMENTS IN KOREA
The Seller, the Servicer and the Purchaser are organised under the laws of Korea. The Lead Arranger has been
advised by its Korean legal counsel, Shin & Kim, that Korean courts will recognise and enforce any judgment
against the Seller, the Servicer or the Purchaser (an “obligor”) obtained in proceedings in England provided
that (i) such judgment was finally and conclusively given by a court having valid jurisdiction in accordance
with Korean laws or international treaties, (ii) such obligor received service of process (otherwise than by
publication or other similar method) in sufficient time to enable such obligor to prepare a defence in
conformity with the laws of England (or, with the laws of Korea if service of process was made on the obligor
in Korea), or responded to the action without being served with process, as the case may be, (iii) recognition
of the effectiveness of such judgment is not contrary to the public policy of Korea and (iv) judgments of the
courts of Korea are accorded reciprocal treatment under the laws of England.
ENFORCEMENT OF FOREIGN JUDGMENTS IN THE CAYMAN ISLANDS
The Issuer is duly incorporated as an exempted company with limited liability under the laws of the Cayman
Islands. All of the directors and officers of the Issuer reside in the Cayman Islands. All or a substantial portion
of the assets of the Issuer and of such directors and officers are located outside of the United States. As a
result, it may be difficult for investors to effect service of process within the United States upon the Issuer
or such persons or to enforce, in the United States courts, judgment against the Issuer or such persons or
judgments obtained in such courts predicated upon the civil liability provisions of the federal securities laws
of the united states or any state or territory within the United States.
The Issuer has been advised by its Cayman Islands counsel, Walkers, that although there is no statutory
enforcement in the Cayman Islands of judgments obtained in England or Korea, the courts of the Cayman
Islands will, based on the principle that a judgment by a competent foreign court imposes upon the judgment
debtor an obligation to pay the sum for which judgment has been given, recognise and enforce a foreign
judgment of a court having jurisdiction over the defendant according to Cayman Islands conflict of law rules,
if such judgment is final, for a liquidated sum not in respect of taxes or a fine or penalty, is not inconsistent
with a Cayman Islands judgment in respect of the same matters and was not obtained in a manner, and is not
a kind the enforcement of which is, contrary to natural justice, statute or the public policy of the Cayman
Islands. There is doubt, however, as to whether the courts of the Cayman Islands will (i) recognise or enforce
— 4 —
judgments of United States courts predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof, or (ii) in original actions brought in the Cayman Islands, impose liabilities
predicated upon the civil liability provisions of the securities laws of the United States or any state thereof,
on the grounds that such provisions are penal in nature.
A Cayman Islands’ court may stay proceedings if concurrent proceedings are being brought elsewhere.
AVAILABLE INFORMATION
To permit compliance with Rule 144A in connection with the resale of the Notes, for so long as any of the
Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Issuer
will be required to provide, upon request of a holder of any Note or of a beneficial interest in any Note or
a prospective purchaser designated by any such holder or the Note Trustee, to such holder and/or such
prospective purchaser and/or the Note Trustee the information required to be provided under Rule 144A(d)(4)
under the Securities Act, if at the time of such request the Issuer is not subject to Section 13 or Section 15(d)
of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), or not exempt from
reporting pursuant to Rule 12g3-2(b) under the Exchange Act.
The Servicer Reports and the TA Reports will be available at the Specified Office of the Principal Paying
Agent and the Irish Paying Agent and will be published on http://www.hsbcnet.com/hsbc. See “General
Information” below.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the sections entitled “Transaction Summary”, “The Seller”, “Description of the
Mortgage Loan Assets”, “Average Life of the Notes” and elsewhere in this Prospectus constitute
“forward-looking statements”. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the success of collections, the actual cash flow generated by
the Mortgage Loan Assets, the expected amortisation of the Notes and the expected sufficiency of the swap
arrangements to meet the U.S. dollar payment needs of the Issuer to differ materially from the information
set forth herein and to be materially different from any future results, performance or financial condition
expressed or implied by such forward-looking statements. See “Risk Factors”.
While all reasonable care has been taken to ensure that the facts stated herein are accurate and that the
forward-looking statements, opinions and expectations contained herein are based on fair and reasonable
assumptions, the success of collections, the actual cash flow generated by the Mortgage Loan Assets, the
expected amortisation of the Notes and the expected sufficiency of the swap arrangements to meet the U.S.
dollar payment needs of the Issuer may differ materially from the projections set forth in any forward-looking
statements herein. Investors should not place undue reliance on forward-looking statements and are advised
to make their own independent analysis and determination with respect to any forecasted periods contained
in this Prospectus. No party to the offering undertakes any obligation to revise these forward-looking
statements to reflect subsequent events or circumstances.
DEFINED TERMS AND INTERPRETATION
Defined terms used in this Prospectus shall, except where otherwise defined herein, have the meaning set out
in the section “Master Definitions Schedule” below.
Percentages in the tables in this Prospectus may not add up to 100% because of rounding.
All references in this Prospectus to “US dollars”, “US Dollar”, “US Dollars”, “Dollars”, “USD”, “U.S.$”
or “US$” are to the lawful currency of the United States of America and to “Won”, “Korean Won”, “(won)”
or “KRW” are to the lawful currency of The Republic of Korea.
— 5 —
Unless otherwise specified, all conversions of Korean Won into US Dollars were made at a pre-arranged
exchange rate as reflected in the Swap Agreement. Unless otherwise stated, all conversions of Korean Won
into US Dollars were calculated at the pre-arranged exchange rate of KRW1,027.80 = US$1.00. No
representation is made that the Korean Won amounts included herein could have been or could be converted
into US Dollars at this rate, at any particular rate or at all.
Unless otherwise indicated, all references to the “Government” herein are references to the Government of
The Republic of Korea and “Governmental” shall be construed accordingly.
The language of the Prospectus is English. Certain legislative references and technical terms have been cited
in their original language in order that the correct technical meaning may be ascribed to them under
applicable law.
— 6 —
TRANSACTION STRUCTURE
The following diagram provides a general overview of the transaction structure and is included for
convenience only.
Prospective purchasers of the Notes should read and consider the more detailed information in relation to
the transaction structure set out in “Transaction Summary” below. The Transaction Summary summarises the
terms of the principal Transaction Documents, which (other than the Purchase Agreement) are available for
inspection at the locations set out in “General Information” below.
Servicing Agreement and
Spot and FX Transactions
(KRW/US$)
Citibank Korea Inc.
(Seller/Servicer/Spot
Bank/Designated FX Bank)
Sale of Mortgage
Loan Assets
Purchaser Junior Note
KRW proceeds of Purchaser
Senior Notes
Hanmi Mortgage
Securitization Specialty
Company
(Korea)
(Purchaser)
The Hongkong and
Shanghai Banking
Corporation Limited,
Seoul Branch
(Purchaser Transaction
Administrator/Security
Agent/Purchaser Corporate
Administrator/Back-up Servicer)
Swap Agreement
(KRW/US$)
Proceeds of
Purchaser
Senior
Notes
in US$
Purchaser
Senior
Notes
Korea
Offshore
Walkers SPV Limited
(Issuer Corporate
Administrator)
Citibank, N.A.,
Singapore Branch
(Swap Counterparty)
Korea ACE Mortgage
Company
(Cayman Islands)
(Issuer)
Proceeds
of Notes
in US$
Capita Trust Company Limited
(London)
(Note Trustee/Security Trustee)
Citibank, N.A., London Branch
(Issuer Transaction Administrator/
Registrar/Principal Paying
Agent/Principal Transfer
Agent/Reference Agent)
Notes
Citibank International PLC
(Irish Paying Agent)
Investors
(Noteholders)
— 7 —
TRANSACTION OVERVIEW
The following provides a general overview of the salient features of the Notes and is included for
convenience only.
Prospective purchasers of the Notes should read and consider the more detailed information in relation to
the payments on the Notes set out in “Transaction Summary” and “Terms and Conditions of the Notes”
below. The Transaction Summary summarises the terms of the principal Transaction Documents, which
(other than the Purchase Agreement) are available for inspection at the locations set out in “General
Information” below.
Seller & Servicer ...................................
Citibank Korea Inc.
Purchaser ...............................................
Hanmi Mortgage Securitization Specialty Company
Issuer ......................................................
Korea ACE Mortgage Company
Note Trustee/Security Trustee ..............
Capita Trust Company Limited
Registrar/Principal Transfer Agent......
Citibank, N.A., London Branch
Notes .......................................................
US$228,000,000 Secured Floating Rate Notes due 2038 (the
“Notes”)
Note Payment Dates ..............................
Fifth (5th) day of March, June, September and December, but if
that day is not a Payment Business Day then the Note Payment
Date will be the next Payment Business Day unless it would fall
into the next calendar month, in which case the Note Payment
Date will be the preceding Payment Business Day. The Payment
Business Day following the Purchaser Liquidation Distribution
Date will also be a Note Payment Date. The first Note Payment
Date will be 5 September 2008. The Step-up Date will be the
Note Payment Date falling in June 2014.
Note Interest Rate .................................
The interest rate on the Notes will be LIBOR plus the relevant
Note Margin plus, after the Step-up Date, the Step-up Margin.
LIBOR....................................................
LIBOR are set at the start of each interest period.
Note Margin...........................................
2 per cent. per annum.
Step-up Margin .....................................
The Step-up Margin will be an additional 1.00 per cent. per
annum above the Note Margin.
Principal Distributions..........................
The principal amount received by the Issuer on the Purchaser
Senior Notes will be applied to repay the Notes until the Notes
are repaid in full.
On each Purchaser Note Payment Date, the Purchaser will repay
the Purchaser Senior Notes in an amount equal to the Available
Principal Collections available for such purpose.
Ratings ...................................................
The Notes are expected to be rated “AAA” by Fitch, “Aaa” by
Moody’s and “AAA” by S&P.
— 8 —
Credit Enhancement .............................
The expected ratings of the Notes are made on the basis of,
among other things:
•
provision of the interest and cross-currency hedging by the
Swap Counterparty;
•
creation of the Reserve Fund; and
•
subordination of the Purchaser Junior Note.
Swap Counterparty ...............................
Citibank, N.A., Singapore Branch, will provide interest rate and
cross-currency hedging to the Purchaser pursuant to the Swap
Agreement.
Spot Bank...............................................
Citibank Korea Inc. as Spot Bank will agree to convert certain
Korean Won amounts into US dollars for the Purchaser in
relation to certain of its obligations under the Swap Agreement
from time to time under Spot Contracts at the then applicable
spot rate of exchange.
Designated FX Bank .............................
Citibank Korea Inc. as Designated FX Bank will agree to convert
certain Korean Won amounts into US dollars for the Purchaser in
relation to certain of its other non-Korean Won denominated
obligations from time to time under FX Transactions at the then
applicable spot rate of exchange.
Clean-up Call.........................................
At any time on or after the Purchaser Note Payment Date
immediately preceding the earlier of the Note Payment Date
falling in March 2014 and the Note Payment Date on which the
Principal Amount Outstanding of the Notes (as stated in the TA
Report delivered on the related TA Report Date) will be reduced
to an amount equal to or less than 10 per cent. of the Principal
Amount Outstanding of the Notes as at Closing Date, the
Servicer will have the right to offer to purchase the remaining
Mortgage Loan Assets from the Purchaser at the then fair market
value provided that such fair market value is sufficient to repay
the Purchaser Notes and all other Senior Obligations in full or,
where the Servicer is the Seller, provided certain conditions have
been satisfied (including the receipt of a legal opinion), the
Seller and the Purchaser may agree to the retroactive
cancellation of the sale of the remaining Mortgage Loan Assets
provided that the net settlement amount for such retroactive
cancellation is sufficient to repay the Purchaser Notes and all
other Senior Obligations. The Purchaser will accept any such
offer if directed to do so, ultimately, by the Noteholders pursuant
to an Ordinary Resolution. Purchase moneys received from the
Servicer will be applied towards redemption of the Notes.
Maturity Date ........................................
The Note Payment Date falling in June 2038.
Asset and Cashflow Reporting .............
Citibank Korea Inc., as the Servicer, will prepare monthly and
quarterly reports on the on-going performance of the Mortgage
Loan Assets. The Hongkong and Shanghai Banking Corporation
Limited, Seoul Branch, as Purchaser Transaction Administrator,
will prepare quarterly reports on cashflows and payments due
on, among other things, the Purchaser Senior Notes and the
Notes. Each Servicer Report and each TA Report will be posted
on the website http://www.hsbcnet.com/hsbc (or any
replacement website therefor). Neither the website, nor any
information displayed on the website, forms part of this
Prospectus.
— 9 —
CASHFLOW DIAGRAM
The following diagram provides a general overview of the sources and allocation of the pre-enforcement
cashflows of the Purchaser and the Issuer (disregarding payment timing differences and without reference to
the currency in which each such payment is to be made). The diagram is for convenience only.
Prospective purchasers of the Notes should read and consider the more detailed information in relation to
the timing and order of priority of payments to be made by the Purchaser set out in “Transaction Summary”
below. The Transaction Summary summarises the terms of the principal Transaction Documents, which
(other than the Purchase Agreement) are available for inspection at the locations set out in “General
Information” below.
Interest and Principal Collections
Funds Available in the General Won Account and the US Dollar Account
Payment of, and conversion of KRW for payment of, Maintenance Costs, Fees
(including Senior Servicer fee) & Senior Expenses payable by the Purchaser
and conversion of KRW into Purchaser USD Indemnity Amounts for
Maintenance Costs, Senior Expenses and certain Fees payable by the Issuer
Funds Available in the Issuer USD Account
Conversion of KRW for payment of Purchaser Senior Note Yield
(other than in respect of Step-up Margin Payments) due and payable to the Issuer
(from Available Interest Collections only)
Payment of Maintenance Costs of the Issuer
Replenishment of Reserve Fund and Servicing Transfer Fund
Payment of Security Trustee and Note Trustee
Fees and Senior Expenses
Pari Passu, (i) Conversion of KRW for payment of Senior Swap
Breakage Costs and (ii) Conversion of KRW for repayment of
Principal Amount Outstanding of the Purchaser Senior Notes
until repaid in full (from Available Principal Collections only)
Payment of Issuer Transaction Administrator
and Agent Fees and Senior Expenses
Payment of, and conversion of KRW for payment of,
scheduled Servicer Report audits and Servicer review costs
Payment of Issuer Corporate Administrator
Fees and Senior Expenses
Payment of Note Interest Payments
(other than Step-up Margin Payments)
Conversion of KRW for payment of Purchaser Senior
Note Yield (in respect of Step-up Margin Payments)
Payment of, and conversion of KRW for payment of, Junior Expenses and
Expense Accrued Interest payable by the Purchaser and conversion of KRW
into Purchaser USD Indemnity Amounts for Junior Expenses and Expense
Accrued Interest payable by the Issuer
Repayment of the Principal Amount
Outstanding of the Notes until repaid in full
(to the extent of principal repayment on
Purchaser Senior Notes)
Payment of Step-up Margin Payments
Payment of Subordinated Servicer Fee
Conversion of KRW for payment of Junior Swap Breakage Costs
Payment of Junior Expenses and
Expense Accrued Interest
Payment of first, interest on the Closing Advance, second, any Closing Advance
Repayment Amount and, third, any other Purchaser Secured Obligations
Payment of Interim Arrangement Fee,
if any, payable to the Purchaser
Payment of interest on, and (if Purchaser Secured Obligations and Secured
Obligations have been repaid) repayment of principal of, the Purchaser Junior Note
Payment of first, any other Senior Obligations
and second, dividends to Equityholders
— 10 —
TRANSACTION SUMMARY
The information set out in this section and the following information relating to the issue of the Notes is
qualified by, and must be read in conjunction with, the further detailed information appearing elsewhere in
this Prospectus and in the Transaction Documents.
Reference to a “Condition” is to a numbered condition of the terms and conditions of the Notes set out in
the section “Terms and Conditions of the Notes”.
INDEX TO TRANSACTION SUMMARY
The Parties...................................................................................................................................
The Mortgage Loan Assets ..........................................................................................................
Servicing......................................................................................................................................
Management of Purchaser Cash Flow .........................................................................................
The Purchaser Notes....................................................................................................................
Management of Issuer Cash Flow ...............................................................................................
The Notes ....................................................................................................................................
11
13
17
21
40
45
48
THE PARTIES
Issuer
Korea ACE Mortgage Company, an exempted company incorporated in the Cayman Islands with limited
liability on 23 May 2007. The whole of the issued share capital of the Issuer is to be held by Walkers SPV
Limited on trust for charitable purposes. See the section “The Issuer”.
Purchaser
Hanmi Mortgage Securitization Specialty Company, a limited liability company organised under the laws of
Korea on 29 June 2007. The whole of the issued and outstanding equity interests in the Purchaser is to be
held as to 99.5 per cent. by Hanmi Holding Company, an exempted company incorporated in the Cayman
Islands with limited liability on 23 May 2007, and as to 0.5 per cent. by Citibank Korea Inc., subject to the
pledge to be granted by them pursuant to the Equity Pledge Agreement in favour of the Secured Parties. The
Issuer will assign its right, title, interest and benefit in, to, under and in respect of the Equity Pledge
Agreement to the Security Trustee for the benefit of the Noteholders and the other Beneficiaries pursuant to
the Deed of Charge. See “— The Purchaser Notes — Purchaser Security” below and the section “The
Purchaser”.
Seller
Citibank Korea Inc.. See the section “The Seller”.
Purchaser Transaction Administrator
The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch. The Purchaser Transaction
Administrator will provide certain administrative services to the Purchaser in relation to the Purchaser’s
payment and certain other obligations under the Purchaser Senior Notes, the Swap Agreement and the other
Transaction Documents (principally related to the making of calculations, the preparation and distribution of
reports, the provision of certain cash management services and arranging for the making of payments by the
Purchaser, all as more particularly set out in the Transaction Administration Agreement).
Issuer Transaction Administrator
Citibank, N.A., London Branch. The Issuer Transaction Administrator will provide certain administrative
services to the Issuer in relation to the Issuer’s payment obligations under the Notes (principally related to
the provision of certain cash management services and arranging for the making of payments by the Issuer,
all as more particularly set out in the Transaction Administration Agreement).
— 11 —
Lead Arranger
Citigroup Global Markets Inc.
Co-Managers
Deutsche Bank AG, HSH Nordbank AG and Merrill Lynch International
Note Trustee
Capita Trust Company Limited. The Note Trustee will act as trustee for the Noteholders in respect of the
Notes issued by the Issuer in accordance with the Trust Deed. The Trust Deed will provide that (other than
in respect of typographical or manifest errors, purely technical or administrative matters or where the Note
Trustee considers the same will not be materially prejudicial to the interests of Noteholders) at any time when
the Note Trustee is required to consent to any amendment or supplement to, or modification or waiver of, any
Transaction Document, to exercise any right or discretion to perform any duty, to take or refrain from taking
any action or to give any instructions or consent (including, without limitation, the giving of any direction
to the Security Trustee or the Security Agent or any other party to the Transaction Documents) as
contemplated by the Trust Deed and the other Transaction Documents, the Note Trustee will act in accordance
with directions from the Noteholders given by way of a resolution.
Security Trustee
Capita Trust Company Limited. The Security Trustee will act as trustee of the Issuer Security for, among
others, the Noteholders in accordance with the Deed of Charge. The Deed of Charge will provide that (other
than in respect of typographical or manifest errors, purely technical or administrative matters or where the
Security Trustee considers the same will not be materially prejudicial to the interests of Noteholders) at any
time when the Security Trustee is required to consent to any amendment or supplement to, or modification
or waiver of, the Deed of Charge, the Security Trustee will act solely on the instructions of the Note Trustee.
In giving such instructions, the Note Trustee shall act in accordance with the directions from the Noteholders
Notes given by way of a resolution. In exercising any of its rights or discretions under the Deed of Charge,
the Security Trustee is entitled to seek and act in accordance with instructions from the Note Trustee.
Security Agent
The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch. The Security Agent will act as
agent in relation to the Purchaser Security for the Secured Parties in accordance with the Purchaser Security
Agreements. The Purchaser Security Agreements will provide that (other than in respect of typographical or
manifest errors, purely technical or administrative matters or where the Security Agent considers the same
will not be materially prejudicial to the interests of Secured Parties) at any time when the Security Agent is
required to consent to any amendment or supplement to, or modification or waiver of, the Purchaser Security
Documents, the Security Agent will act solely on the instructions of the Note Trustee. In giving such
directions, the Note Trustee shall act in accordance with directions from the Noteholders given by way of a
resolution. In exercising any of its rights or discretions under the Purchaser Security Documents, the Security
Agent is entitled to seek and act in accordance with instructions from the Note Trustee.
Swap Counterparty
Citibank, N.A., Singapore Branch. The Purchaser and the Swap Counterparty will enter into the Swap
Agreement the terms of which will govern the Swap Transaction and the Credit Support Annex. See “—
Management of Purchaser Cash Flow — Swap Arrangements” below. Prior to the commencement of a
Convertibility Event Period which is continuing, the Swap Transaction will be non-deliverable. The
unsecured long-term and short-term unguaranteed and unsubordinated foreign currency debt obligations of
Citibank, N.A. are currently rated “AA-” and F1+”, respectively, by Fitch, “Aa1” and P-1”, respectively, by
Moody’s and “AA” and “A-1+”, respectively, by Standard & Poor’s. Citibank, N.A. is a shareholder of the
Seller.
Spot Bank and Designated FX Bank
Citibank Korea Inc.. During the Swap Agreement Term, prior to the commencement of a Convertibility Event
Period under the Swap Agreement which is continuing, the Swap Transaction will be non-deliverable and the
Purchaser (acting through the Purchaser Transaction Administrator) will enter into spot forward transactions
(“Spot Transactions”) on each Spot Contract Date with the Spot Bank to exchange certain Korean Won
— 12 —
amounts (that would be paid to the Swap Counterparty if the Swap Transaction was deliverable) for US
dollars at the related Spot Rate for settlement on the related Spot Payment Date. See “— Management of
Purchaser Cash Flow — Spot Arrangements” below. The Purchaser Transaction Administrator will be
required to take all reasonable steps to locate a replacement Spot Bank if the Spot Bank ceases to have an
Approved Rating.
In addition, the Designated FX Bank will enter into such spot foreign exchange transactions (“FX
Transactions”) with the Purchaser from time to time as are necessary for the Purchaser to obtain US dollars
to meet its non-Korean Won denominated obligations which are not obtained pursuant to the Swap Agreement
and the Spot Contracts. See “— Management of Purchaser Cash Flow — Spot Arrangements” and “—
Management of Purchaser Cash Flow — Foreign Exchange Transactions” below. The unsecured long-term
and short-term unguaranteed and unsubordinated foreign currency debt obligations of Citibank Korea Inc. are
currently rated “AA-” and “F1+”, respectively, by Fitch and “A” and “A-1”, respectively, by Standard &
Poor’s. The long-term foreign currency bank deposits of Citibank Korea Inc. are currently rated “A2” by
Moody’s.
Servicer
Citibank Korea Inc.. The Servicer will provide certain collection, reporting and management services in
relation to the Mortgage Loan Assets in exchange for a fee in accordance with the Servicing Agreement. See
“— Servicing — Servicing by the Servicer” below.
Back-up Servicer
The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch. The Back-up Servicer will,
subject as provided in the Servicing Agreement, act as the servicer in relation to the Mortgage Loan Assets
should the appointment of the Servicer be terminated in accordance with the Servicing Agreement. The
unsecured long-term and short-term unguaranteed and unsubordinated foreign currency debt obligations of
The Hongkong and Shanghai Banking Corporation Limited are currently rated “AA” and “F1+”, respectively,
by Fitch and “Aa2” and “P-1”, respectively, by Moody’s and “AA” and “A-1+”, respectively, by Standard
& Poor’s.
Purchaser Corporate Administrator
The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch. The Purchaser Corporate
Administrator will provide general corporate administrative services to the Purchaser, including making tax
and regulatory filings and appointing accountants and auditors in exchange for a fee pursuant to the Purchaser
Corporate Administration Agreement.
Issuer Corporate Administrator
Walkers SPV Limited. The Issuer Corporate Administrator will provide general corporate administrative
services to the Issuer in exchange for a fee pursuant to the Corporate Services Agreement.
Other Parties
Citibank, N.A., London Branch will act as Registrar, Principal Transfer Agent, Principal Paying Agent and
Reference Agent.
Citibank International PLC will act as Irish Paying Agent.
THE MORTGAGE LOAN ASSETS
Portfolio
The Mortgage Loan Assets will comprise all of the Seller’s right, title, interest and benefit in, to, under and
in respect of certain Mortgage Loan Transactions entered into by the Seller and will include, among other
things, all rights to (i) the principal amounts outstanding thereunder as at the Cut-off Date and from time to
time thereafter and (ii) all interest (including default interest) accrued thereon and due or to become due
thereunder on the Transfer Date and from time to time thereafter. All interest or other amounts (other than
principal) accrued during the period from (and including) the Cut-Off Date to (but excluding) the Transfer
Date will be excluded from the Mortgage Loan Assets. See “Description of the Mortgage Loan Assets” below.
— 13 —
Governing Law
All of the Mortgage Loan Agreements and the Mortgages are governed by Korean law.
Securitisation Plan
A securitisation plan was submitted to the Financial Services Commission of Korea (the “FSC”) on 6 May
2008 in connection with the issuance of the Purchaser Notes on the Closing Date and the sale of the Mortgage
Loan Assets from the Seller to the Purchaser on the Transfer Date.
Registration
On the Transfer Date, the Seller will file with the FSC an asset transfer registration with respect to the
transfer by the Seller to the Purchaser of the Mortgage Loan Assets being transferred on the Transfer Date.
Sale of the Mortgage Loan Assets
On the Transfer Date, the Seller will, pursuant to the Transfer Agreement and subject to satisfaction of certain
conditions precedent, sell the Mortgage Loan Assets to the Purchaser. The Purchaser will pay the Purchase
Price for the Mortgage Loan Assets in full to the Seller on the Closing Date.
The Purchase Price payable in respect of the Mortgage Loan Assets will be equal to the Principal Amount
Outstanding of the Mortgage Loan Assets as at the Cut-Off Date as advised by the Seller to the Purchaser
and set out in the securitisation plan referred to in “Securitisation Plan” above. The cash element of such
Purchase Price, which is payable on the Closing Date, will be paid from the proceeds of issue of the Purchaser
Senior Notes after conversion into Korean Won. The non-cash element of such Purchase Price will be
satisfied on the Closing Date as follows:
(a)
the Purchaser will set-off part of the Purchase Price in respect of the Mortgage Loan Assets payable to
the Seller against the Interim Collection Amount payable to the Purchaser by the Seller; and
(b)
the remaining part of the balance of such Purchase Price will be satisfied by way of a set-off by the
Purchaser against the purchase price payable by the Seller to the Purchaser for the Purchaser Junior
Note.
The obligation of the Purchaser to pay and settle on the Closing Date the Purchase Price in respect of the
Mortgage Loan Assets is conditional on the Purchaser receiving on the Closing Date, amongst other things,
a legal opinion from Korean counsel opining, among other things, that, subject to certain assumptions and
qualifications set forth therein:
(a)
the transfer of the Mortgage Loan Assets under the Transfer Agreement would be considered to be a
true sale of the Mortgage Loan Assets pursuant to the ABS Act; and
(b)
such transfer would not be set aside or avoided under the Civil Code, the Consolidated Insolvency Act
or any other applicable Korean laws.
The ratio of (i) the aggregate Principal Amount Outstanding of the Purchaser Senior Notes as at the Closing
Date to (ii) the aggregate principal amount of the Mortgage Loan Assets as at the Cut-off Date minus the
Interim Collection Amount will be approximately 89.79 per cent..
The Transfer Agreement will be governed by Korean law.
Perfection
Pursuant to the Transfer Agreement, notice of the sale to the Purchaser by the Seller of each Mortgage Loan
Asset will be given to each Borrower only upon the occurrence of a Notification Trigger Event. In such event,
notice will also be given to each Borrower of the security created under the Pledge Agreement and
assignment thereof under the Deed of Charge.
— 14 —
Return of the Mortgage Loan Assets
The Transfer Agreement will provide for certain Asset Representations to be made by the Seller in relation
to the Mortgage Loan Assets, including, without limitation, an Asset Representation that all of the Mortgage
Loan Assets satisfy the Eligibility Criteria set out under “Description of the Mortgage Loan Assets —
Eligibility Criteria” below as of the Closing Date.
In the event of a breach of any Asset Representation, a Return Notice will be given to the Seller and the Seller
will be obliged to accept the return of the relevant Mortgage Loan Asset under Korean law and the Transfer
Agreement. The Seller will return a pro rata amount of the Purchase Price (determined based on the Principal
Amount Outstanding of the relevant Mortgage Loan Asset as at the Cut-off Date less any principal repayment
received by the Purchaser in respect of that Mortgage Loan Asset) simultaneously with the return of the
relevant Mortgage Loan Asset which is the subject of such breach plus any interest accrued on such Mortgage
Loan Asset which is unpaid as at the return date.
If the relevant breach arises as a result of non-compliance with any threshold set out in the relevant Asset
Representation, the Seller will be obliged to accept the return of sufficient Mortgage Loan Assets (selected
randomly by the Purchaser (acting through the Purchaser Transaction Administrator) from those Mortgage
Loan Assets in breach of the relevant Asset Representation so as to ensure that the remaining portfolio of
Mortgage Loan Assets is in compliance with such Asset Representation.
Any such return will take place on the Return Date, which shall be a Seoul Business Day falling ten Seoul
Business Days after the date of receipt of the Return Notice served by the Purchaser on the Seller.
The sole remedy against the Seller in respect of the breach of any Asset Representation shall be for the Seller
to return the applicable Purchase Price simultaneously with the return of the relevant Mortgage Loan Asset(s)
by the Purchaser in accordance with the terms of the Transfer Agreement, as summarised above.
Affected Assets
On each day on which the Purchaser Senior Notes are outstanding, the Seller will also represent and warrant
that no Mortgage Loan Asset has become an Affected Asset (being a Mortgage Loan Asset in respect of which
the Seller, the Purchaser or the Servicer has received notice from the relevant Administration Bureau or
Korean court (or is otherwise aware) that any of the related Borrower has applied to any Korean court to have
his debts rescheduled or any petition or filing, or a judgment or order, has been made in relation to any of
the related Borrower in an individual rehabilitation proceeding under Chapter 2 or Chapter 4 of the
Consolidated Insolvency Act, which would have the effect of (i) reducing or delaying the payment of any
amount payable by such Borrower in respect of a Mortgage Loan or (ii) restricting the enforcement of any
related Collateral Security provided by such Borrower).
If a Mortgage Loan Asset has become an Affected Asset, the Seller will be obliged to accept the return of
such Affected Asset and to simultaneously pay a return amount (determined based on the Principal Amount
Outstanding of the Affected Asset as at the Cut-off Date less any principal repayment received by the
Purchaser in respect of such Affected Asset plus any interest accrued on such Affected Asset which is unpaid
as at the Affected Asset Return Date) provided that the aggregate return amounts in respect of all Affected
Assets returned to the Seller as contemplated in this section “— Affected Assets” cannot exceed 35 billion
Korean Won.
Any such return of an Affected Asset will take place on the Affected Asset Return Date, which shall be a
Seoul Business Day falling ten Seoul Business Days after the date of receipt of the Affected Asset Return
Notice served by the Purchaser on the Seller in respect of such Affected Asset.
Set-off Warranty
On each day on which the Purchaser Senior Notes are outstanding, the Seller will also represent and warrant
that, if the Seller’s issuer default rating (in the case of Fitch), or the Seller’s long-term senior unsecured debt
or short-term senior unsecured debt (in the case of Standard & Poor’s) is rated below certain specified levels
— 15 —
by such Rating Agencies as set out in the Transfer Agreement, the aggregate amount which the Borrowers
could potentially set-off against the Mortgage Loan Assets on such date is not greater than the sum of (a) the
Excess Credit Enhancement Percentage of the aggregate principal outstanding balance of the Mortgage Loan
Assets as of such date; and (b) the Set-off Coverage Amount.
A breach of this representation and warranty (a “Set-off Breach”) is a Notification Trigger Event causing
notice of the sale to the Purchaser by the Seller of each Mortgage Loan Asset to be given to each Borrower.
In addition, the Seller will be obliged to deposit, on or before the 15th Seoul Business Day following the date
of such Set-off Breach, an amount equal to the aggregate amount which the Borrowers could potentially
set-off against the Mortgage Loan Assets on the 10th Seoul Business Day following the date of such Set-off
Breach less the sum of (a) that amount which is equal to the Excess Credit Enhancement Percentage of the
aggregate principal outstanding balance of the Mortgage Loan Assets as at the day which is the 10th Seoul
Business Day following the date of the first Set-off Breach; and (b) the Set-off Coverage Amount into the
Set-off Fund within the Reserve Fund Account.
Thereafter, in the event that any Borrower asserts a right to set-off any amount due under a Mortgage Loan
against any deposit held with the Seller in respect of such Borrower, a corresponding amount will be
transferred from the Set-off Fund to the General Won Account.
Clean-up Call
Under the Servicing Agreement, the Servicer will have the right (the “Clean-up Call”), on or after the
Purchaser Note Payment Date immediately preceding the earlier of:
(a)
the Note Payment Date falling in March 2014; and
(b)
the Note Payment Date on which the Principal Amount Outstanding of the Notes (as stated in the TA
Report delivered on the related TA Report Date) will be reduced to an amount equal to or less than 10%
of the Principal Amount Outstanding of the Notes as at the Closing Date,
to serve a notice (the “Clean-up Call Notice”) on the Purchaser requesting the Purchaser to sell to the
Servicer, on the Payment Business Day falling seven Payment Business Days prior to the Swap Payment Date
immediately succeeding the date on which the Clean-up Call Notice is given (the “Portfolio Sale Date”), all
of the Mortgage Loan Assets which have not been fully repaid or returned to the Seller pursuant to the
Transfer Agreement for an amount (the “Portfolio Sale Price”) equal to the then fair market value of such
Mortgage Loan Assets (as determined by a reputable valuation agent selected by the Servicer) provided that
such fair market value is sufficient to repay the Purchaser Notes and all other Secured Obligations in full.
The Purchaser will agree to sell such remaining Mortgage Loan Assets if so directed by the Security Agent,
which shall act on the instructions of the Note Trustee (which in turn shall act on the instructions of the
Noteholders pursuant to an Ordinary Resolution).
In addition, under the Servicing Agreement, on or after the Purchaser Note Payment Date immediately
preceding the earlier of:
(a)
the Note Payment Date falling in March 2014;
(b)
the Note Payment Date on which the Principal Amount Outstanding of the Notes (as stated in the TA
Report delivered on the related TA Report Date) will be reduced to an amount is equal to or less than
10% of the Principal Amount Outstanding of the Notes as at the Closing Date,
then to the extent permitted by law, provided the then Servicer is the Seller, the Seller and the Purchaser may
agree to the retrospective cancellation of the sale of the Mortgage Loan Assets then comprising the
Remaining Portfolio. In determining the timing, procedure and the net settlement amount for such
retrospective cancellation, the provisions in the Transfer Agreement dealing with the Clean-up Call will apply
(with necessary changes) including that the net settlement amount must be sufficient to repay the Purchaser
Notes and all other Secured Obligations in full.
— 16 —
The Purchaser will, on the Purchaser Note Payment Date immediately succeeding the Portfolio Sale Date
specified in the Portfolio Sale Notice, apply the proceeds of such sale of the Mortgage Loan Assets or, as the
case may be, the net settlement amount of the retroactive cancellation, together with all other moneys
standing to the credit of the General Won Account and the US Dollar Account, in and towards redemption
of the Purchaser Senior Notes at the Principal Amount Outstanding of the Purchaser Senior Notes as at such
Purchaser Note Payment Date (together with the Purchaser Senior Note Yield accrued thereon) in accordance
with the order of priorities set out in “— Management of Purchaser Cash Flows — Purchaser Payments on
Purchaser Note Payment Dates prior to the Purchaser Liquidation Date” below.
SERVICING
Servicing by the Servicer
Pursuant to the Servicing Agreement, the Servicer will provide services of collection of monies and
management in relation to the Mortgage Loan Assets, including receiving payments in respect of the
Mortgage Loan Transactions, enforcing payment obligations, to the extent permitted by applicable law,
lawful dealings with Obligors and Collateral Security Providers, reporting to other transaction parties and
matters incidental thereto.
Under the Servicing Agreement, the Servicer will, as agent of the Purchaser, among other things:
(a)
be required to remit to the Purchaser Collection Account any and all amounts paid by Borrowers with
respect to the Mortgage Loan Assets payable to the Purchaser and received on or after the Closing Date
by no later than close of business in Seoul on:
(i)
in the case of payments made by Borrowers in person by way of cash or cheque payment, the
Seoul Business Day on which such payment is made or the cheque is cleared;
(ii)
in the case of payments by Direct Debit, the Seoul Business Day on which the Servicer debits
such amount from the relevant Borrower’s account with the Servicer or such amount is paid in
cleared funds to the Servicer (or, if the Servicer is not a bank, credited to the Collection Account);
(iii) in the case of payments made by Borrowers under CMS, the Seoul Business Day on which the
Servicer is notified by the KFTC that the relevant amount has been credited to the clearing
systems of the KFTC (and the Servicer shall make adequate arrangements with the KFTC so that
the KFTC shall so notify the Servicer by no later than the close of business in Seoul on the Seoul
Business Day immediately following the date on which such amount is credited to the clearing
system of the KFTC);
(iv) in the case of payments made by Borrowers by electronic transfers made over the internet, by
telephone or through the use of automatic teller machines, the Seoul Business Day on which the
relevant amount is so transferred; or
(v)
in the case of other methods as may become used in the Korean mortgage loan industry as the
Servicer may be agree with the Rating Agencies to use, within the time period agreed with the
Rating Agencies,
and the Purchaser Transaction Administrator (pursuant to the Purchaser Collection Account Bank
Mandate) will give standing instructions to the Purchaser Collection Account Bank that all amounts
standing to the credit of the Purchaser Collection Account at the opening of each Seoul Business Day
are to be transferred to the General Won Account by no later than noon (12:00 pm) in Seoul on such
Seoul Business Day for same day value in cleared funds;
— 17 —
(b)
in respect of each Collection Period, prepare and deliver to, among others, the Purchaser Transaction
Administrator, the Issuer Transaction Administrator, the Note Trustee, the Security Trustee, the Swap
Counterparty and each Rating Agency, a Quarterly Servicer Report not later than the related Quarterly
Servicer Report Date, which will include, among other things, the following information:
(i)
the number and the principal amount of Mortgage Loan Assets outstanding as at the end of such
Collection Period;
(ii)
the amount of Collections received during such Collection Period;
(iii) identification of any Mortgage Loan Assets prepaid during such Collection Period setting out the
amount of prepayment (except for information relating to the identity of the relevant Obligors);
and
(iv) identification and details of any Mortgage Loan Assets which during such Collection Period
payments have not been received on time or in respect of which enforcement action is being taken
(except for information relating to the identity of the relevant Obligors);
(c)
in respect of each Monthly Period, prepare and deliver to, among others, the Purchaser Transaction
Administrator, the Issuer Transaction Administrator, the Note Trustee, the Security Trustee, the Swap
Counterparty and each Rating Agency, a Monthly Servicer Report not later than the related Monthly
Servicer Report Date, which will include information relating to the amount of Collections received
during such Monthly Period which comprise Interest Collections and Principal Collections,
respectively, and the number and outstanding principal amount of Mortgage Loans in respect of which
payments have not been received on time or in respect of which enforcement action is being taken;
(d)
be required to monitor payment by Obligors under the Mortgage Loan Assets and to take such steps as
are lawfully permitted to enforce payment when payment is due; and
(e)
be required, to the extent permitted by law, to enforce any Mortgage Loan Agreement, Mortgage and
Collateral Security relating to any Mortgage Loan Asset which is more than ninety days delinquent.
The cost of an annual review of the Servicer’s compliance with its obligations under the Servicing Agreement
will be borne by the Purchaser.
The Servicing Agreement will permit the Servicer (subject to certain conditions and at the cost of the
Servicer) to delegate any of the above services (other than those services relating to the preparation and
certification of Servicer Reports) to a third party who is qualified to undertake such services under all
relevant applicable laws provided that notice is given to each Rating Agency and certain other conditions
as specified in the Servicing Agreement have been satisfied. Any delegation will be at the cost of the Servicer
and will not relieve the primary obligation of the Servicer to perform the services delegated.
Under the Servicing Agreement, the Servicer may not agree to any modification, waiver, variation or
amendment to the documentation in respect of any Mortgage Loan Transaction unless, in the Servicer’s good
faith judgment, such modification, waiver, variation or amendment will mitigate the loss that might otherwise
be experienced on such Mortgage Loan Asset and only in the event of a default on such Mortgage Loan Asset
or in the event that a default on such Mortgage Loan is reasonably foreseeable provided that no such
modification, waiver, variation or amendment shall release the Mortgaged Property from the Encumbrance
of the related Mortgage or extend the maturity date of such Mortgage Loan Asset beyond the Note Maturity
Date.
Other than as provided above, the Servicer will be permitted to modify, waive, vary or amend a Mortgage
Loan Agreement or Mortgage if permitted by the Transaction Documents (including, for the avoidance of
doubt, interest rates applicable to the Mortgage Loans may be adjusted by the Servicer by way of publication
of a reference rate that is generally applicable to its loan products and in the manner provided in the Mortgage
Loan Agreements) or if required by applicable law or a court of competent jurisdiction to do so.
— 18 —
The Initial Servicer is permitted to agree to the obligations of an original Borrower under a Mortgage Loan
being assumed by a new Borrower (such Mortgage Loan an “Assumed Loan”), subject to a limit for
Assumed Loans of 3% of the Principal Amount Outstanding of the Mortgage Loan Assets as at the Cut-off
Date and provided that certain conditions, as more particularly set out in the Servicing Agreement, are
satisfied. These conditions include but are not limited to the Principal Amount Outstanding of the Assumed
Loan not being greater than the Principal Amount Outstanding of the original Mortgage Loan immediately
prior to such assumption, the interest base rate and the interest margin of the Assumed Loan not being lower
than the interest base rate and the interest margin of the original Mortgage Loan immediately prior to such
assumption, and the maturity date of the Assumed Loan not being later than the maturity date of the original
Mortgage Loan immediately prior to such assumption.
The Initial Servicer is permitted to extend the maturity date of a Mortgage Loan (such Mortgage Loan a
“Maturity Extension Loan”), if requested by the relevant Borrower subject to a limit for Maturity Extension
Loans of 3% of the Principal Amount Outstanding of Mortgage Loan Assets as at the Cut-off Date and
provided that certain conditions, as more particularly set out in the Servicing Agreement, are satisfied. These
conditions include but are not limited to the maturity date of the Maturity Extension Loan not being later than
December 2036, each scheduled principal repayment other than the final principal repayment under the
Maturity Extension Loan being the same or greater than under the original Mortgage Loan immediately prior
to such maturity extension, the interest base rate and the interest margin of the Maturity Extension Loan not
being lower than the interest base rate and the interest margin of the original Mortgage Loan immediately
prior to such maturity extension and the scheduled repayment frequency under the Maturity Extension Loan
being the same or higher than the scheduled repayment frequency immediately prior to such maturity
extension.
Servicer Termination Events
The events set out in the next paragraph will constitute Servicer Termination Events with respect to the
Servicer. If a Servicer Termination Event has occurred and is continuing with respect to the Servicer, the
Security Agent may and, if it has been so instructed by the Note Trustee (acting at the direction of the
Noteholders given pursuant to an Ordinary Resolution), will (on behalf of the Purchaser) terminate the
appointment of the Initial Servicer as Servicer. The Servicer will be required to certify in each Servicer
Report that no Servicer Termination Event has occurred and is continuing. Neither the Note Trustee nor the
Security Agent will be responsible for monitoring or ascertaining whether any Servicer Termination Event
has occurred, and in the absence of any notice from any party to the Transaction Documents or actual notice
to the contrary, the Note Trustee and the Security Agent will be entitled to assume that no Servicer
Termination Event has occurred with respect to the Servicer. Neither the Note Trustee nor the Security Agent
is responsible for any loss, damage or liability incurred by any person as a result of any failure or delay in
taking any action following the occurrence of a Servicer Termination Event or pending the directions by
Ordinary Resolution of the Noteholders.
Events which will constitute Servicer Termination Events are:
(a)
any default by the Servicer in the payment on the due date of any payment due and payable by it under
the terms of the Servicing Agreement (other than any such default which arises solely as a result of any
technical failure, computer failure or failure of any money transmission system beyond the control of
the Servicer where receipt of such payment is delayed for a period of not more than three Seoul
Business Days);
(b)
any breach is made by the Servicer in any respect of (i) any of the obligations other than payment
obligations referred to in paragraph (a) above on its part (in its capacity as Servicer) set forth in the
Transaction Documents and obligations to provide Monthly Servicer Reports and Quarterly Servicer
Reports pursuant to the Servicing Agreement or (ii) any representations or warranties is made by the
Servicer (in its capacity as Servicer) under the Transaction Documents to which it is a party, and any
such breach continues for more than ten Seoul Business Days following the date such breach first
occurred;
— 19 —
(c)
the Servicer ceases or threatens to cease to carry on its mortgage loan servicing business or a substantial
part of its mortgage loan servicing business or, without the prior written consent of the Security Agent,
the Servicer merges, reorganises or consolidates with any other entity if such merger, reorganisation or
consolidation would cause a Material Adverse Change to occur in relation to the mortgage loan business
of the Servicer and/or the resulting merged, reorganised or consolidated entity will not fully and legally
assume all the obligations of the Servicer under the Transaction Documents;
(d)
an Insolvency Event occurs with respect to the Servicer;
(e)
any failure by the Servicer to deliver (i) a Quarterly Servicer Report on or before the related Quarterly
Servicer Report Date or (ii) a Monthly Servicer Report on before the related Monthly Servicer Report
Date and such failure is not remedied within three Seoul Business Days of the related Monthly Servicer
Report Date;
(f)
a Material Adverse Change has occurred in respect of the Servicer;
(g)
other than in respect of a Servicer which has been appointed following the occurrence of the Servicer
Termination Event described in this paragraph (g), the average of the Delinquent Mortgage Loan
Transaction Ratio for three Monthly Periods (or in respect of the first three (3) Monthly Periods after
the Closing Date, for the period from the Closing Date to the relevant Monthly Calculation Date)
exceeds 2.75 per cent. and Noteholders have instructed the Note Trustee that such excess of the
Delinquent Mortgage Loan Transaction Ratio is due to the Servicer intentionally failing to perform the
Mortgage Loan Services otherwise than a failure caused by a Force Majeure Event;
(h)
any suspension, withdrawal or revocation of or failure to maintain any qualification, licence, approval,
authorisation and/or consent required by the Servicer in connection with the performance of its
obligations under the Servicing Agreement; or
(i)
the rating of the long-term senior unsecured and unguaranteed US dollar debts of the Servicer is
downgraded to below “BB+” by Fitch.
Notwithstanding the occurrence of any Servicer Downgrade Event, any Servicer Termination Event or any
provision of the Transaction Documents, none of the Purchaser Corporate Administrator, the Purchaser
Transaction Administrator or the Security Agent (in their respective capacities as such) or the Issuer
Transaction Administrator, the Security Trustee or the Note Trustee are responsible for:
(a)
providing any of the Mortgage Loan Services or the Back-up Services; or
(b)
any loss, liability, damages, fees, costs or expenses incurred by any person (including, but not limited
to the Noteholders and any Secured Party) as a result of the occurrence of any Servicer Termination
Event.
Back-up Servicer
In the event of the termination of the appointment of Citibank Korea Inc. as Servicer under the Servicing
Agreement, The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch, will, in its capacity
as Back-up Servicer, act as the Servicer, and will perform the duties undertaken by Citibank Korea Inc. as
Servicer under the Servicing Agreement in accordance with the terms and subject to the conditions set out
in the Servicing Agreement.
The Back-up Servicer may, provided that notice is given to each Rating Agency and certain other conditions
as specified in the Servicing Agreement are satisfied, appoint an agent or delegate who is qualified to
undertake such duties under all applicable laws to perform any of its duties on its behalf. Any such
appointment will be at the cost of the Back-up Servicer and will not relieve the Back-up Servicer of its
primary obligation to perform or procure the performance of the services so delegated.
— 20 —
The Back-up Servicer will not be required to comply with any standby servicing requirements (as specified
in the Servicing Agreement) until the Seoul Business Day falling seven Seoul Business Days after the Seoul
Business Day on which it has received notice of the occurrence of a Servicer Downgrade Event.
MANAGEMENT OF PURCHASER CASH FLOW
Purchaser Accounts
On or prior to the Transfer Date, the Purchaser will have opened in its name a Korean Won denominated
account (the “Purchaser Collection Account”) with Citibank Korea Inc. (the “Purchaser Collection
Account Bank”).
On or prior to the Closing Date, the Purchaser will have opened in its name two further Korean Won
denominated accounts, namely the General Won Account and the Reserve Fund Account (each a “Won
Account” and together, the “Won Accounts”). The Won Accounts will be opened with The Hongkong and
Shanghai Banking Corporation Limited, Seoul Branch (the “Won Account Bank”). The Purchaser will have
also opened in its name, on or prior to the Closing Date, a US dollar denominated account (the “US Dollar
Account”) with The Hongkong and Shanghai Banking Corporation Limited (the “Offshore Account Bank”).
The senior unsecured long-term and short-term unguaranteed and unsubordinated foreign currency debt
obligations of The Hongkong and Shanghai Banking Corporation Limited are currently rated “AA” and
“F1+”, respectively, by Fitch, “Aa2” and “P-1”, respectively, by Moody’s, and “AA” and “A-1+”,
respectively, by Standard & Poor’s.
If the Swap Counterparty is required to transfer Eligible Credit Support to the Purchaser pursuant to the
Credit Support Annex, the Purchaser Transaction Administrator will open in the name of the Purchaser a bank
account for such Eligible Credit Support in the form of cash (the “Swap Cash Collateral Account”) and/or
a custodian account for such Eligible Credit Support in the form of securities (the “Swap Securities
Collateral Account”) with an account bank (the “Swap Cash Collateral Account Bank”) or, as the case may
be, a custodian (the “Swap Securities Collateral Account Bank”) pursuant to the Transaction Administrator
Agreement.
The Purchaser Collection Account, the Won Accounts, the US Dollar Account, any Swap Cash Collateral
Account and any Swap Securities Collateral Account will collectively be the “Purchaser Accounts”.
Amounts standing to the credit of one Purchaser Account will not be applied to make payments due to be
made from another Purchaser Account or for any other purpose unless specifically provided in the
Transaction Documents.
The Purchaser Accounts will be operated by the Purchaser Transaction Administrator on behalf of the
Purchaser.
Establishment of Reserve Fund Account
Under the Transfer Agreement, the Seller is obliged to advance an amount (the “Closing Advance”) equal
to the aggregate of the Reserve Fund Initial Required Amount and the Servicing Transfer Fund Initial
Required Amount to the Purchaser on the Closing Date. The Purchaser will deposit the Closing Advance into
the Reserve Fund Account to establish a reserve fund (the “Reserve Fund”) and a servicing transfer fund (the
“Servicing Transfer Fund”), as contemplated in the Transfer Agreement and the Transaction Administration
Agreement. The amount credited to the Reserve Fund will be agreed to by the relevant parties on or prior to
the Closing Date.
The Purchaser will repay the Closing Advance to the Seller in instalments on each Purchaser Note Payment
Date. Each such instalment will be equal to the Closing Advance Repayment Amount for such Purchaser Note
Payment Date. The sum of the Closing Advance Repayment Amounts shall not exceed the Closing Advance
advanced by the Seller on the Closing Date. The Purchaser will also pay interest on each Purchaser Note
— 21 —
Payment Date on that amount equal to the Closing Advance less any Closing Advance Repayment Amount
paid on previous Purchaser Note Payment Dates. Payments of Closing Advance Repayment Amounts and
interest as detailed in this paragraph will rank below the payment of interest and repayment of principal on
the Purchaser Senior Notes.
Under the Transfer Agreement, in the event of a Set-off Breach, the Seller is obliged to pay an amount (the
“Set-off Fund Initial Amount”) equal to the aggregate amount which Borrowers could potentially set-off
against the Mortgage Loan Assets as at the day which is the tenth Seoul Business Day following the date of
the Set-off Breach less the sum of (a) that amount which is equal to the Excess Credit Enhancement
Percentage of the aggregate principal outstanding balance of the Mortgage Loan Assets as at the day which
is the tenth Seoul Business Day following the Set-off Breach; and (b) the Set-off Coverage Amount to the
Purchaser on the day which is the fifteenth Seoul Business Day following the date of the Set-off Breach. The
Seller will, on behalf of the Purchaser, deposit the Set-off Fund Initial Amount into the Reserve Fund Account
to establish a set-off fund (the “Set-off Fund”) as contemplated in the Transfer Agreement and the
Transaction Administration Agreement.
Withdrawals from Reserve Fund Account
Prior to the Portfolio Liquidation Date or the date on which all Purchaser Secured Obligations have been
discharged in full, amounts on deposit in the Reserve Fund will be applied to supplement any shortfall in the
amounts available to the Purchaser in the General Won Account to make the following payments:
(a)
the payment of any amounts required to be made by the Purchaser at any time during a Collection
Period under paragraphs (a) to (d) of “— Purchaser Payments during Collection Periods” below (being
certain amounts owed to the Seller, certain Maintenance Costs of the Purchaser and the Issuer and
certain taxes of the Purchaser);
(b)
during the Swap Agreement Term, the payment on any Spot Payment Date (i) prior to the
commencement of any Convertibility Event Period which is continuing, to the Spot Bank or (ii) after
the commencement of any Convertibility Event Period which is continuing, to the Swap Counterparty,
of the Fixed Amount and the Additional Fixed Amount in respect of such Spot Payment Date and any
such Fixed Amounts and Additional Fixed Amounts unpaid from prior Spot Payment Dates;
(c)
after the Swap Agreement Term, the payment on any Spot Payment Date to the Designated FX Bank
of sufficient Korean Won to purchase an amount in US dollars equal to the Floating Amount which
would have been payable on the related Swap Payment Date under the terminated Swap Transaction;
(d)
the payment of any amounts required to be made in Korean Won by the Purchaser from the amounts
standing to the credit of the General Won Account on a Purchaser Note Payment Date under paragraphs
(a) to (f) of “— Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation
Date” below (being Maintenance Costs and certain Fees and Senior Expenses payable by the
Purchaser); and
(e)
the payment on any Spot Payment Date to the Designated FX Bank of sufficient Korean Won to
purchase an amount in US dollars equal to any amounts required to be paid in US dollars by the
Purchaser on the related Purchaser Note Payment Date under paragraphs (a) to (f) of “— Purchaser
Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” below (being
Maintenance Costs and certain Fees and Senior Expenses payable by the Purchaser and the Issuer).
On any Seoul Business Day on which the Back-up Servicer assumes the obligations of the Initial Servicer
in accordance with the Servicing Agreement, the Purchaser Transaction Administrator will transfer an amount
equal to the Servicing Transfer Fund from amounts standing to the credit of the Reserve Fund Account to the
Back-up Servicer’s account to meet the fees and costs of the Back-up Servicer in assuming the obligations
of the Initial Servicer.
— 22 —
Prior to the Portfolio Liquidation Date or the date on which all Purchaser Secured Obligations have been
discharged in full, amounts on deposit in the Set-off Fund will be applied in satisfaction of the Seller’s
obligation to pay to the Purchaser an amount equal to any Set-off Claim Amount by the Purchaser Transaction
Administrator transferring an amount equal to the Set-off Claim Amount from the Reserve Fund Account into
the General Won Account to be applied in accordance with “— Purchaser Payments on Purchaser Note
Payment Dates prior to Portfolio Liquidation Date” below.
On any Purchaser Note Payment Date on which the amounts standing to the credit of the Reserve Fund
Account in respect of the Reserve Fund exceed the Reserve Fund Required Amount or the amounts standing
to the credit of the Reserve Fund Account in respect of the Servicing Transfer Fund exceed the Servicing
Transfer Fund Required Amount, the Purchaser Transaction Administrator will transfer an amount equal to
such excess from the Reserve Fund Account to the General Won Account, to be applied in accordance with
“— Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” below.
On any Purchaser Note Payment Date on which the amounts standing to the credit of the Reserve Fund
Account in respect of the Set-off Fund exceed the Set-off Fund Required Amount, the Purchaser Transaction
Administrator will transfer an amount equal to such excess from the Reserve Fund Account to the Seller.
On the Asia Business Day prior to the Spot Payment Date immediately preceding the Purchaser Liquidation
Distribution Date, the Purchaser Transaction Administrator will transfer all moneys then standing to the
credit of the Reserve Fund Account to the General Won Account.
Topping up of Reserve Fund Account
The Transaction Administration Agreement will provide for replenishment of moneys withdrawn from the
Reserve Fund Account in respect of the Reserve Fund and the Servicing Transfer Fund as described above
in subsequent periods, to the extent that amounts are available for such purpose in accordance with “—
Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” below. The
amount standing to the credit of the Reserve Fund Account in respect of the Set-Off Fund will not be
replenished or topped-up.
Investment of Moneys in certain Purchaser Accounts
Amounts standing to the credit of the Won Accounts will, in certain circumstances and subject to certain
conditions more particularly set out in the Transaction Administration Agreement, be invested by the
Purchaser Transaction Administrator (on behalf of the Purchaser) in General Won Account Eligible
Investments and, as applicable, Reserve Fund Account Eligible Investments.
Calculations of the Purchaser Transaction Administrator
Under the Transaction Administration Agreement, the Purchaser Transaction Administrator will, in respect of
each Collection Period, prepare and deliver to, among others, the Servicer, the Note Trustee, the Issuer
Transaction Administrator, the Swap Counterparty and each Rating Agency, not later than the related TA
Report Date, a TA Report (to the extent that it has received all relevant information from various parties to
the Transaction Documents, including, in particular but without limitation, the Servicer, the Spot Bank, the
Swap Counterparty, the Designated FX Bank and the Issuer Transaction Administrator), which will include,
among other things, the following information:
(a)
the payments due and payable on the immediately following Spot Contract Date, Swap Payment Date
and Purchaser Note Payment Date from each of the Purchaser Accounts; and
(b)
the payments due and payable on the immediately following Note Payment Date from the Issuer USD
Account.
— 23 —
Swap Arrangements
On or prior to the Closing Date, the Swap Counterparty and the Purchaser will enter into the Swap
Agreement, which will comprise:
(a)
the Multicurrency-Cross Border 1992 ISDA Master Agreement (as published by the International
Swaps and Derivatives Association, Inc.) including the schedule to it detailing, inter alia, the
applicability of certain provisions of such ISDA Master Agreement and certain additional provisions to
it;
(b)
an ISDA Credit Support Annex (English law) (as published by the International Swaps and Derivatives
Association, Inc.) including the Paragraph 11 elections and variations to it (the “Credit Support
Annex”); and
(c)
a confirmation (the “Swap Transaction Confirmation”) documenting the terms of the interest rate and
cross currency swap transaction in respect of the Purchaser Senior Notes (the “Swap Transaction”),
and will incorporate the 2000 ISDA Definitions (as published by the International Swaps and Derivatives
Association, Inc.).
The Swap Agreement is intended to provide a hedge against interest rate and currency exposure arising as
a result of differences between:
(a)
the rates of interest receivable under the Mortgage Loan Assets and the rate of interest payable under
the Purchaser Senior Notes; and
(b)
the currency in which the Collections are denominated (namely Korean Won) and the currency in which
payments under the Purchaser Senior Notes are to be made (namely US dollars),
and, prior to the commencement of a Convertibility Event Period which is continuing, the Swap Transaction
will be non-deliverable (so that the Purchaser Transaction Administrator will, on behalf of the Purchaser,
enter into corresponding Spot Contracts with the Spot Bank (see “— Spot Contracts” below) to convert
Aggregate Won Obligations (as defined below) of the Purchaser under the Swap Transaction into US Dollars
at the then Spot Rate with the gain or loss of the Purchaser in respect of such Spot Contracts (being the
amount of US Dollars received by the Purchaser under each such Spot Contract when compared against the
amount of the Aggregate Dollar Obligations (as defined below) which would have been received by the
Purchaser had the conversions occurred at the Applicable Exchange Rate under the Swap Transaction — see
“Net Settlement Amounts” below) paid to, or received from, the Swap Counterparty). After the
commencement of a Convertibility Event Period which is continuing, the Swap Transaction will be
deliverable and the Net Settlement Amount arrangements below will not apply.
Korean Won Payments
On each Spot Payment Date, the following Korean Won denominated amounts will be payable by the
Purchaser, prior to the commencement of a Convertibility Event Period which is continuing, to the Spot Bank
or, after the commencement of a Convertibility Event Period which is continuing, to the Swap Counterparty:
(a)
the Fixed Amount payable under the Swap Transaction on such Spot Payment Date (including any
Fixed Amounts unpaid from prior Spot Payment Dates);
(b)
the Additional Fixed Amount payable under the Swap Transaction on such Spot Payment Date
(including any Additional Fixed Amounts unpaid from prior Spot Payment Dates); and
(c)
the Fixed Rate Payer Interim Exchange Amount or, as the case may be, the Fixed Rate Payer Final
Exchange Amount payable under the Swap Transaction on such Spot Payment Date.
— 24 —
The Fixed Amount for a Spot Payment Date is an amount equal to the Korean Won equivalent (calculated
at the Applicable Exchange Rate) of the then Principal Amount Outstanding of the Purchaser Senior Notes
multiplied by:
(a)
the lower of (i) the sum of the CD Rate applicable to such Spot Payment Date plus a spread (as specified
in the Swap Transaction Confirmation) and (ii) the Weighted Average Mortgage Rate in respect of the
related Collection Period; and
(b)
the day count fraction as specified in the Swap Transaction Confirmation.
The Additional Fixed Amount is a fixed amount of Korean Won representing the Korean Won equivalent
(calculated at the Applicable Exchange Rate) of the Additional Interest Amount to be paid as part of the
Purchaser Senior Note Yield.
The Fixed Rate Payer Interim Exchange Amount for a Spot Payment Date is (i) in respect of the Spot
Payment Date immediately preceding the Note Maturity Date, an amount in Korean Won equal to the Fixed
Rate Payer Currency Amount under the Swap Transaction Confirmation in respect of such Spot Payment Date
and (ii) in respect of any other Spot Payment Date, an amount in Korean Won equal to the Available Principal
Collections allocated to the Purchaser Senior Notes for such Spot Payment Date.
The Fixed Rate Payer Final Exchange Amount for the Spot Payment Date immediately preceding the
Purchaser Liquidation Distribution Date, is an amount in Korean Won equal to the Available Principal
Collections allocated to the Purchaser Senior Notes for such Spot Payment Date.
US Dollar Payments
On each Swap Payment Date after the commencement of a Convertibility Event Period which is continuing,
the following US Dollar denominated amounts will be payable by the Swap Counterparty to the Purchaser
(for credit into the US Dollar Account):
(a)
the Floating Amount payable under the Swap Transaction on such Swap Payment Date (including any
Floating Amounts unpaid from prior Swap Payment Dates);
(b)
the Additional Floating Amount payable under the Swap Transaction on such Swap Payment Date
(including any Additional Floating Amounts unpaid from prior Swap Payment Dates); and
(c)
the Floating Rate Payer Interim Exchange Amount or, as the case may be, the Floating Rate Payer Final
Exchange Amount payable under the Swap Transaction on such Swap Payment Date.
(On each Swap Payment Date prior to the commencement of a Convertibility Event Period which is
continuing, the above amounts will be calculated and be compared against the amounts the Purchaser receives
from the Spot Bank in US Dollars with the difference paid by the Purchaser to the Swap Counterparty or by
the Swap Counterparty to the Purchaser, in each case on such Swap Payment Date — see “Net Settlement
Amounts” below.)
The Floating Amount for a Swap Payment Date is an amount in US dollars equal to the product of the then
Principal Amount Outstanding of the Purchaser Senior Notes multiplied by:
(a)
LIBOR applicable to such Swap Payment Date, plus a spread (as specified in the Swap Transaction
Confirmation); and
(b)
the day count fraction as specified in the Swap Transaction Confirmation.
The Additional Floating Amount will be an amount in US dollars equal to the Additional Interest Amount to
be paid as part of the Purchaser Senior Note Yield of the Purchaser Senior Notes.
— 25 —
The Floating Rate Payer Interim Exchange Amount for a Swap Payment Date is an amount in US dollars
equal to the US dollar equivalent (calculated at the Applicable Exchange Rate) of the Fixed Rate Payer
Interim Exchange Amount payable by the Purchaser on the Spot Payment Date immediately preceding such
Swap Payment Date.
The Floating Rate Payer Final Exchange Amount for the Swap Payment Date immediately preceding the
Purchaser Liquidation Distribution Date is an amount equal to the US dollar equivalent (calculated at the
Applicable Exchange Rate) of the Fixed Rate Payer Final Exchange Amount payable by the Purchaser on the
Spot Payment Date immediately preceding such Swap Payment Date.
Tax Gross-up
The Swap Counterparty will be obliged to increase its payments to the Purchaser under the Swap Transaction
so that the net amount received by the Purchaser after withholding or deduction for or on account of any
present or future taxes, duties assessments or governmental changes imposed by any tax authority, equals the
amounts which would have been received by the Purchaser in the absence of such withholding or deduction.
Similarly, the Purchaser will be obliged to increase its payments to the Swap Counterparty under the Swap
Transaction so that the net amount received by the Swap Counterparty after withholding or deduction for or
on account of any present or future taxes, duties, assessments or governmental changes imposed by any tax
authority, equals the amounts which would have been received by the Swap Counterparty in the absence of
such withholding or deduction, but only to the extent that the Purchaser has funds available for such purpose.
Proportionate Payments
The Swap Transaction will provide that after the commencement of a Convertibility Event Period which is
continuing, in the event that the Swap Counterparty receives part, but not the whole, of any Fixed Amount
or Additional Fixed Amount due under the Swap Transaction from the Purchaser, the Swap Counterparty will
only be obliged to pay to the Purchaser such proportion of the corresponding Floating Amount or Additional
Floating Amount due to be paid by the Swap Counterparty as the amount of the Fixed Amount or, as the case
may be, the Additional Fixed Amount received from the Purchaser by the Swap Counterparty bears to the full
amount of the Fixed Amount or, as the case may be, the Additional Fixed Amount which should have been
paid to the Swap Counterparty.
Prior to the commencement of a Convertibility Event Period which is continuing, if the relevant TA Report
indicates that, had the Swap Transaction been deliverable, the Purchaser will have funds to pay part only, but
not the whole, (or none) of any Fixed Amount or Additional Fixed Amount due under the Swap Transaction,
then the previous paragraph above shall apply to any Floating Amount or, as the case may be, the Additional
Floating Amount which, had the Swap Transaction been deliverable, would have been due to be paid by the
Swap Counterparty before the calculation of any Net Settlement Amount described below.
Any such proportional payment will not constitute an Event of Default in respect of the Swap Counterparty.
Net Settlement Amounts
The Swap Transaction will provide that if a Convertibility Event Period has not commenced and is not
continuing, the Aggregate Won Obligations (as defined below) of the Purchaser in respect of any Spot
Payment Date will be converted into amounts in US dollars at the relevant Spot Rate under the Spot Contract
entered into by it on the related Spot Contract Date and netted against the Aggregate Dollar Obligations (as
defined below) of the Swap Counterparty in respect of the related Swap Payment Date. The net amount
payable is referred to as the “Net Settlement Amount” and is payable on such Swap Payment Date, where
the amount of US dollars received from the Spot Bank exceeds the relevant Aggregate Dollar Obligations,
by the Purchaser to the Swap Counterparty or, where the reverse applies, by the Swap Counterparty to the
Purchaser. The Purchaser will pay the Net Settlement Amount (if payable by it) from the proceeds of the
applicable Spot Contract entered into on the Spot Contract Date immediately preceding the relevant Swap
Payment Date.
The “Aggregate Won Obligations” means, in respect of a Spot Payment Date, subject to the proportionate
payments arrangements described in “Proportionate Payments” above, the aggregate of the Fixed Amount
— 26 —
(and any Fixed Amounts unpaid from prior Spot Payment Dates) and the Additional Fixed Amount (and any
Additional Fixed Amounts unpaid from prior Spot Payment Dates) and either the Fixed Rate Payer Interim
Exchange Amount or the Fixed Rate Payer Final Exchange Amount, in each case payable by the Purchaser
in respect of such Spot Payment Date.
The “Aggregate Dollar Obligations” means, in respect of a Swap Payment Date, subject to the proportionate
payments arrangements described in “Proportionate Payments” above, the aggregate of the Floating Amount
(and any Floating Amounts unpaid from prior Swap Payment Dates) and the Additional Floating Amount (and
any Additional Floating Amounts unpaid from prior Swap Payment Dates) and either the Floating Rate Payer
Interim Exchange Amount or the Floating Rate Payer Final Exchange Amount, in each case payable by the
Swap Counterparty in respect of such Swap Payment Date.
If a Convertibility Event Period has commenced and is continuing, the above net settlement mechanism will
not apply. In such event, the Purchaser will be required to pay the Aggregate Won Obligations to the Swap
Counterparty on the relevant Spot Payment Date, and the Swap Counterparty will be required to pay the
Aggregate Dollar Obligations to the Purchaser on the relevant Swap Payment Date.
Credit Rating Downgrade
The Swap Agreement provides that the Swap Counterparty will be required, in the event that it is rated below
specified levels by each Rating Agency but above certain minimum specified levels (in each case as set out
in the Swap Agreement), to transfer Eligible Credit Support (as defined in the Credit Support Annex) to the
Purchaser in the amounts required by the Credit Support Annex unless or until the Swap Counterparty (i)
becomes rated at or above specified levels by each Rating Agency (as set out in the Swap Agreement), (ii)
transfers all of its rights and obligations under the Swap Agreement to a replacement swap provider which
has the required ratings specified in the Swap Agreement and which Standard & Poor’s confirms will
maintain its current rating of the Notes, (iii) obtains a guarantee of its obligations under the Swap Agreement
from a party which has the required ratings specified in the Swap Agreement and which Standard & Poor’s
confirms will maintain its current rating of the Notes, or (iv) enters into other arrangements which each
Rating Agency confirms will maintain its current rating of the Notes, in each case in accordance with the
requirements of each Rating Agency (as set out in the Swap Agreement).
Where the Swap Counterparty is rated below certain minimum specified levels by each Rating Agency (as
set out in the Swap Agreement), in addition to being required to transfer Eligible Credit Support to the
Purchaser in the amounts required by the Credit Support Annex, the Swap Counterparty will also be required
to use commercially reasonably endeavours to (i) transfer all of its rights and obligations under the Swap
Agreement to a replacement swap provider which has the required ratings specified in the Swap Agreement
and which Standard & Poor’s confirms will maintain its current rating of the Notes, (ii) obtain a guarantee
of its obligations under the Swap Agreement from a party which has the required ratings specified in the
Swap Agreement and which Standard & Poor’s confirms will maintain its current rating of the Notes, or (iii)
enter into other arrangements which each Rating Agency confirms will maintain its current rating of the
Notes, in each case in accordance with the requirements of each Rating Agency (as set out in the Swap
Agreement) unless or until the Swap Counterparty becomes rated at or above specified levels by each Rating
Agency (as set out in the Swap Agreement).
Termination of the Swap Transaction
Unless terminated earlier, the Swap Transaction will terminate on the earlier of (i) the Note Payment Date
falling in June 2038 and (ii) the Note Payment Date on which the Principal Amount Outstanding of the Notes
is reduced to zero. The Swap Transaction may also terminate in the following circumstances, namely certain
Events of Default (being, Failure to Pay by either party, Breach of Agreement by the Swap Counterparty,
Credit Support Default by the Swap Counterparty, Misrepresentation by the Swap Counterparty, Cross
Default by the Swap Counterparty, Bankruptcy in respect of either party and Merger without Assumption by
both parties), certain Termination Events (being Illegality in respect of either party and Tax Event Upon
Merger in respect of either party except in respect of the Swap Counterparty where it is the Burdened Party)
— 27 —
and certain Additional Termination Events (being the occurrence of the Portfolio Liquidation Date or failure
by the Swap Counterparty to perform in certain circumstances its obligations set out under “Credit Rating
Downgrade” above). Other Events of Default and Termination Events under the Swap Agreement will be
disapplied.
The Swap Agreement will provide that, in the event of the termination of the Swap Transaction, Swap
Breakage Costs may be payable in US dollars, either by the Purchaser to the Swap Counterparty (on the
Purchaser Note Payment Date immediately following the Early Termination Date) or by the Swap
Counterparty to the Purchaser (on or following the Early Termination Date).
Spot Contracts
During the Swap Agreement Term, where no Convertibility Event Period has commenced and is continuing,
the Purchaser (acting through the Purchaser Transaction Administrator) will enter into a Spot Contract on
each Spot Contract Date with the Spot Bank to exchange the Aggregate Won Obligations into US dollars at
the Spot Rate on the related Spot Payment Date to enable the Purchaser to meet certain of its US dollar
denominated payment obligations on the immediately succeeding Swap Payment Date (in respect of the Net
Settlement Amount for the Swap Transaction payable to the Swap Counterparty) and Purchaser Note Payment
Date (in respect of the Purchaser Senior Notes (including, without limitation, the Purchaser Senior Note Yield
(excluding the Step-up Margin Payment) payable by the Purchaser on such Purchaser Note Payment Date in
respect of the Purchaser Senior Notes and any Principal Amount Outstanding of the Purchaser Senior Notes
to be repaid on such Purchaser Note Payment Date).
Foreign Exchange Transactions
The Purchaser (acting through the Purchaser Transaction Administrator) will also enter into FX Transactions
with the Designated FX Bank. The Purchaser will pay amounts in Korean Won to the Designated FX Bank
on each Spot Payment Date to purchase US dollars in sufficient amounts to enable the payment by the
Purchaser of those payments denominated in US dollars payable by the Purchaser on the immediately
succeeding Purchaser Note Payment Date (other than, during the Swap Transaction Term, the payments under
paragraphs (b)(iii), (b)(iv), (c)(ii), (c)(iii), (d)(ii), (g) and (i)(ii) of “— Purchaser Payments on Purchaser
Note Payment Dates prior to Portfolio Liquidation Date” below) or on the Purchaser Liquidation Distribution
Date (other than amounts payable under paragraphs (a)(iii), (a)(iv), (b)(ii), (b)(iii), (c)(iv), (d)(i) and (d)(ii)(2)
of “— Purchaser Payments on Purchaser Liquidation Distribution Date” below).
Purchaser Payments during Collection Periods
Prior to the Portfolio Liquidation Date, the Purchaser Transaction Administrator will apply amounts standing
to the credit of the General Won Account at any time during a Collection Period (other than on any Purchaser
Note Payment Date or during the period from and including a TA Report Date to and including the related
Swap Payment Date) for the following purposes and in the following order of priority:
(a)
payment to the Seller of (i) any amount required to be paid to the Seller in accordance with the Transfer
Agreement (being amounts received by the Purchaser in respect of any Mortgage Loan Transaction
which has been returned to the Seller following a breach of any Asset Representation or any Affected
Asset returned back to the Seller) and (ii) any amount paid to the General Won Account that is not an
amount paid by an Obligor or Collateral Security Provider in respect of a Mortgage Loan Asset,
provided that in each case the Servicer has requested the Purchaser Transaction Administrator in writing
to make such payment and certified the amount so payable to the Seller;
(b)
subject to the satisfaction of the Purchaser Expenses Threshold Condition, payment of any amounts of
the Maintenance Costs of the Purchaser where failure to pay such Maintenance Costs prior to the
Purchaser Note Payment Date immediately succeeding the end of such Collection Period would result
in the imposition of a penalty on or other adverse consequences to the Purchaser;
(c)
payment to the Issuer of a Purchaser USD Indemnity Amount equal to the amount (if any) payable by
the Issuer for Maintenance Costs as contemplated in “— Management of Issuer Cash Flow — Issuer
Expenses” below; and
— 28 —
(d)
payment to the Purchaser Corporate Administrator of any amounts deducted or withheld on account of
Korean tax from payments made by the Purchaser under the Transaction Administration Agreement for
onward payment by the Purchaser Corporate Administrator of such amounts to the relevant Taxation
Authority.
If any of the above amounts are due in a currency other than Korean Won, the Purchaser Transaction
Administrator will enter into an FX Transaction with the Designated FX Bank by debiting the relevant
amount of Korean Won from the General Won Account and purchasing the required amount of foreign
currency from the Designated FX Bank at the Quoted Rate.
In the event that during any Collection Period the amount on deposit in the General Won Account is
insufficient to pay in full the amounts referred to in paragraphs (a) to (d) above, the Purchaser Transaction
Administrator will transfer from the Reserve Fund Account to the General Won Account an amount equal to
the lesser of such shortfall and the balance of the Reserve Fund for application towards payment in full of
such amounts.
Purchaser Expenses Threshold Condition
If, in respect of the Maintenance Costs of the Purchaser, the sum of the amounts payable on any Purchaser
Note Payment Date, together with the payments made during the period commencing on the day falling 12
months prior to such Purchaser Note Payment Date (or, if 12 months have not elapsed since the Closing Date,
on the Closing Date) under paragraph (a) of “— Purchaser Payments on Purchaser Note Payment Dates prior
to Portfolio Liquidation Date” below and under paragraph (b) of “— Purchaser Payments during Collection
Periods” above exceeds KRW50,000,000, then prior to making any such payment the Purchaser Transaction
Administrator will be required to notify each Rating Agency that such payment will be made.
Timing and Priority of Payments
On each Purchaser Note Payment Date prior to the Portfolio Liquidation Date, the Purchaser will make
payments in Korean Won (from the General Won Account) and in US dollars (from the US Dollar Account).
The Purchaser will obtain US dollars to enable it to make payments which are denominated in US dollars
from the Spot Bank, the Swap Counterparty and/or the Designated FX Bank. The conversion of Korean Won
to US dollars will take place on the Spot Payment Date and the Swap Payment Date prior to each such
Purchaser Note Payment Date and will be effected by the Purchaser paying Korean Won to the Spot Bank,
the Swap Counterparty and/or to the Designated FX Bank on each Spot Payment Date and receiving US
dollars from the Spot Bank and the Designated FX Bank on such Spot Payment Date and from the Swap
Counterparty on such Swap Payment Date, in each case as contemplated in the Transaction Administration
Agreement. See “— Swap Arrangements” “— Spot Contracts” and “— Foreign Exchange Transactions”
above and “— Purchaser Payments on Spot Payment Dates” below.
The Transaction Administration Agreement will set out the order of priority of the payments to be made by
the Purchaser (to the extent of available funds) on each Spot Payment Date and on the related Swap Payment
Date and related Purchaser Note Payment Date from each of the General Won Account and the US Dollar
Account taking into account, in the case of payments on each Spot Payment Date and Purchaser Note
Payment Date, the relative priorities as between payments out of the General Won Account and the US Dollar
Account. The Transaction Administration Agreement will also set out the priorities of payments applying
both prior to and following the Portfolio Liquidation Date.
The order of priority applicable to Purchaser Note Payment Dates which fall prior to the Portfolio Liquidation
Date is summarised under “— Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio
Liquidation Date” below. The provisions applicable for distributions on the Purchaser Liquidation
Distribution Date are summarised under “— Purchaser Payments on Purchaser Liquidation Distribution
Date” below.
— 29 —
Purchaser Payments on Spot Payment Dates
The Purchaser Transaction Administrator will arrange for the payment from amounts standing to the credit
of the General Won Account of any Korean Won amounts due by the Purchaser:
(a)
during the Swap Agreement Term prior to the commencement of a Convertibility Event Period which
is continuing, to the Spot Bank under each Spot Contract on each Spot Payment Date (see “— Spot
Contracts” above);
(b)
during the Swap Agreement Term after the commencement of a Convertibility Event Period which is
continuing, to the Swap Counterparty under such Swap Transaction on each Spot Payment Date (see
“— Swap Arrangements” above); and
(c)
to the Designated FX Bank under each FX Transaction on each Spot Payment Date (see “— Foreign
Exchange Transactions” above),
in each case in accordance with the priority of payments for such Spot Payment Date set out in the
Transaction Administration Agreement.
During the Swap Agreement Term, prior to the commencement of a Convertibility Event Period which is
continuing, the Korean Won payment to be made by the Purchaser to the Spot Bank on each Spot Payment
Date under each Spot Contract for conversion into US dollars at the relevant Spot Rate will comprise the
Aggregate Won Obligations in respect of such Spot Payment Date. After the commencement of a
Convertibility Event Period which is continuing, the Aggregate Won Obligations in respect of such Spot
Payment Date will be paid to the Swap Counterparty.
The Korean Won payment to be made by the Purchaser to the Designated FX Bank under each FX
Transaction for conversion into US dollars at the relevant Quoted Rate will comprise the Korean Won
equivalent (at the Quoted Rate) of the Purchaser’s other US dollar obligations (see “— Foreign Exchange
Transactions” above).
During the Swap Agreement Term, the Purchaser will apply:
(a)
prior to the commencement of a Convertibility Event Period which is continuing, the amount of US
dollars received from the Spot Bank on each Spot Payment Date (which the Spot Bank will pay to the
Purchaser, by deposit to the US Dollar Account), being the US dollar equivalent (calculated at the
relevant Spot Rate) of the Aggregate Won Amounts, together with any Net Settlement Amount received
from the Swap Counterparty on the related Swap Payment Date or, as the case may be, less any Net
Settlement Amount payable to the Swap Counterparty on the related Swap Payment Date; and
(b)
after the commencement of a Convertibility Event Period which is continuing, the amount of US dollars
received from the Swap Counterparty on each Swap Payment Date (which the Swap Counterparty will
pay to the Purchaser, by deposit to the US Dollar Account), being the Aggregate USD Amounts,
in each case, in and towards meeting the US dollar amounts payable as set out under paragraphs (b)(iii),
(b)(iv), (c)(ii), (c)(iii), (d)(ii), (g) and (i)(ii) of “— Purchaser Payments on Purchaser Note Payment Dates
prior to Portfolio Liquidation Date” below or, as applicable, under paragraphs (a)(iii), (a)(iv), (b)(ii), (b)(iii),
(c)(iv), (d)(i) and (d)(ii)(2) of “— Purchaser Payments on Purchaser Liquidation Distribution Date” below.
The Purchaser will also apply the US dollar amounts received from the Designated FX Bank on the such Spot
Payment Date, in and towards meeting the other US dollar obligations set out under “— Purchaser Payments
on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” below or, as applicable, under “—
Purchaser Payments on Purchaser Liquidation Distribution Date” below.
In calculating whether sufficient moneys are standing to the credit of the General Won Account to enable the
Purchaser to pay the amounts due to the Spot Bank, the Swap Counterparty and/or the Designated FX Bank
on any Spot Payment Date, the Purchaser Transaction Administrator will take into account the amounts to be
— 30 —
paid on such Spot Payment Date and the related Swap Payment Date and the related Purchaser Note Payment
Date, in priority to such amounts as set out in “— Purchaser Payments on Purchaser Note Payment Dates
prior to Portfolio Liquidation Date” below or, as applicable, under “— Purchaser Payments on Purchaser
Liquidation Distribution Date” below.
Prior to the Portfolio Liquidation Date, in the event that the Purchaser Transaction Administrator calculates
in relation to any Spot Payment Date that there are insufficient moneys standing to the credit of the General
Won Account (after taking into account those amounts which are required to be taken into account under the
Transaction Administration Agreement) to enable the Purchaser to pay from the General Won Account:
(a)
during the Swap Agreement Term and prior to the commencement of a Convertibility Event Period
which is continuing, the amounts payable to the Spot Bank on any Spot Payment Date under a Spot
Contract or, after the occurrence of a Convertibility Event Period which is continuing, the Aggregate
Won Amounts;
(b)
that amount of Korean Won required by the Designated FX Bank to purchase an amount in US dollars
equal to any amounts required to be paid by the Purchaser in US dollars from the US Dollar Account
on the related Purchaser Note Payment Date under paragraphs (a) to (f) of “— Purchaser Payments on
Purchaser Note Payment Dates prior to Portfolio Liquidation Date” below (being Maintenance Costs
and certain Fees, remuneration for additional services and Senior Expenses payable by the Purchaser
and the Issuer); and
(c)
after the Swap Agreement Term, that amount of Korean Won required by the Designated FX Bank to
purchase an amount in US dollars equal to any Floating Amounts which would have been received from
the Swap Counterparty had the Swap Transaction not been terminated,
then the Purchaser Transaction Administrator will arrange for a transfer from the Reserve Fund Account to
the General Won Account of an amount equal to the lesser of (i) the Reserve Fund on such day and (ii) such
shortfall (see “— Withdrawals from Reserve Fund Account” above).
If Swap Breakage Costs are payable by the Purchaser or by the Swap Counterparty, such Swap Breakage
Costs will be paid by the party liable to pay such Swap Breakage Costs on, if the payment is due from the
Purchaser, the Purchaser Note Payment Date immediately following the Early Termination Date. The
currency for the payment of Swap Breakage Costs will be US dollars.
See also “— Swap Arrangements” above for payments on each Swap Payment Date.
Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date
Prior to the Portfolio Liquidation Date, on each Purchaser Note Payment Date (including the Purchaser Note
Payment Date following the Portfolio Sale Date), the Purchaser Transaction Administrator will apply the
amounts standing to the credit of the General Won Account and the US Dollar Account, in each case as at
the related Calculation Date, (after adjusting such balance by adding or subtracting any credits and debits to
be made to or from such accounts in accordance with the Transaction Administration Agreement) in the order
of priority set out below (and in calculating each level of payments set out below and the proportionate shares
at each such level, where the relevant amounts payable are in currencies other than Korean Won, such
amounts will be notionally converted to Korean Won at the Applicable Exchange Rate (where such amount
is to be paid using funds received pursuant to the Swap Transaction or any Spot Contract) or at the relevant
Quoted Rate under any FX Transaction (where such amount is to be paid using funds converted from Korean
Won pursuant to such FX Transaction)):
(a)
first, pari passu and pro rata among themselves, in and towards:
(i)
subject to the satisfaction of the Purchaser Expenses Threshold Condition, payment of any
Maintenance Costs with respect to the Purchaser which have become due and payable in Korean
Won and which remain unpaid on such Purchaser Note Payment Date; and
— 31 —
(ii)
(b)
payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the
Maintenance Costs payable by the Issuer on the related Note Payment Date set out in paragraph
(a) of “— Management of Issuer Cash Flow — Issuer Payments on Note Payment Dates” below;
and
second, pari passu and pro rata among themselves, in and towards:
(i)
payment to the Security Agent of an amount in Korean Won equal to, if no Purchaser Default
Notice has been given by the Security Agent, any Senior Expenses or, if a Purchaser Default
Notice has been given by the Security Agent, any Expenses, in each case denominated in Korean
Won paid or incurred by the Security Agent during the related Collection Period or any previous
Collection Period which are due and payable under the terms of the Transaction Documents and
which will remain unpaid on such Purchaser Note Payment Date;
(ii)
payment to the Security Agent of an amount in US dollars equal to the aggregate of the Security
Agent Fee and, if no Purchaser Default Notice has been given by the Security Agent, any Senior
Expenses or, if a Purchaser Default Notice has been given by the Security Agent, any Expenses,
in each case denominated in US dollars paid or incurred by the Security Agent during the related
Collection Period or any previous Collection Period, in each case, which are due and payable
under the terms of the Transaction Documents and which will remain unpaid on such Purchaser
Note Payment Date;
(iii) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the Fees
payable by the Issuer to the Note Trustee on the related Note Payment Date as set out in paragraph
(b)(i) of “— Management of Issuer Cash Flow — Issuer Payments on Note Payment Dates” below
or, as applicable, paragraph (a)(ii) of “— The Notes — Application of Issuer Security Enforcement
Proceeds” below;
(iv) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the Fees
payable by the Issuer to the Security Trustee on the related Note Payment Date as set out in
paragraph (b)(ii) of “— Management of Issuer Cash Flow — Issuer Payments on Note Payment
Dates” below or, as applicable, paragraph (a)(iii) of “— The Notes — Application of Issuer
Security Enforcement Proceeds” below; and
(v)
(c)
payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the
Expenses payable by the Issuer in US dollars to the Note Trustee and the Security Trustee on the
related Note Payment Date as set out in paragraph (b)(iii) of “— Management of Issuer Cash
Flow — Issuer Payments on Note Payment Dates” below or, as applicable, paragraph (a)(iv) of
“— The Notes — Application of Issuer Security Enforcement Proceeds” below;
third, pari passu and pro rata among themselves, in and towards:
(i)
payment to the Purchaser Transaction Administrator of an amount in US dollars equal to the
aggregate of the Purchaser Transaction Administrator Fee and, if no Purchaser Default Notice has
been given by the Security Agent, any Senior Expenses or, if a Purchaser Default Notice has been
given by the Security Agent, any Expenses, in each case paid or incurred by the Purchaser
Transaction Administrator, in each case, in respect of the related Collection Period or any
previous Collection Period, in each case which are due and payable pursuant to the terms of the
Transaction Documents and which will remain unpaid on such Purchaser Note Payment Date;
(ii)
payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of Issuer
Transaction Administrator Fees payable by the Issuer to the Issuer Transaction Administrator on
the related Note Payment Date as set out in paragraph (c)(i) of “— Management of Issuer Cash
Flow — Issuer Payments on Note Payment Dates” below or, as applicable, paragraph (b)(i) of “—
The Notes — Application of Issuer Security Enforcement Proceeds” below;
— 32 —
(iii) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of Agents
Fees payable by the Issuer to the Principal Paying Agent (on behalf of the Agents) on the related
Note Payment Date as set out in paragraph (c)(ii) of “— Management of Issuer Cash Flow —
Issuer Payments on Note Payment Dates” below or, as applicable, paragraph (b)(ii) of “— The
Notes — Application of Issuer Security Enforcement Proceeds” below; and
(iv) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the
Expenses payable by the Issuer to the Issuer Transaction Administrator and the Principal Paying
Agent (on behalf of the Agents) on the related Note Payment Date as set out in paragraph (c)(iii)
of “— Management of Issuer Cash Flow — Issuer Payments on Note Payment Dates” below or,
as applicable, paragraph (b)(iii) of “— The Notes — Application of Issuer Security Enforcement
Proceeds” below;
(d)
fourth, pari passu and pro rata among themselves:
(i)
in and towards payment to the Servicer in Korean Won of the Senior Servicer Fee and any Senior
Expenses paid or incurred by the Servicer during the related Collection Period and any previous
Collection Period, in each case, which are due and payable pursuant to the terms of the Servicing
Agreement and which will remain unpaid on such Purchaser Note Payment Date;
(ii)
in and towards payment to the Issuer of a Purchaser USD Indemnity Amount equal to the
aggregate of the Issuer Corporate Administrator Fees payable by the Issuer to the Issuer Corporate
Administrator on the related Note Payment Date as set out in paragraph (d)(i) of “— Management
of Issuer Cash Flow — Issuer Payments on Note Payment Dates” below or, as applicable,
paragraph (c)(i) of “— The Notes — Application of Issuer Security Enforcement Proceeds” below;
and
(iii) in and towards payment to the Issuer of a Purchaser USD Indemnity Amount equal to the
aggregate of the Expenses payable by the Issuer to the Issuer Corporate Administrator on the
related Note Payment Date as set out in paragraph (d)(ii) of “— Management of Issuer Cash Flow
— Issuer Payments on Note Payment Dates” below or, as applicable, paragraph (c)(ii) of “— The
Notes — Application of Issuer Security Enforcement Proceeds” below;
(e)
fifth, in and towards payment to the Back-up Servicer in Korean Won of the Back-up Servicer Fee and,
if no Purchaser Default Notice has been given by the Security Agent, any Senior Expenses or, if a
Purchaser Default Notice has been given by the Security Agent, any Expenses, in each case paid or
incurred by the Back-up Servicer during the related Collection Period and any previous Collection
Period, in each case which are due and payable pursuant to the terms of the Servicing Agreement and
which will remain unpaid on such Purchaser Note Payment Date;
(f)
sixth, in and towards payment to the Purchaser Corporate Administrator in Korean Won of the
Purchaser Corporate Administrator Fee and, if no Purchaser Default Notice has been given by the
Security Agent, any Senior Expenses or, if a Purchaser Default Notice has been given by the Security
Agent, any Expenses, in each case paid or incurred by the Purchaser Corporate Administrator during
the related Collection Period and any previous Collection Period, in each case, which are due and
payable pursuant to the terms of the HSBC Fee Letter and which will remain unpaid on such Purchaser
Note Payment Date;
(g)
seventh, in and towards payment to the Issuer (as Purchaser Senior Noteholder) of the Purchaser Senior
Note Yield (including any Purchaser Senior Note Yield which was unpaid on any preceding Purchaser
Note Payment Date but excluding any part of the Purchaser Senior Note Yield which will be used to
fund a Step-up Margin Payment payable on the Notes on the related Note Payment Date) due and
payable on such Purchaser Note Payment Date in an amount equal to the Available Interest Collections
allocated to the Purchaser Senior Notes for the related Collection Period;
— 33 —
(h)
eighth, in and towards transfer to the Reserve Fund Account of such amount as is necessary to ensure
that, following such transfer and the credit of the amount so transferred to the Reserve Fund and/or, as
the case may be, to the Servicing Transfer Fund by the Purchaser Transaction Administrator, the
recorded balance of the Reserve Fund is equal to the Reserve Fund Required Amount and the recorded
balance of the Servicing Transfer Fund is equal to the Servicing Transfer Fund Required Amount, in
each case for such Purchaser Note Payment Date;
(i)
ninth, pari passu and pro rata as between themselves:
(j)
(i)
in and towards payment to the Swap Counterparty of any Senior Swap Breakage Costs due and
payable by the Purchaser to the Swap Counterparty; and
(ii)
in and towards repayment of the Principal Amount Outstanding of the Purchaser Senior Notes in
an amount equal to the Available Principal Collections allocated to the Purchaser Senior Notes for
the related Collection Period;
tenth, pari passu and pro rata among themselves, in and towards payment:
(i)
to the auditors of the amount payable by the Purchaser in Korean Won in respect of annual
reviews of the Servicer’s compliance with its obligations in accordance with the Servicing
Agreement; and
(ii)
to the auditors of any amount payable by the Purchaser in US dollars in respect of annual reviews
of the Servicer’s compliance with its obligations in accordance with the Servicing Agreement;
(k)
eleventh, in and towards payment to the Issuer of that part of the Purchaser Senior Note Yield which
will be used to fund a Step-up Margin Payment on the Notes on the related Note Payment Date;
(l)
twelfth, pari passu and pro rata as between themselves, in and towards:
(i)
payment to the Security Agent of (x) where no Purchaser Default Notice has been given by the
Security Agent, any Junior Expenses and (y) any Expense Accrued Interest paid, accrued or
incurred by it and which are due and payable by the Purchaser and which will remain unpaid on
such Purchaser Note Payment Date;
(ii)
payment to the Purchaser Transaction Administrator of an amount equal to (x) where no Purchaser
Default Notice has been given by the Security Agent, any Junior Expenses and (y) any Expense
Accrued Interest in US dollars paid, accrued or incurred by it during the related Collection Period
or any previous Collection Period, in each case which are payable by the Purchaser to the
Purchaser Transaction Administrator pursuant to the terms of any relevant Transaction Documents
and will remain unpaid on such Purchaser Note Payment Date; and
(iii) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the
amounts payable by the Issuer to the Note Trustee, the Security Trustee, the Issuer Transaction
Administrator and the Principal Paying Agent (on behalf of the Agents) on the related Note
Payment Date as set out in paragraph (h) of “— Management of Issuer Cash Flow — Issuer
Payments on Note Payment Dates” below or, as applicable, paragraph (e)(i) of “— The Notes —
Application of Issuer Security Enforcement Proceeds” below (being Expenses and Expense
Accrued Interest);
(m) thirteenth, pari passu and pro rata as between themselves:
(i)
in and towards payment to the Servicer of any Junior Expenses and any Expense Accrued Interest
and to the Back-up Servicer and the Purchaser Corporate Administrator, respectively, of (x) where
— 34 —
no Purchaser Default Notice has been given by the Security Agent, any Junior Expenses and (y)
any Expense Accrued Interest in Korean Won paid, in each case, accrued or incurred by them
which are due and payable by the Purchaser and will remain unpaid on such Purchaser Note
Payment Date; and
(ii)
(n)
(o)
(p)
in and towards payment to the Issuer of a Purchaser USD Indemnity Amount equal to the amount
payable by the Issuer to the Issuer Corporate Administrator on the related Note Payment Date as
set out in paragraph (i) of “— Management of Issuer Cash Flow — Issuer Payments on Note
Payment Dates” below or, as applicable, paragraph (f) of “— The Notes — Application of Issuer
Security Enforcement Proceeds” below (being Expenses and Expense Accrued Income);
fourteenth, of the following amounts in the following order of priority:
(i)
first, in and towards payment to the Servicer of the Subordinated Servicer Fee due and payable
to the Servicer; and
(ii)
second, in and towards payment to the Swap Counterparty of any Junior Swap Breakage Costs
due and payable by the Purchaser to the Swap Counterparty;
fifteenth, in and towards payment to the Seller of the following amounts in the following order of
priority:
(i)
an amount in Korean Won equal to any interest due and payable in respect of the Closing Advance
pursuant to the terms of the Transfer Agreement which remains unpaid on such Purchaser Note
Payment Date; and
(ii)
an amount in Korean Won equivalent to the Closing Advance Repayment Amount (if any) for such
Purchaser Note Payment Date;
sixteenth, pari passu and pro rata among themselves:
(i)
in and towards payment of any other Purchaser Secured Obligations which are payable in Korean
Won; and
(ii)
in and towards payment of any other Purchaser Secured Obligations which are payable in US
dollars,
which, in each case, are not referred to above and which are due and payable but unpaid on such
Purchaser Note Payment Date;
(q)
seventeenth, subject to the terms and conditions of the Purchaser Junior Note, of the following amounts
in the following order of priority:
(i)
interest due and payable on the Purchaser Junior Note; and
(ii)
provided all of the Purchaser Secured Obligations and all of the Secured Obligations have been
paid in full, in and towards payment, the Principal Amount Outstanding of the Purchaser Junior
Note until the same has been paid;
(r)
eighteenth, in and towards payment of any other Senior Obligations; and
(s)
nineteenth, if the Senior Obligations (whenever due and payable) have been paid in full, in and towards
the payment of dividends to the Equityholders of the Purchaser.
Payments of Purchaser Senior Note Yield (excluding in respect of Step-up Margin Payments) and repayments
of the Principal Amount Outstanding which are payable in respect of the Purchaser Senior Notes in
accordance with the above order of priority will be payable only to the extent of (i) during the Swap
— 35 —
Agreement Term, (1) where no Convertibility Event Period has commenced which is continuing, the amounts
received from the Spot Bank under the corresponding Spot Contract plus (where payable by the Swap
Counterparty) or minus (where payable by the Purchaser) the Net Settlement Amount in respect of the
corresponding Swap Payment Date or (2) where a Convertibility Event Period has commenced and is
continuing, the corresponding amounts received from the Swap Counterparty under the Swap Transaction on
the related Swap Payment Date and (ii) after the Swap Agreement Term, the amount of US Dollars received
from the Designated FX Bank in respect of such payments of Purchaser Senior Note Yield and Principal
Amount Outstanding on the immediately preceding Spot Payment Date.
In addition, payment of any other US Dollar denominated amount by the Purchaser (including any Purchaser
Senior Note Yield in respect of Step-up Margin Payments) will be made only to the extent of the amount of
US Dollars received from the Designated FX Bank in respect of such payment on the immediately preceding
Spot Payment Date.
Payments of the Purchaser USD Indemnity Amounts under paragraphs (b)(iii), (b)(iv), (c)(ii), (c)(iii) and
(d)(ii) above will only be made after the Swap Agreement Term as, during the Swap Agreement Term, such
amounts will be included in the Additional Interest Amount paid under paragraph (g) above.
Purchaser Payments on Purchaser Liquidation Distribution Date
On and from the Portfolio Liquidation Date, no payments will be made from the Purchaser Accounts other
than in accordance with, or in contemplation of the payments to be made under, the provisions of the
Transaction Administration Agreement which will set out the payments to be made on the Purchaser
Liquidation Distribution Date. Such provisions will require the Purchaser Transaction Administrator to apply
amounts then standing to the credit of the General Won Account or, as the case may be, the US Dollar
Account in the order of priority set out below (and in calculating each level of payments set out below and
the proportionate shares at each such level, where the relevant amounts payable are in currencies other than
Korean Won, such amounts shall be notionally converted to Korean Won at the Applicable Exchange Rate
(where such amount is to be paid using funds received pursuant to the Swap Transaction or any Spot
Contract) or at the relevant Quoted Rate under any FX Transaction (where such amount is to be paid using
funds converted from Korean Won pursuant to such FX Transaction)):
(a)
first, pari passu and pro rata among themselves, in and towards:
(i)
payment to the Security Agent of an amount in Korean Won equal to any Expenses denominated
in Korean Won paid or incurred by the Security Agent and which are due and payable pursuant
to the terms of the Transaction Documents, in each case which are due and payable under the
terms of the Transaction Documents and which will remain unpaid on the Purchaser Liquidation
Distribution Date;
(ii)
payment to the Security Agent in US dollars of the Security Agent Fee and any Expenses
denominated in US dollars paid or incurred by the Security Agent, in each case which are payable
pursuant to the terms of the Transaction Documents and which will remain unpaid on such
Purchaser Liquidation Distribution Date;
(iii) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the Fees
payable by the Issuer in US dollars to the Note Trustee as set out in paragraph (a)(ii) of “— The
Notes — Application of Issuer Security Enforcement Proceeds” below;
(iv) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the Fees
payable by the Issuer in US dollars to the Security Trustee as set out in paragraph (a)(iii) of “—
The Notes — Application of Issuer Security Enforcement Proceeds” below; and
(v)
payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the
Expenses payable by the Issuer to the Note Trustee and the Security Trustee as set out in
paragraph (a)(iv) of “— The Notes — Application of Issuer Security Enforcement Proceeds”
below;
— 36 —
(b)
second, pari passu and pro rata among themselves, in and towards:
(i)
payment to the Purchaser Transaction Administrator of an amount in US dollars equal to the
Purchaser Transaction Administrator Fee and any Expenses paid or incurred by the Purchaser
Transaction Administrator, in each case which are due and payable by the Purchaser and which
will remain unpaid on the Purchaser Liquidation Distribution Date;
(ii)
payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the Fees
payable by the Issuer to the Issuer Transaction Administrator on the Note Payment Date
immediately succeeding the Purchaser Liquidation Distribution Date as set out in paragraph (b)(i)
of “— The Notes — Application of Issuer Security Enforcement Proceeds” below;
(iii) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the Fees
payable by the Issuer to the Principal Paying Agent (on behalf of the Agents) on the Note Payment
Date immediately succeeding the Purchaser Liquidation Distribution Date as set out in paragraph
(b)(ii) of “— The Notes — Application of Issuer Security Enforcement Proceeds” below; and
(iv) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of the
Expenses payable by the Issuer to the Issuer Transaction Administrator and the Principal Paying
Agent (on behalf of the Agents) on the Note Payment Date immediately succeeding the Purchaser
Liquidation Distribution Date as set out in paragraph (b)(iii) of “— The Notes — Application of
Issuer Security Enforcement Proceeds” below;
(c)
third, pari passu and pro rata as between themselves:
(i)
in and towards payment to the Servicer in Korean Won of the Senior Servicer Fee and any Senior
Expenses paid or incurred by the Servicer, in each case, which are due and payable pursuant to
the terms of the Servicing Agreement and which will remain unpaid on the Purchaser Liquidation
Distribution Date;
(ii)
in and towards payment to the Back-up Servicer in Korean Won of any Back-up Servicer Fee and
any Expenses paid or incurred by the Back-up Servicer, in each case, which are due and payable
pursuant to the terms of the Servicing Agreement and which will remain unpaid on the Purchaser
Liquidation Distribution Date;
(iii) in and towards payment to the Purchaser Corporate Administrator in Korean Won of the Purchaser
Corporate Administrator Fee and any Expenses paid or incurred by the Purchaser Corporate
Administrator, in each case, which are due and payable pursuant to the terms of the Purchaser
Corporate Administration Agreement and which will remain unpaid on the Purchaser Liquidation
Distribution Date;
(iv) in and towards payment to the Issuer of a Purchaser USD Indemnity Amount equal to the
aggregate of the Fees payable by the Issuer to the Issuer Corporate Administrator as set out in
paragraph (c)(i) of “— The Notes — Application of Issuer Security Enforcement Proceeds” below;
and
(v)
in and towards payment to the Issuer of a Purchaser USD Indemnity Amount equal to the
aggregate of the Expenses payable by the Issuer to the Issuer Corporate Administrator as set out
in paragraph (c)(ii) of “— The Notes — Application of Issuer Security Enforcement Proceeds”
below;
— 37 —
(d)
(e)
fourth, in and towards payment of the following amounts in the following order of priority:
(i)
first, to the Issuer (as Purchaser Senior Noteholder) of the Purchaser Senior Note Yield (excluding
any part of the Purchaser Senior Note Yield which will be used to fund a Step-up Margin Payment
payable on the Notes on the related Note Payment Date) then due and payable to the Issuer and
which remains unpaid on the Purchaser Liquidation Distribution Date; and
(ii)
second, pari passu and pro rata as between themselves:
(1)
to the Swap Counterparty of any Senior Swap Breakage Costs due and payable by the
Purchaser to the Swap Counterparty in respect of the Swap Transaction; and
(2)
to the Issuer (as Purchaser Senior Noteholder) as repayment of the Principal Amount
Outstanding of the Purchaser Senior Notes;
fifth, pari passu and pro rata among themselves, in and towards:
(i)
payment to the Security Agent of any Expense Accrued Interest in Korean Won paid, accrued or
incurred by it which are payable in Korean Won and which is due and payable by the Purchaser
and which will remain unpaid on the Purchaser Liquidation Distribution Date;
(ii)
payment to the Purchaser Transaction Administrator of an amount equal to any Expense Accrued
Interest in US dollars paid, accrued or incurred by it during the related Collection Period or any
previous Collection Period and which is payable by the Purchaser to the Purchaser Transaction
Administrator pursuant to the terms of any relevant Transaction Documents and which will
remain unpaid on the Purchaser Liquidation Distribution Date;
(iii) payment to the Issuer of a Purchaser USD Indemnity Amount equal to the aggregate of any
Expense Accrued Interest payable by the Issuer to the Note Trustee, the Security Trustee, the
Issuer Transaction Administrator and the Principal Paying Agent (on behalf of the Agents) on the
related Note Payment Date as set out in paragraph (e)(i) of “— The Notes — Application of Issuer
Security Enforcement Proceeds” below; and
(iv) payment to the Issuer (as Purchaser Senior Noteholder) of any Purchaser Senior Note Yield due
on the Purchaser Senior Notes in respect of Step-up Margin Payments on the Notes as set out in
paragraph (e)(iii) of “— The Notes — Application of Issuer Security Enforcement Proceeds”
below;
(f)
(g)
sixth, pari passu and pro rata as between themselves:
(i)
in and towards payment to the Servicer of any Junior Expenses and Expense Accrued Interest to
the Back-up Servicer and the Purchaser Corporate Administrator, respectively, of any Expense
Accrued Interest in Korean Won, in each case, paid, accrued or incurred by them which are due
and payable by the Purchaser and which will remain unpaid on the Purchaser Liquidation
Distribution Date; and
(ii)
in and towards payment to the Issuer of a Purchaser USD Indemnity Amount equal to the any
Expense Accrued Interest payable by the Issuer to the Issuer Corporate Administrator on the
related Note Payment Date as set out in paragraph (f) of “— The Notes — Application of Issuer
Security Enforcement Proceeds” below;
seventh, of the following amounts in the following order of priority:
(i)
first, in and towards payment to the Servicer of the Subordinated Servicer Fee due and payable
to the Servicer; and
— 38 —
(ii)
(h)
(i)
(j)
second, in and towards payment to the Swap Counterparty of any Junior Swap Breakage Costs
due and payable by the Purchaser to the Swap Counterparty in respect of the Swap Transaction;
eighth, in and towards payment to the Seller of the following amounts in the following order of priority:
(i)
an amount in Korean Won equal to any interest due and payable in respect of the Closing Advance
pursuant to the terms of the Transfer Agreement which remains unpaid on such Purchaser Note
Payment Date; and
(ii)
an amount in Korean Won equivalent to the Closing Advance Repayment Amount (if any) for such
Purchaser Note Payment Date;
ninth, pari passu and pro rata as between themselves:
(i)
in and towards payment of any other Purchaser Secured Obligations not referred to above which
are then due and payable in Korean Won; and
(ii)
in and towards payment of any other Purchaser Secured Obligations not referred to above which
are then due and payable in US dollars;
tenth, in and towards payment, subject to the terms and conditions of the Purchaser Junior Note, of the
following amounts in the following order of priority:
(i)
first, interest due and payable on the Purchaser Junior Note; and
(ii)
second, provided all of the Purchaser Secured Obligations and all of the Secured Obligations have
been paid in full, the Principal Amount Outstanding of the Purchaser Junior Note until the same
has been paid in full;
(k)
eleventh, if all amounts payable in respect of the Purchaser Junior Note have been paid in full, in and
towards payment of any other Senior Obligations not referred to above; and
(l)
twelfth, if the Senior Obligations (whenever due and payable) have been discharged in full, in and
towards payment of dividends to the Equityholders of the Purchaser.
Payments of Purchaser Senior Note Yield (excluding in respect of Step-up Margin Payments) and repayments
of the Principal Amount Outstanding payable in respect of the Purchaser Senior Notes in accordance with the
above order of priority, will be payable only to the extent of (i) during the Swap Agreement Term, (1) where
no Convertibility Event Period has commenced which is continuing, the amounts received from the Spot
Bank under the corresponding Spot Contract plus (where payable by the Swap Counterparty) or minus (where
payable by the Purchaser) the Net Settlement Amount in respect of the corresponding Swap Payment Date
or (2) where a Convertibility Event Period has commenced and is continuing, the corresponding amounts
received from the Swap Counterparty under the Swap Transaction on the related Swap Payment Date and (ii)
after the Swap Agreement Term, the amount of US dollars received from the Designated FX Bank in respect
of such payments of Purchaser Senior Note Yield and Principal Amount Outstanding on the immediately
preceding Spot Payment Date.
In addition, any other payment of a US Dollar denominated amount by the Purchaser (including any
Purchaser Senior Note Yield in respect of Step-up Margin Payments), will be payable only to the extent of
the amount of US Dollars received from the Designated FX Bank in respect of such payment on the
immediately preceding Spot Payment Date.
Payments of the Purchaser USD Indemnity Amounts under paragraphs (a)(iii), (a)(iv), (b)(ii), (b)(iii) and
(c)(iv) above will only be made after the Swap Agreement Term as, during the Swap Agreement Term, such
amounts will be included in the Additional Interest Amount paid under paragraph (d)(i) above.
— 39 —
THE PURCHASER NOTES
The Purchaser Notes
(a)
The US$228,000,000 Purchaser Senior Floating Rate Notes due 2038 (the “Purchaser Senior Notes”);
and
(b)
The KRW33,561,526,817 Purchaser Junior Fixed Rate Note due 2038 (the “Purchaser Junior Note”
and, together with the Purchaser Senior Notes, the “Purchaser Notes”).
Subject to the satisfaction of the conditions precedent set out in the Purchaser Senior Notes Subscription
Deed, the Issuer will subscribe for the Purchaser Senior Notes on the Closing Date. Subject to the satisfaction
of the conditions precedent set out in the Purchaser Junior Note Subscription Agreement, the Seller will
subscribe for the Purchaser Junior Note on the Closing Date.
This Prospectus contains only limited information in relation to, and does not constitute an offer of, or a
prospectus in relation to, any of the Purchaser Notes.
Use of Proceeds
The proceeds of the issue of the Purchaser Senior Notes will be applied by the Purchaser in payment on the
Closing Date of that part of the Purchase Price which is payable pursuant to the Transfer Agreement in cash.
On the Closing Date, the balance of the Purchase Price will be satisfied by way of a set-off against the
purchase price of the Purchaser Junior Note and against the Interim Collection Amount (in each case payable
by the Seller to the Purchaser) pursuant to the Transfer Agreement on the Closing Date.
Maturity
Unless previously redeemed in full or cancelled, the Purchaser will be obliged to redeem the Purchaser Senior
Notes at their Principal Amount Outstanding on the Purchaser Note Payment Date falling immediately prior
to the Note Payment Date falling in June 2038.
Issue Price
The Purchaser Senior Notes will be issued at 100 per cent. of their principal amount.
Subscription
The Purchaser will issue, and the Issuer will subscribe for and purchase, the Purchaser Senior Notes on the
Closing Date. The subscription amount paid by the Issuer to the Purchaser will be equal to the Principal
Amount Outstanding of the Purchaser Senior Notes on the Closing Date.
Ranking
The classes of Purchaser Notes rank sequentially for payment of interest and repayment of principal, with
such payments and repayments on the Purchaser Junior Note being subordinated to, among other things,
payments of interest and repayments of principal on the Purchaser Senior Notes.
The Purchaser Senior Notes will rank pari passu and pro rata between themselves with respect to payment
of interest and repayment of principal, in the event of the Purchaser Security being enforced and in all other
respects.
Yield on the Purchaser Senior Notes
On each Purchaser Note Payment Date, an amount equal to the Purchaser Senior Note Yield with respect to
the related Purchaser Note Interest Period will be due and payable on the Purchaser Senior Notes. The
Purchaser Senior Note Yield will be calculated by the Purchaser Transaction Administrator (to the extent it
has received all relevant information).
— 40 —
The Purchaser Senior Note Yield for the Purchaser Senior Notes payable on each Purchaser Note Payment
Date will be an amount equal to the sum of:
(a)
the product of (i) the Principal Amount Outstanding of the Purchaser Senior Notes as at such Purchaser
Note Payment Date (before giving effect to any repayment thereof on such Purchaser Note Payment
Date) and (ii) the sum of LIBOR and the Purchaser Senior Notes Margin multiplied by the actual
number of days in the related Purchaser Note Interest Period divided by 360; and
(b)
after the Step-up Date, the Step-up Margin Payment payable on the related Note Payment Date; and
(c)
the Additional Interest Amount.
The failure to pay any Purchaser Senior Note Yield (except for the amount under paragraph (b) above) will
constitute a Purchaser Senior Notes Event of Default.
Prior to the Portfolio Liquidation Date, Purchaser Senior Note Yield will be payable on the Purchaser Senior
Notes to the extent of Available Interest Collections in accordance with “Management of Purchaser Cash
Flow — Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” above).
Purchaser USD Indemnity Amounts
On each Purchaser Note Payment Date, an amount equal to all amounts (other than the Purchaser Senior Note
Yield, default interest and principal on the Purchaser Senior Notes and, during the Swap Agreement Term,
certain Fees payable by the Issuer) payable by the Purchaser to the Issuer under the Purchaser Senior Notes
Subscription Deed with respect to the related Purchaser Note Interest Period will be paid as Purchaser USD
Indemnity Amounts. Such amounts will, save to the extent provided in the Transaction Documents, include
Maintenance Costs, Expenses and certain Fees payable by the Issuer.
See “— Management of Purchaser Cash Flow — Purchaser Payments on Purchaser Note Payment Dates
prior to Portfolio Liquidation Date” above.
Repayment of Principal on Purchaser Senior Notes
Principal will be repayable on the Purchaser Senior Notes on each Purchaser Note Payment Date and is due
to be repaid in full by no later than the Purchaser Note Payment Date falling in June 2038, as more
particularly set out in Purchaser Senior Notes Condition 3.
Prior to the Portfolio Liquidation Date, principal will be repayable on the Purchaser Senior Notes to the
extent of Available Principal Collections in accordance with “— Management of Purchaser Cash Flow —
Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” above).
On the Purchaser Note Payment Date immediately succeeding the Portfolio Sale Date specified in the
Portfolio Sale Notice, the Purchaser will apply the proceeds of such sale of the Mortgage Loan Assets,
together with all other moneys standing to the credit of the General Won Account and the US Dollar Account,
in and towards redemption of the Purchaser Senior Notes at the Principal Amount Outstanding of the
Purchaser Senior Notes as at such Purchaser Note Payment Date (together with the Purchaser Senior Note
Yield accrued thereon) in accordance with the order of priorities set out in “— Management of Purchaser
Cash Flows — Purchaser Payments on Purchaser Liquidation Distribution Date” above.
Redemption of Purchaser Junior Note
No principal will be repayable on the Purchaser Junior Note until after the date on which all amounts payable
under the Purchaser Senior Notes have been paid in full and all other Purchaser Secured Obligations have
been unconditionally and irrevocably paid and discharged in full.
— 41 —
Prior to the Purchaser Secured Obligations and the Secured Obligations having been unconditionally and
irrevocably paid and discharged in full, the Purchaser Junior Note will be retained by the Seller unless prior
notice has been given to each Rating Agency and Standard & Poor’s has confirmed that its current rating of
the Notes will not be withdrawn or downgraded as a result of any transfer.
Yield on the Purchaser Junior Note
Interest will be payable on the Purchaser Junior Note prior to the Purchaser Secured Obligations having been
unconditionally and irrevocably paid and discharged in full on each Purchaser Note Payment Date falling
prior to the Portfolio Liquidation Date but only after payment of all amounts having priority thereto: see
paragraph (q)(i) of “— Management of Purchaser Cash Flow — Purchaser Payments on Purchaser Note
Payment Dates prior to Portfolio Liquidation Date” above.
Nature of the Purchaser Noteholders’ rights against the Purchaser
The Purchaser Notes will represent direct debt obligations of the Purchaser. The Issuer will, together with the
Purchaser Transaction Administrator, the Back-up Servicer, the Purchaser Corporate Administrator, the Swap
Counterparty, the Servicer, and the Security Agent (collectively, the “Secured Parties”), have the benefit of
the Purchaser Security described in “Purchaser Security” below, and recourse to the Purchaser will be limited
to the Purchaser Assets. See the section “Limited Recourse” below.
Purchaser Security
The Purchaser Security will be created pursuant to, and on the terms set out, in the Pledge Agreement, the
Equity Pledge Agreement, the Security Assignment Deed and the Account Assignment and will constitute
security for the Purchaser’s payment obligations under the Transaction Documents to which it is a party to
the Issuer and the other Secured Parties. See the section “— Application of Purchaser Security Sale
Proceeds” below.
The Purchaser Security will consist of:
(a)
under the Pledge Agreement a pledge by way of security of all of the Purchaser’s right, title, interest
and benefit in, to, under and in respect of:
(i)
the Mortgage Loan Assets and all amounts arising therefrom;
(ii)
the Purchaser Collection Account and the Won Accounts and all balances, credits, deposits,
monies or other sums therein or on deposit or payable or withdrawable therefrom and any interest
accrued or payable thereon and the debts represented thereby;
(iii) to the extent permissible by law, any and all of its other property, assets and rights (other than the
Purchase Agreement and the property, assets and rights which are the subject of any other
Purchaser Security Agreement or in respect of Eligible Credit Support transferred to the Purchaser
under the Credit Support Annex and any related Distributions and Interest Amounts);
(iv) any property, assets or rights acquired by the Purchaser after the date of the Pledge Agreement
(other than the rights, title, benefits and interests in, to and under any other Purchaser Security
Agreement or in respect of Eligible Credit Support transferred to the Purchaser under the Credit
Support Annex and any related Distributions and Interest Amounts); and
(v)
(b)
those Transaction Documents to which it is a party which are governed by Korean law;
under the Security Assignment Deed, an assignment by way of security of all of the Purchaser’s right,
title, interest and benefit in, to, under and in respect of those Transaction Documents which are
governed by English law (other than in respect of Eligible Credit Support transferred to the Purchaser
under the Credit Support Annex and any related Distributions and Interest Amounts) and to which it is
a party;
— 42 —
(c)
under the Equity Pledge Agreement, a pledge of all of the Equityholders’ right, title, interest and benefit
in the Pledged Portfolio; and
(d)
under the Account Assignment, an assignment by way of security of all of the Purchaser’s right, title,
interest and benefit (i) in and to the US Dollar Account and all the amounts standing to the credit of
the US Dollar Account from time to time together with all interest accruing from time to time and the
debts represented thereby and (ii) against the Offshore Account Bank in connection with the US Dollar
Account.
The Issuer will assign all its rights under each Purchaser Security Agreement to the Security Trustee for the
benefit of the Noteholders and other Beneficiaries pursuant to the Deed of Charge.
The Security Agent is entitled to seek and act in accordance with instructions from the Note Trustee in
exercising any rights or discretions under the Purchaser Security Agreements. Each Secured Party (including
the Security Agent) will in each of the Purchaser Security Agreements that, if so instructed by the Note
Trustee, it will only exercise its rights (other than Excluded Rights) under the Purchaser Security Agreements
as directed by the Note Trustee.
Consequences of the occurrence of a Purchaser Senior Notes Event of Default
The Purchaser Senior Notes Subscription Deed will provide that the Security Agent, if it is directed to do so
by the Note Trustee, will give a Purchaser Default Notice following the occurrence of a Purchaser Senior
Notes Event of Default. If a Purchaser Default Notice is given, the security constituted by the Purchaser
Security Agreements will become enforceable in accordance with the terms of the Purchaser Security
Agreements, and the Security Agent (as agent of the Secured Parties) will become entitled to exercise its
rights thereunder if it is so directed in writing by the Note Trustee. Payments in respect of the Purchaser
Secured Obligations will continue to be made as set out in “— Management of Purchaser Cash Flow —
Purchaser Payments on Purchaser Note Payment Dates prior to Portfolio Liquidation Date” above until the
Portfolio Liquidation Date. The Trust Deed will provide that the Note Trustee in giving such directions will
act on the directions of the Noteholders pursuant to an Ordinary Resolution.
After a Purchaser Default Notice has been given, the Security Agent, if it is directed to do so by the Note
Trustee, will enforce the Purchaser Security by, among other things, selling all of the Mortgage Loan Assets.
In the event that the Security Agent (as agent of the Secured Parties and acting as aforesaid) enters into a
contract for the sale of all the Mortgage Loan Assets, it will give written notice (a “Portfolio Liquidation
Notice”) to the Purchaser, the Issuer, the Swap Counterparty, the Servicer, each Rating Agency and each of
the other persons specified in the Purchaser Security Agreements of such forthcoming sale and of the date
on which such title to the Mortgage Loan Assets will be transferred to the purchaser thereof and the date (the
“Portfolio Liquidation Date”) on which payment of the purchase price for the Mortgage Loan Assets will
be made by such purchaser. The Portfolio Liquidation Date will be not less than seven Payment Business
Days after the date of the Portfolio Liquidation Notice.
The Purchaser Senior Notes will automatically become immediately due and payable if a Purchaser Default
Notice is given. The Transaction Administration Agreement and the other Transaction Documents will
provide that on the Asia Business Day prior to the Spot Payment Date immediately preceding the Portfolio
Liquidation Distribution Date, all moneys standing to the credit of the Reserve Fund Account will be
transferred to the General Won Account and that, from and including the Portfolio Liquidation Date, no
payments will be made from any of the Purchaser Accounts other than in accordance with, or in
contemplation of, the payments set out in “— Management of Purchaser Cash Flows — Purchaser Payments
on Purchaser Liquidation Distribution Date” above.
Application of Purchaser Security Sale Proceeds
It will be a requirement for the terms of any contract for the sale of the Mortgage Loan Assets upon
enforcement of the Purchaser Security that the purchase price be paid into the General Won Account on the
Portfolio Liquidation Date. Such purchase price moneys and any other moneys standing to the credit of the
— 43 —
General Won Account and the US Dollar Account will be applied on the Purchaser Liquidation Distribution
Date in and towards satisfaction of the Purchaser Secured Obligations in the order of priority set out in the
Transaction Administration Agreement as set out in “— Management of Purchaser Cash Flows — Purchaser
Payments on Purchaser Liquidation Distribution Date” above.
Limited Recourse
Recourse against the Purchaser in relation to its obligations under the Purchaser Senior Notes and all its other
obligations under the Transaction Documents will be limited to the Purchaser Assets and the Pledged
Portfolio. If the proceeds of enforcement of the security created over the Purchaser Assets and the Pledged
Portfolio are insufficient to pay and discharge in full the Purchaser Secured Obligations, none of the Secured
Parties will have any further claim against the Purchaser in respect of any amounts which remain unsatisfied
when no further amounts are receivable or recoverable in respect of the Purchaser Assets and the Pledged
Portfolio and all funds comprising the Purchaser Assets and the Pledged Portfolio have been applied in
accordance with the Transaction Documents and the liability of the Purchaser with respect to such unsatisfied
amounts shall be extinguished. See also “— Purchaser Security” above.
Withholding Tax
Purchaser Senior Note Yield, Purchaser USD Indemnity Amounts and principal payments in respect of the
Purchaser Senior Notes and any other payments by the Purchaser to the Issuer under the Purchaser Senior
Notes Subscription Deed will be made free and clear of any present and future deduction or withholding for
or on account of any and all taxes imposed by any jurisdiction, except to the extent the same are required
to be made by law. In the event that any such withholding for or on account of any tax as mentioned in this
paragraph is required to be made, then subject to there being sufficient funds in the Purchaser Accounts, the
Purchaser shall pay the additional amounts to ensure that, after the deduction or withholding on account of
such tax, the amount that would otherwise have been received by the Issuer in respect of the relevant payment
in the absence of any such deduction or withholding for or on account of any such tax is received by the
Issuer.
Negative Pledge
The Purchaser will not be permitted to create any security over its assets except pursuant to or as permitted
by the Transaction Documents.
Purchaser Senior Notes Events of Default
Purchaser Senior Notes Events of Default will include, among other things, (a) the occurrence of an Event
of Default in respect of the Notes, (b) acceleration of the Notes, (c) default by the Purchaser in the payment
when due and payable of (i) any Purchaser Senior Note Yield (other than, following the Step-up Date, an
amount equal to the Step-up Margin Payment) due and payable in respect of the Purchaser Senior Notes or
(ii) any other amount (other than principal or, following the Step-up Date, an amount equal to the Step-up
Margin Payment) payable in respect of the Purchaser Senior Notes, (d) the Principal Amount Outstanding of
the Purchaser Senior Notes not being fully repaid on the Purchaser Note Maturity Date, (e) the occurrence
of an Insolvency Event in relation to the Purchaser, (f) the designation or occurrence of an Early Termination
Date under the Swap Transaction and the Purchaser does not enter into a replacement swap agreement prior
to the immediately following Swap Payment Date in respect of which prior notice has been given to each
Rating Agency and confirmation has been received from Standard & Poor’s that its current rating of the Notes
will not be withdrawn or downgraded as a result of such replacement, (g) any provision of the Purchaser
Senior Notes, the Purchaser Senior Notes Subscription Deed or any Purchaser Security Agreement being
determined not to be legal, valid and binding on the Purchaser, (h) any litigation, arbitration or administrative
proceedings being threatened or commenced in relation to the Purchaser’s compliance with its obligations
under the Purchaser Senior Notes, the Purchaser Senior Notes Subscription Deed or the Purchaser Security
Agreements or in relation to the security created under the Purchaser Security Agreements which has a
material adverse effect and where, if proceedings have been commenced, such proceedings are not dismissed
within 45 days and (i) seizure or loss of control over, or nationalisation of, all or a substantial part of the
Purchaser’s assets where such action is not removed or permanently stayed within 45 days.
— 44 —
Governing Law
The Pledge Agreement, the Equity Pledge Agreement, the Purchaser Junior Note and the Purchaser Junior
Note Subscription Agreement will be governed by Korean law. The Purchaser Senior Notes, the Purchaser
Senior Notes Subscription Deed and the Security Assignment Deed will be governed by English law. The
Account Assignment will be governed by Hong Kong law.
MANAGEMENT OF ISSUER CASH FLOW
Issuer USD Account
On or before the Closing Date, the Issuer will have opened in its name with Citibank, N.A., London Branch,
a non-interest bearing US dollar-denominated account (the “Issuer USD Account”). The unsecured
long-term and short-term unguaranteed and unsubordinated foreign currency debt obligations of Citibank,
N.A. are currently rated “AA-” and “F1+”, respectively, by Fitch, “Aa1” and “P-1”, respectively, by Moody’s
and “AA” and “A-1+”, respectively, by Standard & Poor’s.
All payments received by the Issuer will, save as provided for in the Transaction Administration Agreement,
be credited to the Issuer USD Account.
Issuer Expenses
The Transaction Administration Agreement will authorise the Issuer Transaction Administrator, subject to the
satisfaction of the Issuer Expenses Threshold Condition, to make payments of Maintenance Costs with
respect to the Issuer during each Collection Period from amounts standing to the credit of the Issuer USD
Account where failure to pay prior to the Note Payment Date immediately succeeding the end of such
Collection Period would result in a penalty or other adverse consequences to the Issuer.
Issuer Expenses Threshold Condition
If on any date on which Maintenance Costs of the Issuer are to be paid, the aggregate amount paid in respect
of Maintenance Costs of the Issuer in any Collection Period under “— Issuer Expenses” above and on any
Note Payment Date under paragraph (a) of “— Issuer Payments on Note Payment Dates” below, in each case,
during the period commencing on the day falling 12 months prior to such Note Payment Date or, if 12 months
have not elapsed since the Closing Date, on the Closing Date exceeds US$85,000, then prior to making any
such payment the Issuer Transaction Administrator will be required to notify each Rating Agency that such
payment will be made.
Issuer Payments on Note Payment Dates
Prior to the Note Enforcement Date, the Transaction Administration Agreement will authorise the Issuer
Transaction Administrator, on each Note Payment Date, to apply all amounts then standing to the credit of
the Issuer USD Account in the following order of priority:
(a)
first, subject to the satisfaction of the Issuer Expenses Threshold Condition, in and towards payment
of any Maintenance Costs with respect to the Issuer which are due and payable and which remain
unpaid on such Note Payment Date;
(b)
second, pari passu and pro rata among themselves:
(i)
in and towards payment to the Note Trustee of the Note Trustee Fee due and payable to the Note
Trustee pursuant to the terms of the Transaction Documents and which remains unpaid on such
Note Payment Date;
(ii)
in and towards payment to the Security Trustee of the Security Trustee Fee due and payable to
the Security Trustee pursuant to the terms of the Transaction Documents and which remains
unpaid on such Note Payment Date; and
— 45 —
(iii) pari passu and pro rata among themselves:
(A) in and towards payment to the Note Trustee of any Senior Expenses paid or incurred by the
Note Trustee in respect of such Collection Period and any previous Collection Period; and
(B)
in and towards payment to the Security Trustee of any Senior Expenses paid or incurred by
the Security Trustee in respect of such Collection Period and any previous Collection
Period,
which, in each case, are due and payable to the Note Trustee or, as the case may be, the Security
Trustee pursuant to the terms of the Transaction Documents and which remain unpaid on such
Note Payment Date;
(c)
third, pari passu and pro rata among themselves:
(i)
in and towards payment to the Issuer Transaction Administrator of the Issuer Transaction
Administrator Fee due and payable to the Issuer Transaction Administrator pursuant to the
Transaction Documents and which remains unpaid on such Note Payment Date);
(ii)
in and towards payment to the Principal Paying Agent (on behalf of the Agents) of the Agents Fees
due and payable to the Agents pursuant to the Transaction Documents and which remains unpaid
on such Note Payment Date; and
(iii) pari passu and pro rata among themselves:
(A) in and towards payment to the Issuer Transaction Administrator of any Senior Expenses paid
or incurred by the Issuer Transaction Administrator in respect of such Collection Period and
any previous Collection Period; and
(B)
in and towards payment to the Principal Paying Agent (on behalf of the Agents) of any
Senior Expenses paid or incurred by the Agents in respect of such Collection Period and any
previous Collection Period,
which, in each case, are due and payable to the Issuer Transaction Administrator or, as the case
may be, the Principal Paying Agent (on behalf of the Agents) pursuant to the terms of the
Transaction Documents and which remain unpaid on such Note Payment Date;
(d)
(e)
fourth, pari passu and pro rata among themselves:
(i)
in and towards payments to the Issuer Corporate Administrator of the Issuer Corporate
Administrator Fee due and payable to the Issuer Corporate Administrator pursuant to the
Transaction Documents and which remains unpaid on such Note Payment Date; and
(ii)
in and towards payment to the Issuer Corporate Administrator of any Senior Expenses paid or
incurred by the Issuer Corporate Administrator in respect of such Collection Period and any
previous Collection Period which are due and payable to the Issuer Corporate Administrator
pursuant to the terms of the Transaction Documents and which remain unpaid on such Note
Payment Date;
fifth, in and towards payment to the Principal Paying Agent for payment to the Noteholders of the Note
Interest Payment (other than in respect of Step-up Margin Payment) due on the Notes on such Note
Payment Date in accordance with Condition 4;
— 46 —
(f)
sixth, in and towards payment to the Principal Paying Agent for payment to the Noteholders of the
Principal Amount Outstanding of the Notes due and payable on such Note Payment Date in accordance
with Condition 5(b);
(g)
seventh, in and towards payment to the Principal Paying Agent for payment to the Noteholders of any
Step-up Margin Payment due on the Notes on such Note Payment Date in accordance with Condition
4;
(h)
eighth, pari passu and pro rata as between themselves in and towards payment to:
(i)
the Note Trustee;
(ii)
the Security Trustee;
(iii) the Issuer Transaction Administrator; and
(iv) the Principal Paying Agent (on behalf of the Agents),
of any Junior Expenses and any Expense Accrued Interest paid, accrued or incurred by them in respect
of such Collection Period and any previous Collection Period which, in each case, are due and payable
to them pursuant to the Transaction Documents and which remain unpaid on such Note Payment Date;
(i)
ninth, in and towards payment to the Issuer Corporate Administrator of any Junior Expenses and any
Expense Accrued Interest paid, accrued or incurred by the Issuer Corporate Administrator in respect of
such Collection Period and any previous Collection Period which are due and payable pursuant to the
Transaction Documents and which remain unpaid on such Note Payment Date; and
(j)
tenth, in paying the remaining balance of the Issuer USD Account in satisfaction of any interim
arrangement fee payable by the Issuer to the Purchaser pursuant to the interim arrangement fee letter
dated on or about the Closing Date, as set out in the Transaction Administration Agreement.
Note Interest Payments payable in accordance with the above order of priority will be payable only to the
extent of any Purchaser Senior Note Yield (excluding the amount of any Additional Interest Amount) paid
by the Purchaser on the immediately preceding Purchaser Note Payment Date.
Repayments of the Principal Amount Outstanding of the Notes in accordance with the above order of priority
will be payable only to the extent of the repayment of the Principal Amount Outstanding of the Purchaser
Senior Notes paid by the Purchaser on the immediately preceding Purchaser Note Payment Date.
In addition, any other payment by the Issuer will be payable only to the extent of the amount received from
the Issuer in respect of such payment (whether by way of Purchaser USD Indemnity Amount or otherwise)
on the immediately preceding Purchaser Note Payment Date.
Administrator Termination Events
The Transaction Administration Agreement will set out those events which will constitute Administrator
Termination Events in respect of each of the Issuer Transaction Administrator and the Purchaser Transaction
Administrator. The Administrator Termination Events will include:
(a)
default being made by the Issuer Transaction Administrator or, as the case may be, the Purchaser
Transaction Administrator in the payment when due of any payment due and payable by the Issuer
Transaction Administrator or, as the case may be, the Purchaser Transaction Administrator under the
Transaction Administration Agreement (other than any default arising as a result of any technical
failure, computer failure or failure of any money transmission system beyond the control of the Issuer
Transaction Administrator or, as the case may be, the Purchaser Transaction Administrator);
— 47 —
(b)
any breach being made by the Issuer Transaction Administrator or, as the case may be, the Purchaser
Transaction Administrator in any respect of its obligations (other than payment obligations and, in the
case of the Purchaser Transaction Administrator, other than obligations to deliver TA Reports) under the
Transaction Administration Agreement and such breach continuing for more than seven Asia Business
Days after the date the breach first occurred;
(c)
an Insolvency Event occurring in relation to the Issuer Transaction Administrator or, as the case may
be, the Purchaser Transaction Administrator;
(d)
in the case of the Purchaser Transaction Administrator, failure (save in the limited circumstances set out
in the Transaction Administration Agreement) to deliver a TA Report in respect of any Collection Period
on or prior to the related TA Report Date;
(e)
the Issuer Transaction Administrator or, as the case may be, the Purchaser Transaction Administrator
ceasing to have the Approved Rating; and
(f)
the Issuer Transaction Administrator or, as the case may be, the Purchaser Transaction Administrator
ceases or threatens to cease to carry on its transaction administration and cash management business
or a substantial part of its transaction administration and cash management business.
If any Administrator Termination Event occurs in respect of the Issuer Transaction Administrator or, as the
case may be, the Purchaser Transaction Administrator, the Note Trustee, in the case of the Issuer Transaction
Administrator, or, as the case may be, the Security Agent may and (if so instructed by the Note Trustee) shall,
in the case of the Purchaser Transaction Administrator, by notice in writing terminate the appointment of the
Issuer Transaction Administrator or, as the case may be, the Purchaser Transaction Administrator. The Trust
Deed will provide that the Note Trustee in giving such directions will act on the directions of the Noteholders
pursuant to an Ordinary Resolution.
The Issuer Transaction Administrator and the Purchaser Transaction Administrator will each be entitled to
resign upon not less than three months’ prior written notice to the Issuer, the Purchaser, the Security Agent,
the Note Trustee, the Swap Counterparty, the Spot Bank, the Designated FX Bank, the Back-up Servicer, the
Servicer and each Rating Agency.
No termination of appointment or resignation as aforesaid will take effect without a substitute Issuer
Transaction Administrator or, as the case may be, a substitute Purchaser Transaction Administrator having
been appointed in accordance with the terms of the Transaction Administration Agreement.
THE NOTES
The Notes
On the Closing Date, the Issuer will issue the US$228,000,000 Floating Rate Secured Notes due 2038 (the
“Notes”).
Maturity
Unless previously redeemed in full or cancelled, the Issuer will be obliged to redeem the Notes at their
Principal Amount Outstanding on the Note Payment Date falling in June 2038 (the “Note Maturity Date”).
Issue Price
The Notes will be issued at 100 per cent. of their respective principal amounts.
Note Payment Dates
The fifth (5th) day of March, June, September and December of each year commencing on the 5th day of
September 2008 (each, a “Note Payment Date”), provided that (a) if any Note Payment Date would
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otherwise fall on a date which is not a Payment Business Day (as defined in the Conditions), it will be
postponed to the next Payment Business Day unless it would thereby fall into the next calendar month, in
which case it will be brought forward to the preceding Payment Business Day, and (b) the Payment Business
Day following the Purchaser Liquidation Distribution Date shall also be a Note Payment Date.
Interest Payments
Interest will accrue on the Notes from and including the Closing Date and will be payable quarterly in arrear
on each Note Payment Date in US dollars.
The Notes will rank pari passu and pro rata as between themselves with respect to interest payments.
The rate of interest per annum for the Notes for each Note Interest Period prior to the Step-up Date will be
the sum of LIBOR for such Note Interest Period plus a margin of 2 per cent. per annum plus, in each case
following the Step-up Date, a Step-up Margin which is equal to an additional margin of 1.00 per cent. per
annum.
Interest will be calculated on the Principal Amount Outstanding of the Notes at the beginning of the related
Note Interest Period. Interest in respect of any Note Interest Period will be calculated on the basis of the
actual number of days elapsed in such Note Interest Period and a 360-day year. See Condition 4.
Note Interest Payments payable in respect of the Notes will be payable only to the extent of any Purchaser
Senior Note Yield of the Purchaser Senior Notes (excluding the amount of any Additional Interest Amount)
paid by the Purchaser on the immediately preceding Purchaser Note Payment Date.
The failure to pay any Note Interest Payment (other than in respect of any Step-up Margin Payment) in
respect of the Notes then outstanding in full on its due date will constitute an Event of Default under the
Notes.
Principal
Prior to the Note Enforcement Date, principal, to the extent of the repayment of principal on the Purchaser
Senior Notes on the related Purchaser Note Payment Date, will be payable on the Notes on each Note
Payment Date up to the Note Maturity Date, and will be due to be repaid in full by no later than the Note
Maturity Date.
The Notes will rank pari passu and pro rata as between themselves with respect to repayment of principal.
Repayments of the Principal Amount Outstanding of the Notes in accordance with the order of priority set
out in “Issuer Payments on Note Payment Dates” above will be payable only to the extent of the repayment
of the Principal Amount Outstanding of the Purchaser Senior Notes paid by the Purchaser on the immediately
preceding Purchaser Note Payment Date.
Termination of Appointment of the Reference Agent
The Agency Agreement will govern resignation by and termination of the appointment of the Reference
Agent. The Reference Agent will be entitled to resign from its appointment upon giving written notice to the
Issuer in accordance with the requirements set out in the Agency Agreement. The appointment of the
Reference Agent will terminate automatically if:
(a)
a secured party takes possession, or a receiver, manager or other similar officer is appointed, of the
whole or any part of the undertaking, assets and revenues of the Reference Agent;
(b)
the Reference Agent admits in writing its insolvency or inability to pay its debts as they fall due;
(c)
an administrator or liquidator of the Reference Agent or the whole or any part of the undertaking, assets
and revenues of the Reference Agent is appointed (or application for any such appointment is made);
— 49 —
(d)
the Reference Agent takes any action for a readjustment or deferment of any of its obligations or makes
a general assignment or an arrangement or composition with or for the benefit of its creditors or
declares a moratorium in respect of any of its indebtedness;
(e)
an order is made or an effective resolution is passed for the winding-up, dissolution, liquidation or
re-organisation of the Reference Agent; or
(f)
any event occurs which has an analogous effect to any of the foregoing.
If the appointment of the Reference Agent is terminated in accordance with the automatic termination
provisions of the Agency Agreement, the Issuer will be required to appoint a successor but no such
termination of appointment will take effect until a successor has been duly appointed in accordance with the
Agency Agreement.
Limited Recourse
The Conditions will provide that recourse against the Issuer in relation to its obligations under the Notes and
all other obligations under the Transaction Documents will be limited to the Issuer Charged Property. If the
proceeds of enforcement of the Issuer Charged Property are insufficient to pay in full all amounts due under
the Notes after payment of all amounts having priority over the Notes, the Noteholders will have no further
claim against the Issuer in respect of any amounts which remain unsatisfied when no further amounts are
available or recoverable in respect of the Issuer Charged Property and all funds comprising the Issuer
Charged Property and/or representing the proceeds of realisation thereof have been applied in accordance
with the Deed of Charge, and the liability of the Issuer with respect to such unsatisfied amounts shall be
extinguished.
Mandatory Redemption
The Issuer will, on the Note Payment Date immediately succeeding the Purchaser Note Payment Date on
which the Purchaser has redeemed the Purchaser Senior Notes in full, redeem the Notes in whole but not in
part at their Principal Amount Outstanding (together with interest accrued to such Note Payment Date).
Use of Proceeds
The proceeds of the issue of the Notes will be applied by the Issuer in subscribing for the Purchaser Senior
Notes from the Purchaser on the Closing Date.
Form and Delivery of Notes
The Notes will be issued in registered form only, without coupons, and will consist of Notes offered and sold
outside the United States to non-U.S. Persons in offshore transactions in reliance on Regulation S under the
Securities Act (“Regulation S”), and otherwise in the United States to persons who are Qualified Institutional
Buyers purchasing in reliance on the exemption from registration under Rule 144A under the Securities Act
(“Rule 144A”). Each purchaser of the Notes other than a non-U.S. Person must also be a Qualified Purchaser.
Beneficial interests in the Notes may not be transferred except in compliance with the transfer restrictions
described in “Subscription and Sale” and “Transfer Restrictions”.
The Global Note Certificates will be in the name of a nominee of, and shall be deposited on or about the
Closing Date with a custodian for The Depository Trust Company (“DTC”).
Definitive Notes in registered form will only be issued in exchange for interests in the Global Note
Certificates in certain limited circumstances.
Clearance and Settlement
Holders of the Notes will hold their interest in the Global Note Certificates in book-entry form through
Euroclear, Clearstream, Luxembourg or DTC. Transfers will be in accordance with the usual rules and
operating procedures of Euroclear, Clearstream, Luxembourg or DTC. See the section “Clearance and
Settlement”.
— 50 —
Denominations
The Notes will be in minimum denominations of US$100,000 and integral multiples of US$1,000 in excess
thereof.
Nature of the Noteholders’ rights against the Issuer
Notes will represent direct debt obligations of the Issuer and will have the benefit of the Issuer Security
described in “— Issuer Security” below. Recourse to the Issuer will be limited to the Issuer Security.
Noteholders’ Meetings
The Trust Deed will contain provisions for convening meetings of Noteholders to consider matters affecting
their interests.
Certain matters will require the passing of an Extraordinary Resolution, while other matters will be able to
be passed by Ordinary Resolution (in each case as specified in the Trust Deed).
An “Extraordinary Resolution” means a resolution passed at a meeting of Noteholders duly convened and
held in accordance with the Trust Deed by Noteholders holding Notes with an aggregate Principal Amount
Outstanding of at least 75% of the aggregate Principal Amount Outstanding of the Notes (calculated after
excluding the Principal Amount Outstanding of any Notes held by Citibank, N.A. and its affiliates and
agents).
An “Ordinary Resolution” means a resolution passed at a meeting of Noteholders duly convened and held
in accordance with the Trust Deed by Noteholders holding Notes with an aggregate Principal Amount
Outstanding of more than 50% of the aggregate Principal Amount Outstanding of the Notes (calculated after
excluding the Principal Amount Outstanding of any Notes held by Citibank, N.A. and its affiliates and
agents).
The requisite quorum for any meeting convened to pass an Extraordinary Resolution or an Ordinary
Resolution will be set out in the Trust Deed but in both cases the Principal Amount Outstanding of the Notes
will be calculated after excluding the Principal Amount Outstanding of any Notes held by Citibank, N.A., its
affiliates and agents. Two or more Noteholders (excluding Citibank, N.A. and its affiliates and agents) or, as
the case may be, their agents present in person shall be a quorum (except where the Notes are held by a single
Noteholder, in which case such Noteholder shall be a quorum).
Subject to the exclusions referred to above, each Noteholder will be entitled to one vote for each US$1.00
of the Principal Amount Outstanding of the Notes held by such Noteholder. See Condition 13.
Modifications to and Waivers of Transaction Documents
The Note Trustee will be entitled, without any requirement to obtain the consent of the Noteholders (and the
Security Trustee and/or the Security Agent will be entitled without any requirement to obtain the consent of
the Note Trustee) to consent to any amendment or supplement to, or modification or waiver of any of the
terms of, the Trust Deed and/or any other Transaction Document where such amendment, supplement,
modification or waiver (i) is to correct a typographical or manifest error or is a purely technical or
administrative matter or (ii) in the opinion the Note Trustee, the Security Trustee or, as the case may be, the
Security Agent (based on such advice as they consider appropriate) will not be materially prejudicial to the
interests of the Noteholders or, as the case may be, Secured Parties. Any amendment, supplement or
modification to the Transaction Documents made as contemplated in paragraph (ii) above will be required
to be notified to Noteholders as provided in the Conditions.
Other than as described above, the Note Trustee will agree to (or direct the Security Trustee and/or the
Security Agent to agree to) any amendment or supplement to, or modification or waiver or exercise any right
or discretion to perform any duty, to take or retain from taking any action or to give any instruction or other
consent under, or in relation to, the Trust Deed or any other Transaction Document (including, without
limitation, instructing the Security Agent or the Security Trustee as contemplated in the Transaction
— 51 —
Documents), only with the approval or at the direction of the Noteholders pursuant to an Ordinary Resolution
of the Noteholders, provided that if the relevant amendment, supplement, modification or waiver or the
exercise of the relevant right or discretion would result in any of the following events occurring, the same
may only be made with the approval of an Extraordinary Resolution of the Noteholders:
(i)
a change in any date scheduled for the payment of interest on any Note, the Note Maturity Date or the
date determined for any mandatory redemption of any Note;
(ii)
a reduction of the Principal Amount Outstanding or the interest rate payable in respect of any Note not
expressly contemplated by the Transaction Documents;
(iii) an impairment of the right to enforce payment on any Note;
(iv) a change in the method of computing the amount of principal of, or interest on, any Note; or
(v)
any amendment to this proviso.
Reports to Noteholders
Each Servicer Report and each TA Report will be available for inspection during normal office hours at the
Specified Office of the Principal Paying Agent and at the Specified Office of the Irish Paying Agent and at
http://www.hsbcnet.com/hsbc.
Issuer Security
The Issuer Security will be created pursuant to, and on the terms set out in, the Deed of Charge and will
constitute security for the Notes and for any amounts payable by the Issuer to the other Beneficiaries. The
Trust Deed and the Deed of Charge will contain provisions regulating the priority of application of amounts
forming part of the Issuer Security among the persons entitled thereto. See “— Application of Issuer Security
Enforcement Proceeds” below.
The Issuer Security will consist of:
(a)
the assignment to the Security Trustee by way of security of all of the Issuer’s right, title, benefit and
interest in, to and under the Transaction Documents to which it is a party;
(b)
a first fixed charge in favour of the Security Trustee over the Issuer USD Account and any other bank
account in which the Issuer may acquire an interest (other than the bank account referred to in
paragraph (c)(ii) below) (including all sums of money from time to time standing to the credit thereof)
and the debts represented thereby; and
(c)
a first floating charge in favour of the Security Trustee over the whole of the Issuer’s undertaking and
all of its other property, assets and rights (other than (i) any property or assets the subject of a fixed
security interest as contemplated in paragraphs (a) and (b) above, (ii) the proceeds of the Issuer’s share
capital, the Issuer Fee and the bank account where such amounts are deposited, and (iii) any equity of
redemption which the Issuer may have by operation of law upon payment in full of the Secured
Obligations).
Enforcement of Issuer Security
Following the occurrence of a Event of Default in respect of the Notes (other than an Insolvency Event in
relation to the Issuer), the Holders of the Notes may direct, by Ordinary Resolution, the Note Trustee to serve
a Note Acceleration Notice with respect of the Notes whereupon the Notes will become immediately due and
payable and the Issuer Security will become enforceable. The Noteholders may then, pursuant to an Ordinary
Resolution, direct the Note Trustee to direct the Security Trustee (subject to the Note Trustee and the Security
Trustee being indemnified and/or secured to their satisfaction) to enforce the Issuer Security.
— 52 —
Upon the occurrence of an Insolvency Event in relation to the Issuer, the Notes will become immediately due
and payable and the Issuer Security will automatically become enforceable. The Noteholders will be entitled,
pursuant to an Ordinary Resolution, to direct the Note Trustee to direct the Security Trustee (subject to the
Note Trustee and the Security Trustee being indemnified and/or secured to their satisfaction) to enforce the
Issuer Security.
If an Ordinary Resolution of the Noteholders has directed the enforcement of the Issuer Security (following
a direction to serve a Note Acceleration Notice where the relevant Event of Default in respect of the Notes
is other than an Insolvency Event in relation to the Issuer), the Security Trustee will (subject to being
indemnified and/or secured to its satisfaction) sell or procure the sale of the Issuer Secured Property or
otherwise enforce the Issuer Security. In enforcing the Issuer Security, the Security Trustee will not be
entitled to sell or procure the sale of the Purchaser Senior Notes to any “Korean resident” (as defined in the
Foreign Exchange Transaction Law of Korea) until the expiry of one year from the Closing Date.
Prior to an Ordinary Resolution of the Noteholders directing the enforcement of the Issuer Security, neither
the Note Trustee nor the Security Trustee will exercise any discretion, power or rights under the Transaction
Documents to enforce the Issuer Security.
Application of Issuer Security Enforcement Proceeds
Following the Note Enforcement Date, if the Issuer does not repay all moneys then due in respect of the Notes
in full where the same have become immediately due and payable as aforesaid, the proceeds of enforcement
of the Issuer Security (which will be deposited into the Issuer USD Account) will be applied in the following
order:
(a)
first, pari passu and pro rata among themselves:
(i)
in and towards payment of the remuneration payable to any Receiver and any costs, liabilities and
expenses incurred by such Receiver;
(ii)
in and towards payment to the Note Trustee of the Note Trustee Fee due and payable to the Note
Trustee pursuant to the terms of the Transaction Documents and which remains unpaid;
(iii) in and towards payment to the Security Trustee of the Security Trustee Fee due and payable to
the Security Trustee pursuant to the terms of the Transaction Documents and which remains
unpaid; and
(iv) pari passu and pro rata among themselves, in and towards payment to:
(A) the Note Trustee of any Expenses paid or incurred by the Note Trustee; and
(B)
the Security Trustee of any Expenses paid or incurred by the Security Trustee,
which, in each case, are due and payable to the Note Trustee or, as the case may be, the Security
Trustee, pursuant to the terms of the Transaction Documents and which remain unpaid;
(b)
second, pari passu and pro rata among themselves:
(i)
in and towards payment to the Issuer Transaction Administrator of the Issuer Transaction
Administrator Fee due and payable to the Issuer Transaction Administrator pursuant to the
Transaction Documents and which remains unpaid;
(ii)
in and towards payment to the Principal Paying Agent (on behalf of the Agents) of the Agents Fees
due and payable to the Agents pursuant to the Transaction Documents and which remains unpaid;
and
— 53 —
(iii) pari passu and pro rata among themselves in and towards payment to:
(A) the Issuer Transaction Administrator of any Expenses paid or incurred by the Issuer
Transaction Administrator; and
(B)
the Principal Paying Agent (on behalf of the Agents) of any Expenses paid or incurred by
the Agents,
which, in each case, are due and payable to the Issuer Transaction Administrator or, as the case
may be, the Principal Paying Agent (on behalf of the Agents), pursuant to the terms of the
Transaction Documents and which remain unpaid;
(c)
third, pari passu and pro rata among themselves, in and towards payment to:
(i)
the Issuer Corporate Administrator of the Issuer Corporate Administrator Fee; and
(ii)
the Issuer Corporate Administrator of any Expenses paid or incurred by the Issuer Corporate
Administrator,
which, in each case, are due and payable by the Issuer Corporate Administrator pursuant to the terms
of the Transaction Documents and which remain unpaid.
(d)
(e)
fourth, in and towards payment to the Note Trustee (or as it may direct) for payment to the Noteholders
in the following order of priority:
(i)
first, in and towards payment of any Note Interest Payment (excluding any Step-up Margin
Payment) due and payable in respect of the Notes which remains unpaid; and
(ii)
second, in and towards repayment of the Principal Amount Outstanding of the Notes;
fifth, pari passu and pro rata as between themselves:
(i)
in and towards payment to:
(A) the Note Trustee;
(B)
the Security Trustee;
(C)
the Issuer Transaction Administrator; and
(D) the Principal Paying Agent (on behalf of the Agents),
of any Expense Accrued Interest paid, accrued or incurred by them which, in each case, are due
and payable to them pursuant to the Transaction Documents and which remain unpaid; and
(ii)
in and towards payment to the Note Trustee (or as it may direct) for payment to Noteholders of
any Step-up Margin due and payable in respect of the Notes which remains unpaid;
(f)
sixth, in and towards payment to the Issuer Corporate Administrator of any Expense Accrued Interest
paid, accrued or incurred by the Issuer Corporate Administrator which are due and payable by the Issuer
Corporate Administrator pursuant to the terms of the Transaction Documents and which remain unpaid;
and
(g)
seventh, in paying the balance to the Issuer.
— 54 —
Withholding Tax on the Notes
All payments of interest and repayments of principal on the Notes will be made subject to any withholding
or deduction for or on account of any taxation (if any) applicable to the Notes, without the Issuer being
obliged to pay additional amounts as a consequence.
Negative Pledge
The Issuer will not be permitted to create any security interests over its assets except pursuant to or as
permitted by Condition 3 and the Deed of Charge.
Note Events of Default
The events of default in relation to the Notes are listed in Condition 8.
Listing
Application has been made for the Notes to be admitted to the Official List of the Irish Stock Exchange and
trading on its regulated market, but there can be no assurance that listing will occur on or prior to the Closing
Date.
Governing Law
The Notes, the Trust Deed, the Transaction Administration Agreement, the Deed of Charge and the Agency
Agreement will be governed by English law.
Selling Restrictions
The Notes will be subject to the selling restrictions set out in “Subscription and Sale” and “Transfer
Restrictions” below.
Risk Factors
The attention of prospective Noteholders is drawn to the factors set out in “Risk Factors” below.
— 55 —
RISK FACTORS
An investment in the Notes involves risks. The following summarises certain of these risks, each of which may
have a material adverse affect on the ability of the Issuer to pay the principal of and interest on the Notes
in full on or before the Note Maturity Date. Prospective purchasers of Notes should read and carefully
consider the following factors in connection with the purchase of the relevant Notes.
RISKS RELATING TO THE MORTGAGE LOAN ASSETS
The following summarises certain of the risks relating to the Mortgage Loan Assets, each of which could
result in shortfalls of Collections on the Mortgage Loan Assets which may have a material adverse affect on
the ability of the Issuer to pay the principal of and interest on the Notes in full on or before the Note Maturity
Date or may have a material adverse effect on the timing of payments to Noteholders. In such circumstances,
the Noteholders may suffer loss.
The Issuer’s ability to make payments on the Notes depends on payment by the Obligors and, in the
event a Mortgage Loan becomes delinquent and the Mortgage and Collateral Security is enforced in
respect of the related Mortgaged Property, the amount realised by such enforcement
There is no guarantee that the Obligors will meet their obligations under the Mortgage Loan Transactions or
that the cash flow generated by the Mortgage Loan Transactions will be sufficient to ensure payment when
due, or at all, of principal and interest due on the Notes. The ongoing ability of the Obligors to meet their
payment obligations under their respective Mortgage Loan Transactions depends on, and may be adversely
affected by, numerous factors, including, without limitation, each Obligor’s individual financial situation,
changes in political and economic conditions generally or changes in specific industry segments, changes in
Governmental rules, regulations and fiscal policies, financial mismanagement, war or acts of violence or
force majeure. The credit risk associated with Korean household debt increased in 2004, 2005, 2006 and
2007. If the creditworthiness of Korean consumers continues to decline, particularly if interest rates
applicable to the Mortgage Loans simultaneously increase, the rate of payment defaults by Obligors may
increase. In the event that the Obligors default on their payment obligations under their respective Mortgage
Loan Agreements, the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes
and, ultimately, the Issuer’s ability to make payments on the Notes when due may be adversely affected and
would then depend on the prompt enforcement of, and the amount realised from, the Mortgage Loans and the
Collateral Security in respect of the related Mortgaged Properties. Foreclosure of a Mortgage, being a court
sanctioned process, has no finite timeline (See “Korean Legal Considerations — General Description of
Judicial Auction Laws in Korea” below). There is no assurance that the foreclosure of a Mortgage (and the
realisation of any foreclosure proceeds) will be completed in a timely manner. See also “— Chapter 4
Proceedings could delay the enforcement of the Mortgages and Collateral Security” and “— Chapter 2
Proceedings could adversely affect the enforcement of the Mortgages and Collateral Security”.
The Mortgage Loan Assets are real estate assets subject to certain inherent risks which could adversely
affect the willingness or ability of the Obligors to make payments under the Mortgage Loan
Agreements or, in the event a Mortgage Loan becomes delinquent and the Mortgage and Collateral
Security is enforced, the amount realised by such enforcement
The market for the Mortgaged Properties is subject to certain real estate risks which include, but are not
limited to, adverse changes in the national, regional or local economic and demographic conditions in Korea,
real estate values generally and in the location of the property, interest rates, real estate tax rates, inflation,
the supply of and demand for residential properties, zoning laws or other Governmental rules and policies
and competition conditions (including the construction of new, competing properties). Although housing
prices in Korea generally rose between the start of 2001 and the end of 2003, housing prices decreased in
2004. However, from December 2004 to December 2007, Seoul experienced increases in property values of
up to 33.2% and nationally in Korea there has been an increase of property values of 19.7% over the same
period. From December 2006 to December 2007, Seoul experienced increases in property values of up to
5.4% and nationally in Korea there has been an increase in property values of 3.1% over the same period.
See “The Korean Residential Mortgage Industry — Residential Market” below. The Korean Government
— 56 —
introduced measures in August 2005, including reduced maximum loan-to-value ratios for mortgage loans
which are intended to prevent excessive speculative investments in property and a collapse in property prices.
There can be no assurance as to whether such Government measures will be effective and whether the
Government will not change or abandon such measures or introduce new measures.
Approximately 32.9% of the Mortgage Loan Assets (as of the Cut-off Date) have terms that allow Borrowers
to make larger final principal repayments when compared with periodic principal repayments. As the final
repayment amount is larger than periodic principal repayments, Borrowers may have more difficulty in
meeting this payment obligation and there can be no assurance that such Borrowers are able to refinance such
amount owed. The final principal repayment amount of such Mortgage Loan Assets represents, on a weighted
average basis, 18.71% of their initial principal balance.
There are geographic concentrations in the locations of Mortgaged Properties, with Seoul and its surrounding
area, Kyounggi, representing approximately 23.43% and 49.67%, respectively, of the outstanding principal
balance of the Mortgage Loans on the Cut-Off Date. Such concentrations increase risk that the portfolio of
Mortgage Loans as a whole may be affected by adverse economic or other developments or acts of nature
(which may result in uninsured losses) that may occur in Kyounggi or Seoul. To the extent that general
economic or other relevant conditions in Kyounggi or Seoul deteriorate, the resulting effect on real estate
markets and consumer demand could have an adverse effect on the market value and saleability of Mortgaged
Properties in those regions. Such risks, as well as general economic conditions which may adversely affect
the availability of mortgage financing, may result in the delay or inability to find buyers for Mortgaged
Properties and/or adversely affect the amount realised by enforcement. Furthermore, foreclosure proceedings
may be delayed for other reasons, such as, in the case of properties occupied by tenants, the refusal by the
tenant to vacate the property. Foreclosure of a Mortgage, being a court sanctioned process, has no finite
timeline (see “Korean Legal Considerations — General Description of Judicial Auction Laws in Korea”
below). There is no assurance that the foreclosure of a Mortgage (and the realisation of any foreclosure
proceeds) will be completed in a timely manner. In the event that a Mortgage Loan becomes delinquent and
the sale of the related Mortgaged Property is delayed or the proceeds of such sale are insufficient to satisfy
the amount outstanding under the related Mortgage Loan, the Purchaser’s ability to pay principal and/or
interest under the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes
promptly or at all may be adversely affected.
Certain of the Mortgage Loans may have been underwritten based on proof of income of the
Borrower’s spouse rather than the Borrower himself or herself, which may not provide an accurate
indication of the debt servicing ability of the Borrower
The Seller’s underwriting procedure allows, in some exceptional cases, the Borrower to provide proof of
income of the Borrower’s spouse in substitution for the Borrower providing his or her own proof of income.
The proof of income of the spouse of a Borrower may not provide an accurate indication of the debt servicing
ability of the Borrower. The provision by a Borrower of the proof of income of his or her spouse is also likely
to indicate that the Borrower’s income (if any) is less than that of his or her spouse. If a default occurs in
respect of a Mortgage Loan and the proceeds of enforcement of the Mortgage over the related Mortgaged
Property are insufficient to discharge the amount owing under the Mortgage Loan, there is no right of
recourse to the Borrower’s spouse (or his or her income and assets).
The exact number and size of Mortgage Loans included in the Mortgage Loan Assets which have been
underwritten based on proof of income of the Borrower’s spouse cannot be ascertained. Total proceeds of
enforcement of the Mortgage Loan Assets underwritten on this basis may be limited to the proceeds of
foreclosure of the Mortgages over the related Mortgaged Properties due to an inability to recover the amount
owing from the Borrower’s spouse and this could adversely affect the Purchaser’s ability to pay principal
and/or interest under the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the
Notes promptly or at all.
Furthermore, the Collateral Security Provider in relation to a Mortgage Loan may not always be the Borrower
under such Mortgage Loan, and in such a situation the Collateral Security Provider (usually a family member
of the Borrower) has provided Collateral Security in respect of the Mortgage Loan Agreement obligations of
the Borrower.
— 57 —
Certain of the Mortgage Loans may be subject to prior-ranking security interests over the related
Mortgaged Properties, which may adversely affect the adequacy of the Mortgaged Properties as
security for such Mortgage Loans, and, ultimately, the Issuer’s ability to make payments on the Notes
Certain of the Mortgaged Properties may be let by the relevant Borrower to residential tenants in accordance
with the Mortgage Loan documentation. It is common practice in Korea for tenants to pay a lump sum deposit
(known as bojung kum or key money) to the landlord to hold until the expiry of the lease. Key money deposits
have the benefit of security interests which, in certain circumstances, may take priority over the relevant
Mortgage. See “The Korean Residential Mortgage Industry” and “Korean Legal Considerations — General
Description of Judicial Auction Laws in Korea — Key Money Deposit Protection” below. The landlord is free
to invest the key money deposit in any manner (including speculative investments in stocks or real estate).
Upon the termination or expiry of the lease, the landlord is required to return the key money deposit to the
tenant, without interest. In the event that the landlord is unable to repay the key money deposit to the tenant,
the tenant may have the right to enforce its security interest over the property. See “The Korean Residential
Mortgage Industry — Mortgage Loan Market” below. In the event that a Mortgage Loan became enforceable
and the Purchaser enforced the Mortgage over the related Mortgaged Property, the proceeds of such
enforcement may not be sufficient to discharge both the senior secured obligation in respect of the key money
deposit and the subordinated secured obligations in respect of the Mortgage Loan. Although such risks are
factored into the loan-to-value ratio of a Mortgage Loan by the Seller, the effect of enforcement of a
Mortgage Loan in such circumstances could adversely affect the Purchaser’s ability to pay principal and/or
interest under the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes
promptly or at all.
The Obligors’ ability to make payments on the Mortgage Loans, and the adequacy of the Mortgaged
Properties as security for the Mortgaged Loans, may be adversely affected by the lack of an insurance
requirement in the Seller’s underwriting procedures for the Mortgage Loans
The Seller does not require the Obligors to obtain fire and hazard insurance on the Mortgaged Properties
insofar as they are apartment flats, nor does it independently obtain fire and hazard insurance for the
Mortgaged Properties as part of its underwriting procedures. Although in Korea, the Obligors, and, in the case
of apartment complexes, the related property management companies, typically obtain such insurance for the
Mortgaged Properties, there is no assurance that Obligors or the related property management companies
have any or sufficient insurance coverage for the Mortgaged Properties. In the event that any of the
Mortgaged Properties is damaged or incurs losses as a result of fire or other hazards, the Obligors’ ability
to make prompt and complete payments on the Mortgage Loans, the adequacy of the Mortgaged Properties
as security for the Mortgaged Loans and the Purchaser’s ability to pay principal and/or interest under the
Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes promptly or at
all may be adversely affected.
Individual Work-out Plans could restrict the Purchaser’s ability to recover amounts due and payable
under the Mortgage Loans or to enforce the Mortgages and retain the full value of the proceeds of
enforcement, and could subject the Purchaser to fines for non-compliance with the terms of the
Individual Work-out Plan
Citibank Korea Inc., together with other Korean consumer finance lenders, is party to an agreement (the
“Individual Work-out Plan Agreement”) which took effect on 25 September 2002 (as subsequently
amended) to assist qualifying individuals who are in financial difficulty to avoid personal bankruptcy. The
Individual Work-out Plan Agreement applies to sole practitioners and to individuals who have a negative
credit history, who owe KRW500,000,000 or less to financial institutions and (i) whose income exceeds a
specified minimum or (ii) who are determined by the Review Committee (as defined below) to be able to
repay their debts.
Under the Individual Work-out Plan Agreement, such individuals may apply to the Credit Counselling and
Recovery Service for protection under the scheme. On receipt of such an application, the Credit Counselling
and Recovery Service notifies each of the debtor’s creditor financial institutions and requests them to certify
the amount owed to them and their opinion on the application. From the time that the financial institutions
receive such a notice, they are subject to a moratorium on their ability, among other things, to enforce any
security that they hold for the relevant debt. The application is then considered by a review committee (the
“Review Committee”) established under the Individual Work-out Plan Agreement. The Review Committee
— 58 —
can recommend an Individual Work-out Plan for the rehabilitation of the debtor, including extending the
repayment period up to eight years, adjusting interest rates, setting up an instalment plan for a period not
exceeding eight years and writing off the principal amount of outstanding debt up to an amount equivalent
to one-third thereof (while the interest on such debts may be written off in excess of one-third of the principal
amount of outstanding debt). If the Individual Work-out Plan is adopted by approval of creditor financial
institutions representing 50% or more of the debtor’s outstanding unsecured debt and 662⁄3% or more of the
debtor’s outstanding secured debt, the creditor financial institutions are bound by its terms. Each of the Seller
(in respect of the period before the transfer of the Mortgage Loan Assets to the Purchaser has been perfected)
and the Purchaser (thereafter) has covenanted, in the Transfer Agreement and the Servicing Agreement
respectively, that they will not vote in favour of any Individual Work-out Plan which would inhibit the
enforcement of any Mortgage or Collateral Security or would reduce the amount which the Purchaser
receives in respect of any Mortgage Loan or proceeds of enforcement. If, however, an Individual Work-out
Plan in respect of any Borrower takes effect notwithstanding this covenant (for example, the Seller or the
Purchaser is out-voted by the required percentage of other creditor financial institutions), the Seller is obliged
to accept the return of any Mortgage Loan in respect of which payments may be reduced or delayed as a result
of an Individual Work-out Plan and to pay the relevant return amount to the Purchaser (subject to a limitation
on the maximum principal amount of Mortgage Loans the return of which is required to be accepted by the
Seller as specified in the Transfer Agreement). If the Seller fails to perform this obligation, the Purchaser’s
ability to pay principal and/or interest under the Purchaser Senior Notes and, ultimately, the Issuer’s ability
to make payments on the Notes promptly or at all may be adversely affected.
Chapter 4 Proceedings could delay the enforcement of the Mortgages and Collateral Security
The Consolidated Insolvency Act, which became effective on 1 April 2006, replaced the Bankruptcy Act, the
Corporate Reorganisation Act and the Act on Individual Debtor Rehabilitation. Chapter 4 of the Consolidated
Insolvency Act, similar to the Act on Individual Debtor Rehabilitation, provides for individual debtor
rehabilitation proceedings to individual debtors who earn wages or business income with debts of no more
than a specified amount (“Chapter 4 Proceedings”). Chapter 4 Proceedings are intended to assist individuals
in financial difficulty by providing a court-sanctioned financial rehabilitation programme outside the Korean
bankruptcy regime. Under a Chapter 4 Proceeding, a debtor may apply to the court to have certain of his or
her debts rescheduled to allow future income to be used to repay those debts. Chapter 4 Proceedings will not
directly affect the amount, timing or interest rate on the Mortgage Loans but may affect the enforcement of
security while the court considers the debtor’s application for rehabilitation which may take up to a month.
Further, once the court issues an order to commence a Chapter 4 Proceeding, any enforcement of security will
be automatically suspended until a repayment plan is approved by the court or the Chapter 4 Proceeding is
discontinued, whichever is earlier. If the approval of the repayment plan is delayed, the value and timing of
proceeds of enforcement of the Mortgage granted by a Borrower or a third party who has applied for a
Chapter 4 Proceeding could be adversely affected, which could adversely affect the Purchaser’s ability to pay
principal and/or interest under the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make
payments on the Notes promptly or at all. See “Korean Legal Considerations — Insolvency Laws — Chapter
4 Proceedings” below. See also “— Chapter 2 Proceedings could adversely affect the enforcement of the
Mortgages and Collateral Security” below.
Chapter 2 Proceedings could adversely affect the enforcement of the Mortgages and Collateral Security
Chapter 2 of the Consolidated Insolvency Act rehabilitation proceedings based on the former Corporate
Reorganisation Act but expanding the scope of eligible applicants of all types of legal entities, including
corporations and unincorporated foundations or associations, as well as individuals (a “Chapter 2
Proceeding”). As described above, eligible individuals may petition for a Chapter 4 Proceeding under the
Consolidated Insolvency Act as well. Under the Consolidated Insolvency Act, an individual debtor may
petition to the court for a Chapter 2 Proceeding if he or she is unable to repay his or her debts when they
become due without having a material adverse effect on his or her business or if he or she may become
bankrupt. Unlike a Chapter 4 Proceeding, in a Chapter 2 Proceeding, claims of secured creditors will be
subject to the reorganisation plan approved by the court. While it is expected that claims of the secured
creditors will receive preferential treatment relative to claims of unsecured creditors, there can be no
assurance that, when a Borrower or a third party files for a Chapter 2 Proceeding, the claims of the Purchaser
in relation to the related Mortgage and Collateral Security will not be thereby adversely affected. This could
— 59 —
in turn adversely affect the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior
Notes and, ultimately, the Issuer’s ability to make payments on the Notes promptly or at all. See “Korean
Legal Considerations — Insolvency Laws — Chapter 2 Proceedings” below. See also “— Chapter 4
Proceedings could adversely affect the enforcement of the Mortgages and Collateral Security” above.
Mismatches between interest rates on the Mortgage Loan Assets and the Purchaser Senior Notes may
result in insufficient collections to pay interest due on the Notes
Interest payments by Obligors under the Mortgage Loan Transactions are calculated on the basis of a floating
rate of interest and are made throughout each Collection Period. See “Description of the Mortgage Loan
Assets” below. Interest payments on the Purchaser Senior Notes are calculated on the basis of a different
floating interest rate and are made on Purchaser Note Payment Dates only. In order to address the interest
rate risk arising as a result of this difference, the Purchaser will enter into the Swap Transaction under the
Swap Agreement with the Swap Counterparty which will provide, amongst other things, that the rate payable
by the Purchaser in respect of Fixed Amounts will be the lower of the CD Rate plus a spread and the Weighted
Average Mortgage Rate, see “Transaction Summary — Swap Arrangements”. Although the Swap Transaction
is designed to mitigate the risks associated with, among other things, the mismatch between the interest rates
under the Mortgage Loans and the interest rate under the Purchaser Senior Notes, there can be no assurance
that the swap arrangements will be sufficient in all circumstances to hedge the interest rate risk fully. Such
a mismatch in interest rates may adversely affect the Purchaser’s ability to pay principal and/or interest under
the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes promptly or
at all. Furthermore, the Swap Transaction may be terminated before its scheduled termination date (being the
earlier of (i) the Note Payment Date falling in June 2038 and (ii) the Note Payment Date on which the
Principal Amount Outstanding of the Notes is reduced to zero) if certain “Events of Default” or certain
“Termination Events” (including certain “Additional Termination Events”) (each as defined in the Swap
Agreement) occur, including a default by the Swap Counterparty. See “Transaction Summary — Swap
Arrangements — Termination of the Swap Transactions” above.
Exchange controls and other circumstances beyond the control of the Purchaser and the Issuer may
result in the Purchaser or the Issuer being unable to obtain sufficient US Dollars on favourable terms
or when necessary
All of the debt obligations under the Mortgage Loan Assets are payable in Korean Won. The payment of US
Dollar amounts due under the Purchaser Senior Notes will depend upon the ability of the Purchaser to convert
payments made by the Obligors in Korean Won into a sufficient amount of US Dollars to meet payments due
under the Purchaser Senior Notes and to pay the US Dollars outside Korea. There can be no assurance that
future Governmental policies of Korea (including the imposition of exchange controls or remittance
restrictions) would not adversely affect the ability of the Purchaser to obtain US Dollars or the ability of the
Purchaser to transfer US Dollars abroad. Furthermore, delays in the conversion of Korean Won amounts into
US Dollars coupled with a devaluation of the Korean Won could reduce the amount of US Dollars received
by the Purchaser which could have an adverse effect on the Purchaser’s ability to pay principal and/or interest
under the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes
promptly or at all. In order to mitigate these currency fluctuation, transferability and convertibility risks,
thePurchaser will enter into the Swap Agreement with the Swap Counterparty and the Swap Transaction
thereunder. See “Transaction Summary — Swap Arrangements” above. There can be no assurance that the
swap arrangements will be sufficient in all circumstances to hedge the currency fluctuation, transferability
and convertibility risks fully. Furthermore, the Swap Transaction may be terminated before its scheduled
termination date (being the earlier of (i) the Note Payment Date falling in June 2038 and (ii) the Note
Payment Date on which the Principal Amount Outstanding of the Notes is reduced to zero) if certain “Events
of Default” or certain “Termination Events” (including certain Additional Termination Events) (each as
defined in the Swap Agreement) occur, including a default by the Swap Counterparty.
Changes in the Servicer may result in delays in payments on the Notes
Under the Servicing Agreement, the Seller will act as the Initial Servicer and will provide collection and
management services in relation to the Mortgage Loan Assets. Under the Servicing Agreement, in certain
circumstances (including the events set out under “Transaction Summary — Servicer Termination Events”
above) the appointment of the Servicer may be terminated and a substitute Servicer appointed.
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Although a Back-up Servicer has been appointed under the Servicing Agreement, the Back-up Servicer will
not be required to perform any back-up servicing duties until seven Seoul Business Days after it has received
notice of the occurrence of a Servicer Downgrade Event and will not be required to assume the role of
Servicer until the termination of the appointment of the Initial Servicer under the Servicing Agreement. There
is no assurance that the Back-up Servicer, when required, will be able to perform back-up servicing duties
or, as the case may be, servicing duties as set out in the Servicing Agreement.
There is no assurance that a Servicer Termination Event will not occur prior to the occurrence of a Servicer
Downgrade Event. There is no assurance that the Back-up Servicer or any Substitute Servicer, when required,
will be able to perform the collection and management services as well as the Initial Servicer or in a timely
manner. In particular, it may take up to 2 months from the date of the appointment of the Back-up Servicer
as Servicer before the information system of the Back-up Servicer or any Substitute Servicer is fully
integrated with that of the Servicer. This could cause delays in the collection and management of payments
due by Obligors in respect of the Mortgage Loans. Any such change of Servicer could adversely affect the
Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes and, ultimately, the
Issuer’s ability to make payments on the Notes promptly or at all.
The Purchaser’s interest in the Mortgage Loan Assets will not be perfected against the Borrowers until
a Notification Trigger Event occurs, if at all
Under Korean law, the transfer of the Mortgage Loan Assets by the Seller to the Purchaser under the Transfer
Agreement will be perfected against third parties (other than the relevant Borrowers) on the date the transfer
is registered with the FSC. In order to perfect the transfer against the Borrowers, it is necessary to notify the
Borrowers of the transfer. No notices of the transfer of the Mortgage Loan Assets will be sent to the
Borrowers until a Notification Trigger Event occurs (a Notification Trigger Event includes events such as the
occurrence of a Servicer Termination Event with respect to the Servicer, an Insolvency Event with respect
to the Seller and/or the Purchaser and a Purchaser Senior Notes Event of Default). As a consequence, the
transfer of the Mortgage Loan Assets will not be perfected against the Borrowers and the Borrowers are
entitled to continue to make payments to the Seller under the Mortgage Loan Agreements and exercise
against the Purchaser (and, ultimately, against the Secured Parties under the Pledge Agreement and the
Security Trustee under the Deed of Charge) all defences (such as set-off rights) that are available against the
Seller in respect of their obligations under the Mortgage Loan Agreements. Any such exercise of rights may
adversely affect the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes and,
ultimately, the Issuer’s ability to make payments on the Notes promptly or at all.
RISKS RELATING TO THE SELLER AND THE SERVICER
The following summarises certain of the risks relating to the Seller and the Servicer each of which could
result in shortfalls of Collections on the Mortgage Loan Assets which may have a material adverse affect
on the ability of the Issuer to pay the principal of and interest on the Notes in full on or before the Note
Maturity Date or may have a material adverse effect on the timing of payments to Noteholders. In such
circumstances, the Noteholders may suffer loss.
If a Korean court determines that the transfer of the Mortgage Loan Assets is avoidable, Noteholders
may suffer losses
Korean legal counsel to the Lead Arranger will opine that, although there is no court precedent directly on
point, the transfer of the Mortgage Loan Assets by the Seller to the Purchaser pursuant to the Transfer
Agreement constitutes a true sale of the Mortgage Loan Assets and would not be set aside or avoided under
Korean law in the event of the Seller’s bankruptcy or otherwise. This opinion will be subject to certain
assumptions, including among others, that:
•
the purchase price for the Mortgage Loan Assets to be paid by the Purchaser to the Seller pursuant to
the Transfer Agreement is not less than fair market value;
•
at each time the Mortgage Loan Assets are transferred by the Seller to the Purchaser pursuant to the
Transfer Agreement, the Mortgage Loan Assets do not constitute all or substantially all of the assets of
the Seller;
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•
at each time the Mortgage Loan Assets are transferred by the Seller to the Purchaser pursuant to the
Transfer Agreement, the Seller has no knowledge that the sale, assignment and transfer of each and all
of the Mortgage Loan Assets under the Transfer Agreement will harm any of its creditors and has no
intent to prefer any of its creditors over its other creditors in respect of the use of the proceeds of the
sale, assignment and transfer of the Mortgage Loan Assets; and
•
at the time the Transfer Agreement is entered into and at the time the Mortgage Loan Assets are
transferred by the Seller to the Purchaser pursuant to the Transfer Agreement, the Seller is not insolvent
and will not become insolvent within the reasonably foreseeable future thereafter and the Purchaser and
the Seller are not aware that the Seller is insolvent and are not aware of any reason why the Seller would
be or become insolvent within the reasonably foreseeable future thereafter.
There can be no assurance that any or all of these assumptions will prove to be correct. If any of the above
assumptions proves to be incorrect, the transfer of the Mortgage Loan Assets by the Seller to the Purchaser
pursuant to the Transfer Agreement may be set aside or avoided under Korean law. In such a situation, the
Purchaser would have no ownership interest in the Mortgage Loan Assets (including any amount previously
received by the Purchaser under the Mortgage Loan Assets), and would only have an unsecured indemnity
claim against the Seller pursuant to the Transfer Agreement in relation to its claim for recovery of the
purchase price paid to the Seller. There can be no assurance that the Seller will have sufficient funds to meet
such an indemnity claim. The lack of an ownership interest in the Mortgage Loan Assets may adversely affect
the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes and, ultimately, the
Issuer’s ability to make payments on the Notes promptly or at all.
If the Seller becomes a “failing company (busiljinghugiup)” under the Corporate Restructuring
Promotion Act, the Issuer’s ability to make payments on the Notes may be adversely affected
The old Corporate Restructuring Promotion Act (the “Old CRPA”) came into effect in Korea on 15
September 2001 and expired on 31 December 2005. However, on July 3, 2007, the National Assembly of
Korea passed the new Corporate Restructuring Promotion Act (the “CRPA”) which will remain in effect until
December 31, 2010. The new CRPA reintroduces most of the features of the Old CRPA. If the Seller becomes
a “failing company” under the CRPA, the Issuer’s ability to make payments on the Notes may be adversely
affected. The provisions of the CRPA are described in more detail in “Korean Legal Considerations — the
Corporate Restructuring Promotion Act” below. The Purchaser could be considered a “creditor financial
institution” of the Seller for the purposes of the CRPA because the Financial Supervisory Service of Korea
(the “FSS”) has determined that, in a sale of assets under the ABS Act, any claims against the seller arising
under the seller’s warranties against defects in the assets sold by the seller could be considered “provision
of credit” for the purposes of the Old CRPA and such determination may be applicable to the CRPA.
Therefore, if the Seller becomes a “failing company” (as defined in the CRPA) and the Purchaser has recourse
claims against the Seller, the Purchaser may be deemed to have provided credit to the Seller under the CRPA.
In such circumstances, a resolution of the committee of the creditors of the Seller may restrict the Purchaser
from exercising its recourse claims against the Seller and/or may require the Purchaser to provide new credit
to the Seller.
Korean counsel to the Lead Arranger has advised that if the Purchaser objects to such resolution and offers
to sell its claims against the Seller to the committee of the creditors (representing the creditor financial
institutions consenting to such resolution) or waives its claims against the Seller, the Purchaser may avoid
such additional funding obligation. However, it is not entirely clear whether the Purchaser may avoid the
additional funding obligation by offering its claims against the Seller for sale or waiving its claims since there
has been neither any clear guidance from the Government authorities nor any established practice on matters
relating to the procedure to sell or consequences of waiving the creditors’ claims. Any requirement on the part
of the Purchaser to provide credit to the Seller in such circumstances, may adversely affect the Purchaser’s
ability to pay principal and/or interest under the Purchaser Senior Notes and, ultimately, the Issuer’s ability
to make payments on the Notes promptly or at all. In addition, if the Purchaser waives its claims against the
Seller including, without limitation, the Purchaser’s right to require the Seller to accept the return of the
Mortgage Loan Assets in order to avoid the additional funding obligation, such waiver by the Purchaser may
adversely affect the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes and,
ultimately, the Issuer’s ability to make payments on the Notes promptly or at all.
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Misrepresentation or breach of the Seller’s warranties regarding the Mortgage Loan Assets may result
in losses to Noteholders
Under the Transfer Agreement, the Seller will make certain representations and give certain warranties as of
the date of the Transfer Agreement, as of the Transfer Date and as of the Closing Date in respect of the
Mortgage Loan Assets. None of the Security Agent, the Security Trustee, the Note Trustee, the Agents, the
Servicer, the Purchaser Transaction Administrator, the Issuer Transaction Administrator, the Co-Managers
and/or the Lead Arranger are responsible for reviewing the Mortgage Loan Assets and ascertaining whether
any misrepresentations or breach of warranties have occurred. Any of these representations and warranties
proving to be untrue or incorrect could result in Collections shortfalls on the Mortgage Loan Assets, which
may adversely affect the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes
and, ultimately, the Issuer’s ability to make payments on the Notes promptly or at all. Under the Transfer
Agreement, the Seller will be obliged under certain circumstances and subject, in the case of Affected Assets,
to a cap for the aggregage return amounts of KRW 35 billion to accept the return of any Mortgage Loan Asset
in respect of which a misrepresentation or breach of warranty has occurred and to pay the relevant return
amount in respect thereof. See “Transaction Summary — The Mortgage Loan Assets — Return of the
Mortgage Loan Assets” and “Transaction Summary — The Mortgage Loan Assets — Affected Assets” above.
There can be no assurance that the Seller or its successors will have sufficient financial resources at the
relevant time to pay the relevant return amount upon any such return and a failure on the part of the Seller
to do so may adversely affect the Purchaser’s ability to pay principal and/or interest under the Purchaser
Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes promptly or at all.
If the financial status of Citibank Korea Inc. were to deteriorate, it could adversely affect its ability to
act as the Servicer and fulfil its obligations under the Transfer Agreement
There can be no assurance that Citibank Korea Inc. will not make losses or experience financial difficulties
in the future. Any such difficulties could adversely affect the ability of Citibank Korea Inc. to (a) perform
its obligations as Seller to pay indemnities or return amounts where required to do so under the Transaction
Documents, (b) perform its obligations under the Transaction Documents as Purchaser Collection Account
Bank and/or (c) perform its servicing obligations in relation to the Mortgage Loan Assets (including the
remittance of Collections received from Obligors to the Purchaser Collection Account) under the Servicing
Agreement, any of which may adversely affect the Purchaser’s ability to pay principal and/or interest under
the Purchaser Senior Notes and, ultimately, the Issuer’s ability to make payments on the Notes promptly or
at all.
Noteholders may suffer losses if the Servicer fails to remit payments received from the Obligors to the
Purchaser in accordance with the Servicing Agreement
From the Transfer Date, the Obligors will make payments with respect to the Mortgage Loan Assets to
Citibank Korea Inc. in its capacity as Servicer. Under the Servicing Agreement, the Servicer is required to
remit or procure the remittance to the Purchaser’s Purchaser Collection Account with Citibank Korea Inc. (as
Purchaser Collection Account Bank) of any payments with respect to the Mortgage Loan Assets payable to
the Purchaser received on or after the Transfer Date by no later than close of business in Seoul on the Seoul
Business Day on which (i) payments are made by Obligors pursuant to the Direct Debit Method, (ii) the
Servicer is notified by the KFTC that the relevant amount has been credited to the clearing systems of the
KFTC, (iii) the Servicer receives cleared funds in respect of deposits made by Obligors in person, or (iv)
Obligors make payment by telephone, over the internet or through automatic teller machines, or, if other
methods become used in the Korean mortgage loan industry and the Servicer agrees to use of such methods
with the Rating Agencies, within the time period agreed with the Rating Agencies in respect of such other
methods. See “Transaction Summary — Servicing — Servicing by the Servicer” above. A failure on the part
of the Servicer to remit or procure the remittance of such payments to the Purchaser Collection Account or
by the Purchaser Collection Account Bank to remit such amounts to the General Won Account may adversely
affect the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes and,
ultimately, the Issuer’s ability to make payments on the Notes promptly or at all. In such circumstances, the
Back-up Servicer will be appointed as the Servicer and notices will be delivered to the Obligors to re-direct
their payments to the Back-up Servicer. See “— Changes in the Servicer may result in delays in the payment
of the Notes” above.
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RISKS RELATING TO THE SWAP ARRANGEMENTS
If the Swap Agreement is terminated, it may be difficult for the Purchaser to enter into a replacement
swap agreement
The Purchaser will enter into the Swap Transaction under the Swap Agreement with the Swap Counterparty
on or before the Closing Date which is expected to mitigate certain interest rate, currency fluctuation,
transferability and convertibility risks and timing mismatches as outlined in “Transaction Summary — Swap
Arrangements” above. There can, however, be no assurance that the Swap Transaction will not be terminated
before its scheduled termination dates if an “Event of Default” or “Termination Event” (including any
“Additional Termination Event”) (each as defined in the Swap Agreement) occurs (see “Transaction
Summary — The Swap” above). If the Swap Transaction is terminated before its scheduled termination date,
the Purchaser will attempt to enter into swap arrangements on substantially similar terms. However, no
assurance can be given that the Purchaser will be able to find a third party willing to enter into replacement
swap arrangements or that, even if it were able to enter into replacement swap arrangements, the terms of
any such replacement swap arrangements would not be significantly less favourable to the Purchaser and,
ultimately, to the Noteholders. If no replacement swap arrangements are entered into, the Designated FX
Bank will convert the relevant Korean Won amounts into US Dollars at the relevant Quoted Rate which is
subject to fluctuations and transferability and convertibility risks. Furthermore, in the event that the Swap
Transaction is terminated before its scheduled termination date, Swap Breakage Costs may be payable by the
Purchaser to the Swap Counterparty under such Swap Transaction. Where such early termination of the Swap
Transaction is due to an “Event of Default” where the Purchaser is the “Defaulting Party” or an “Illegality”
or another “Termination Event” where the Swap Counterparty is not the sole “Affected Party” (as such terms
are defined in the Swap Agreement), Swap Breakage Costs will rank ahead of payments of interest and
repayments of principal on the Notes.
RISKS RELATING TO THE NOTES
The purchase of Notes involves substantial risks
The purchase of Notes involves substantial risks and is suitable only for sophisticated investors who have
sufficient knowledge and experience and access to such professional advisers as they consider necessary in
order to make their own evaluation of the risks and the merits of such an investment (including without
limitation the tax, accounting, credit, legal, regulatory and financial implications for them of such an
investment) and who have considered the suitability of the Notes in light of their own circumstances and
financial condition. Prospective investors should ensure that they understand the nature of the risks posed by,
and the extent of their exposure under, the Notes and before making their investment decision, should
consider carefully all the information set out in this Prospectus and, in particular, the considerations set out
below. The Issuer does not represent that the statements below regarding the risks of holding any Notes are
exhaustive. The Issuer may be unable to pay interest, principal or other amounts on or in connection with any
Notes or may reduce the amounts of interest, principal or other amounts payable on or in connection with
any Notes for reasons other than those described below.
This Prospectus is not, and does not purport to be, investment advice. None of the Issuer, the Purchaser, the
Lead Arranger, the Co-Managers, the Note Trustee, the Security Trustee, the Security Agent, any Agent, the
Purchaser Transaction Administrator, the Issuer Transaction Administrator, the Swap Counterparty, the Spot
Bank, the Back-up Servicer nor any agent or affiliate of any of the foregoing is acting as an investment
adviser or providing advice of any other nature, or assumes any fiduciary obligation, to any investor in the
Notes. Each prospective investor in the Notes should have sufficient financial resources and liquidity to bear
all of the risks of an investment in the the Notes, including where principal and interest may reduce as a result
of the occurrence of different events whether related to the creditworthiness of any entity or otherwise or
changes in particular rates, prices or indices, or where the currency for principal or interest payments is
different from the prospective investor’s currency.
— 64 —
Investment restrictions may be applicable
Investment activities of certain investors are subject to investment laws and regulations, or review or
regulation by certain authorities. Each prospective investor should therefore consult its professional advisers
to determine whether and to what extent (a) the Notes are legal investments for it, and/or (b) other restrictions
apply to its purchase or, if relevant, (in respect of Notes) pledge of or creation of any security interest over
any Notes. Financial institutions should consult their professional advisers or the appropriate regulators to
determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.
The average life of the Notes, and the Noteholders’ return on their investment, will be dependent on
the prepayment rate of the Mortgage Loans
Prior to final maturity, the Noteholders may receive quarterly principal repayments, in part, on each Note
Payment Date. Whether or not such repayments are made will depend on, among other things, the rate at
which Borrowers make principal repayments under the Mortgage Loans. Principal is repayable on each
Mortgage Loan in accordance with its amortisation schedule. In addition, the Borrowers may prepay the
Mortgage Loans in full or in part at any time (subject to certain prepayment charges, if applicable). Changes
in prevailing interest rates in Korea for residential mortgage loans as well as a variety of political, economic,
social, geographic, demographic and other factors, may affect the prepayment rate of the Mortgage Loans.
Prepayments may also result from the sale of the Mortgaged Properties by the Obligors, the refinancing of
the Mortgage Loans by the Obligors, the return of a Mortgage Loan Asset to the Seller following a
misrepresentation or breach of warranty with respect to such Mortgage Loan Asset (see “Transaction
Summary — The Mortgage Loan Assets — Return of the Mortgage Loan Assets” and “Transaction Summary
— The Mortgage Loan Assets — Return of the Mortgage Loan Assets” above) or the enforcement of the
relevant Mortgage Loan Assets following default in payment by the related Obligors. If substantial
prepayments are received, the average life of the Notes may be shorter, and the Noteholders’ return on their
investment in the Notes may be less, than would otherwise be the case. See “Average Life of the Notes”
below. In addition, the Notes are also subject to mandatory redemption in full in certain circumstances. See
“Transaction Summary — The Notes — Mandatory Redemption” above.
Noteholders will have limited recourse because the Issuer Charged Property is the only source of funds
available to the Issuer for the repayment of the Notes
If the net proceeds of the enforcement of the Issuer Charged Property are not sufficient to pay in full all
amounts due under any Notes after all of the amounts having priority over such Notes have been paid, the
Noteholders will not have any further claims against the Issuer in respect of any amounts which remain
unsatisfied. The Notes will not be obligations or responsibilities of, or guaranteed or insured by, any other
person or entity. In particular, the Notes will not be obligations or responsibilities of, or guaranteed by, the
Seller, the Purchaser, the Servicer, the Purchaser Transaction Administrator, the Purchaser Corporate
Administrator, the Issuer Transaction Administrator, the Back up Servicer, the Lead Arranger, the
Co-Managers, the Swap Counterparty, the Spot Bank, the Security Agent, the Security Trustee, the Note
Trustee, the Agents or any subsidiary or affiliate thereof, and none of these persons will accept any liability
whatsoever to the Noteholders in respect of any failure by the Issuer to pay any amount due under the Notes.
Furthermore, neither the Issuer nor the Purchaser has any material assets other than the Issuer Charged
Property and the Purchaser Charged Property, respectively, and each of them has restricted its business to
activities which are consistent with the provisions of the Transaction Documents. Although the transaction
structure is designed to minimise the likelihood that either the Issuer or the Purchaser will become insolvent,
there can be no assurance that the Issuer or Purchaser will not become insolvent or the subject of a
winding-up or liquidation order or proceeding. In the event of the insolvency, winding-up or liquidation of
the Issuer or Purchaser, the application of relevant insolvency law may have a material adverse effect on the
value of the Noteholders’ claim in the Issuer Charged Property and the Purchaser Charged Property,
respectively.
The Noteholders will not have a valid security interest in the underlying Mortgages and may not have
a valid security interest in the underlying Mortgage Loans until a later time if at all
Under the Deed of Charge, the Issuer will grant a security interest over the Issuer Charged Property in favour
of the Security Trustee for the benefit of amongst others, the Noteholders as security for the Notes. The
Issuer’s interest as a Secured Party and a pledgee of the Mortgage Loan Assets pursuant to the Pledge
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Agreement (which is part of the Issuer Charged Property) will not, however, be validly created with respect
to the underlying Mortgages and may not be validly created with respect to the underlying Mortgage Loans
until the pledge of the Mortgage Loan Assets by the Purchaser in favour of the Secured Parties pursuant to
the Pledge Agreement and the subsequent security assignment of the pledge interest of the Issuer to the
Security Trustee pursuant to the Deed of Charge are registered with the relevant real estate registries in
Korea. Under Korean law, the pledge of a Mortgage Loan Asset will be effective with respect to a Mortgage
only when such pledge is registered with the real estate registry in the court where the Mortgage is registered.
In order to register a pledge of the Mortgage Loan Assets, the transfer of the Mortgage Loan Assets from the
Seller to the Purchaser must first be registered.
The transfer of the Mortgage Loan Assets from the Seller to the Purchaser will not be registered until a
Notification Trigger Event occurs and at any other time following receipt by the Purchaser of a written
direction by the Security Agent as contemplated in the Pledge Agreement. Consequently, the pledge of the
Mortgage Loan Assets pursuant to the Pledge Agreement and the subsequent security assignment pursuant to
the Deed of Charge cannot be registered until the transfer has been registered and the Noteholders will not
have a valid security interest in the underlying Mortgages and may not have a valid security interest in the
underlying Mortgage Loans until all such registrations have occurred. Korean counsel to the Lead Arranger
has advised that a majority of legal scholars and commentators in Korea are of the view that even if the
Pledge Agreement and the Deed of Charge are not registered with the relevant real estate registries, the
creation of a security interest in the Mortgage Loans contemplated therein would be effective, while the
creation of a security interest in the related Mortgages contemplated therein would not be effective until the
Pledge Agreement and the Deed of Charge are so registered. However, certain other legal scholars and
commentators are of the view that the security interest over the Mortgage Loans themselves would not
become effective at all until such registration is completed. Korean counsel to the Lead Arranger believes,
and will issue an opinion stating, that the majority view is the better view. Nevertheless, because there is no
court precedent on this point, there is a risk that a Korean court will agree with the minority view. As a result,
the pledge of the Mortgage Loan Assets by the Purchaser in favour of the Secured Parties pursuant to the
Pledge Agreement and the subsequent security assignment of the pledge interest of the Issuer to the Security
Trustee pursuant to the Deed of Charge would not create a valid security interest over the Purchaser’s interest
in the underlying Mortgages (if the majority view prevails) or the underlying Mortgages and Mortgage Loans
(if the minority view prevails). The Secured Parties, however, would still have an indirect security interest
in the underlying Mortgage Loans and Mortgages through the Equity Pledge Agreement whereby all the
shares in the Purchaser are pledged in favour of the Secured Parties. See “Transaction Summary — The
Purchaser Notes — Purchaser Security” above. The Issuer’s interest in this security interest will in turn be
assigned by way of security for the benefit of the Noteholders under the Deed of Charge. Nevertheless, until
each of (a) the transfer of Mortgage Loan Assets from the Seller to the Purchaser, (b) the pledge of the
Mortgage Loan Assets pursuant to the Pledge Agreement and (c) the subsequent security assignment pursuant
to the Deed of Charge are registered by the Purchaser with the relevant real estate registries, the Issuer will
not be able directly to enforce under the underlying Mortgages and may not be able directly to enforce under
the Mortgage Loans if the Purchaser defaults under the Purchaser Senior Notes, which may adversely affect
its ability to make payments under the Notes.
The Security Trustee will not be able to realise the Issuer Security during the first year from the
Closing Date through the sale of the Purchaser Senior Notes to a Korean resident due to Korean
transfer restrictions, which may adversely affect the Issuer’s ability to make payments on the Notes
The FSC’s Regulations on Securities Issuance and Disclosure were amended with effect from 30 November
2006 and prohibit the transfer of the Purchaser Senior Notes to a Korean resident (as defined in the Foreign
Exchange Transaction Act and its Presidential Decree and regulations) during the first year of their issuance.
In the event of the occurrence in the first year from the Closing Date of an Event of Default and the
subsequent occurrence of the Note Enforcement Date, the Security Trustee would be unable to realise the
Issuer Security during the first year from the Closing Date through a sale of Purchaser Senior Notes to a
Korean resident (although other Issuer Security would be unaffected) and this may adversely affect the
Issuer’s ability to make payments on the Notes.
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The Noteholders’ security interest in the Mortgage Loans, if any, will not be perfected against the
Borrowers until a later time if at all
Under the Deed of Charge, the Issuer will grant a security interest over the Issuer Charged Property in favour
of the Security Trustee for the benefit of, amongst others, the Noteholders as security for the Notes. In
relation to the Issuer’s interest as a Secured Party and a pledgee of the Mortgage Loan Assets pursuant to the
Pledge Agreement (which is part of the Issuer Charged Property), the security interest in the Mortgage Loans,
if any, will not be perfected until fixed-date stamped notices are delivered to the Borrowers, notifying them
of (a) the transfer of the Mortgage Loan Assets from the Seller to the Purchaser, (b) the creation of the pledge
on the Mortgage Loan Assets by the Purchaser to the Secured Parties and (c) the security assignment of the
pledge interest of the Issuer to the Security Trustee for the benefit of the Noteholders. Such notices will not
be sent to the Borrowers until a Notification Trigger Event has occurred as contemplated in the Transfer
Agreement. See “— Risks Relating to the Mortgage Loan Assets — The Purchaser’s interest in the Mortgage
Loan Assets will not be perfected against the Borrowers until a Notification Trigger Event occurs, if at all”
above. Accordingly, the Noteholders’ security interest in the Mortgage Loans, if any, will not be perfected
against the Borrowers until such notices are delivered to the relevant Borrowers. Until such notices are
delivered to the Borrowers, the Borrowers will be entitled to continue to make payments to the Seller under
the Mortgage Loan Agreements and exercise against the Purchaser (and ultimately, against the Secured
Parties under the Pledge Agreement and the Security Trustee under the Deed of Charge) all defences
(including set-off rights) which are available to the Borrowers against the Seller in respect of the Borrowers’
obligations under the Mortgage Loan Agreements. None of the Security Agent, the Security Trustee, the Note
Trustee, the Purchaser Transaction Administrator and the Issuer Transaction Administrator are responsible for
preparing or sending such notices of the transfer and pledge to the Borrowers, although such notices will be
countersigned by each of the Purchaser (acting by itself or through the Security Agent), the Issuer (acting by
itself or through the Security Agent), the Security Agent (as agent of the Secured Parties) and the Security
Trustee (acting by itself or through the Security Agent).
The Issuer’s ability to make payments on the Notes may be adversely affected by the rights of the
Borrowers, in certain circumstances, to set-off obligations under the Mortgage Loan Transactions
against the Seller
Under Korean law, the Noteholders’ interest in the Mortgage Loans, if any, will not be perfected against the
Borrowers until notices of the transfer of the Mortgage Loan Assets from the Seller to the Purchaser, the
creation of the pledge on the Mortgage Loan Assets by the Purchaser to the Secured Parties and the security
assignment of the pledge interest of the Issuer to the Security Trustee for the benefit of, among others, the
Noteholders are delivered to the Borrowers. Prior to the delivery of such notices, the Borrowers can set off
other claims on the Seller against their obligations under the Mortgage Loan Transactions (for example, in
the case of a Borrower who has a deposit agreement with the Seller, claims arising under such deposit
agreement). However, Korean counsel to the Lead Arranger has advised that, even after delivery of the
notices, the Borrowers may still be able to set off such claims against their obligations under the Mortgage
Loan Transactions, if the grounds for such claims existed at the time the notices were delivered, even if such
claims were not yet due and payable at that time. In the event that Borrowers assert their rights to set off other
claims against the Seller from their obligations under the Mortgage Loan Transactions, the Purchaser’s ability
to pay principal and/or interest under the Purchaser Senior Notes may be adversely affected and, ultimately,
the Issuer’s ability to make payments on the Notes promptly or at all may also be adversely affected.
On the Cut-off Date, approximately 3.71% (KRW9,940,623,398) of the outstanding principal balance of the
Mortgage Loans Assets are potentially exposed to set-off claims, as a result of the Seller’s obligations to the
relevant Borrowers. If a Borrower asserts a right of set-off, the Seller has covenanted in the Transfer
Agreement to pay to the General Won Account an amount equal to the amount set-off. If both (i) the Seller’s
credit rating from Fitch and Standard & Poor’s is below certain levels specified in the Transfer Agreement
and (ii) the potential set-off exposure in respect of the Mortgage Loan Assets expressed as a percentage of
the aggregate principal amount outstanding of the Mortgage Loan Assets exceeds the Excess Credit
Enhancement Percentage (a “Set-off Breach”), the Seller is required under the Transfer Agreement to deposit
into the Set-off Fund within the Reserve Fund Account an amount (the “Set-off Fund Initial Amount”) equal
to the aggregate amount which Borrowers could potentially set-off against the Mortgage Loan Assets as at
the day which is the tenth (10th) Seoul Business Day following the date of the first Set-off Breach which will
then be available in the event a Borrower asserts a right of set-off.
— 67 —
There is no assurance that the Seller will, or will have sufficient financial resources to, perform such
obligations and a failure on the part of the Seller to perform these obligations may adversely affect the
Purchaser’s ability to pay principal and/or interest under the Purchaser Senior Notes and, ultimately, the
Issuer’s ability to make payments on the Notes promptly or at all.
The rating of the Notes as at the Closing Date may not remain in effect until payment in full of the
Notes
It will be a condition to issuance of the Notes that the Notes be assigned, on issue, the ratings referred to on
page 116. The ratings address the likelihood of full and prompt payment to the Noteholders of all payments
of interest on the Notes on each Note Payment Date and the full and prompt payment of principal on a date
that is not later than the Note Maturity Date. A rating is not a recommendation to purchase, hold or sell the
Notes as such ratings do not comment as to market price or suitability for a particular investor.
There is no assurance that a rating will remain in effect for any given period of time or that a rating will not
be lowered, suspended or withdrawn entirely by the relevant Rating Agency rating the Notes in the future,
if, in its judgment, circumstances in the future so warrant. Any decline in the financial condition of the Issuer
or the Purchaser or the Mortgage Loan Assets may impair the ability of the Issuer to make payments to
Noteholders under the Notes and/or result in any ratings of the Notes being lowered, suspended or withdrawn
entirely. In such circumstances, the market price and liquidity of the Notes may decrease, and no person or
entity would be obliged to provide any additional credit enhancement with respect to the Notes. The
lowering, suspension or withdrawal of a rating of the Notes will not constitute an Event of Default with
respect to such Notes.
The Issuer will not compensate Noteholders for any withholding tax on payments pursuant to the Notes
In the event that withholding taxes are imposed by any Taxation Authority in respect of payments to
Noteholders of amounts due pursuant to the Notes held by them, the Issuer is not obliged to gross up or
otherwise compensate such Noteholders for the lesser amounts such Noteholders may receive as a result of
the imposition of withholding taxes. See “Transaction Summary — The Notes — Withholding Tax on the
Notes” and “Tax Considerations” below for discussion of withholding taxes in respect of payments pursuant
to the Notes to Noteholders.
The absence of a secondary market for the Notes may result in limited liquidity
There is currently no secondary market in the Notes and there can be no assurance that any such market in
the Notes will develop or, if it does develop, that it will provide Noteholders with liquidity of investment or
will continue for the life of the Notes. If a market develops, the market value of the Notes may fluctuate,
including as a result of changes in prevailing rates of interest. Any sale of Notes by Noteholders in any
secondary market which may develop may be at a discount from the original issue price of the Notes.
Furthermore, the Notes are subject to certain transfer restrictions and may be transferred only to certain
transferees under certain circumstances. Such restrictions on the transfer of Notes may further restrict
liquidity. Consequently a Noteholder must be prepared to hold the Notes until the Note Maturity Date.
RISKS RELATING TO KOREA
Adverse economic developments in Korea could result in losses to Noteholders if these developments
reduce collections on the Mortgage Loan Assets or otherwise such that the Issuer would default on
payments due to Noteholders
The Seller is incorporated in Korea and all of the Obligors reside in Korea. As a result, the Seller and the
Purchaser are subject to political, economic, legal and regulatory risks specific to Korea. Adverse economic
and financial developments in Korea and Asia beginning in the second half of 1997 have had and may
continue to have an adverse effect on the Seller. The legal system in Korea is not as well established or
transparent as in the United States or Western Europe, and in particular the legal rights of creditors or other
parties are in many cases not clear, well established or consistently enforced. In particular, the ABS Act is
a new body of legislation in relation to which there has been no Korean judicial consideration.
— 68 —
From early 1997, Korea experienced a significant financial and economic downturn, from which it is widely
believed the country has now recovered to a large extent. The economic indicators in 2002, 2003, 2004, 2005
and 2006 have shown mixed signs of recovery and uncertainty, and future recovery and growth of the
economy is subject to many factors beyond the Seller’s control. Events related to the terrorist attacks in the
United States that took place on 11 September 2001, developments in the Middle East, including the war in
Iraq, higher oil prices, the liquidity and credit crisis affecting the international financial system and general
weakness of the global economy and the outbreak of epidemic diseases (such as severe acute respiratory
syndrome, or SARS, and the avian flu) in Asia and other parts of the world have increased the uncertainty
of global economic prospects in general and may continue to adversely affect the Korean economy for some
time. Any future deterioration of the Korean and global economy could adversely affect the Seller’s business,
financial condition and results of operations.
Developments that could hurt Korea’s economy in the future include:
•
financial problems relating to Korean conglomerates known as chaebols, or their suppliers, and their
potential adverse impact on Korea’s financial sector, including as a result of recent investigations
relating to unlawful political contributions and corporate accounting fraud or irregularities by chaebols;
•
loss of investor confidence arising from corporate accounting irregularities and corporate governance
issues of certain chaebols;
•
a slowdown in consumer spending and the overall economy;
•
an unanticipated deterioration of consumer credit quality;
•
failure of restructuring of large troubled companies, including troubled credit card companies and
financial institutions;
•
adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil
prices), exchange rates (including depreciation of the US dollar or Japanese yen), interest rates and
stock markets;
•
increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s
trading partners;
•
adverse developments in the economies of countries such as the United States, China and Japan to
which Korea exports, or in emerging marketing economies in Asia or elsewhere that could result in a
loss of confidence in the Korean economy;
•
the continued emergence of China, to the extent its benefits (such as increased exports to China) are
outweighed by its costs (such as competition in export markets or for foreign investment and the
relocation of the manufacturing base from Korea to China);
•
geopolitical uncertainty and risk of further terrorist attacks around the world;
•
social and labour unrest or declining consumer confidence or spending resulting from lay-offs,
increasing unemployment and lower levels of income;
•
a recurrence of severe acute respiratory syndrome, or SARS, or the widespread outbreak of any similar
contagion, in Asia and other parts of the world;
•
a decrease in tax revenues and a substantial increase in the Korean Government’s expenditures for
unemployment compensation and other social programmes that, together, lead to an increased
government budget deficit;
•
political uncertainty or increasing strife among or within political parties in Korea;
— 69 —
•
a deterioration in economic or diplomatic relations between Korea and its trading partners or allies,
including such deterioration resulting from trade disputes or disagreements in foreign policy;
•
hostilities involving oil producing countries in the Middle East and any material disruption in the
supply of oil or increase in the price of oil resulting from those hostilities; and
•
an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea and/or
the United States.
Any developments that could adversely affect Korea’s economic recovery will likely also to have a material
adverse effect on the Seller’s operations and the Obligors’ ability to any payments when due to the Seller with
respect to the Mortgage Loans.
The terrorist attacks on the United States, military action in Iraq and the outbreak of severe acute respiratory
syndrome (“SARS”) and avian influenza may have a material adverse effect on the value of the Notes
Terrorist attacks on the United States on 11 September 2001 have resulted in substantial and continuing
volatility in international capital markets. In addition, the military action by a coalition led by the United
States and Britain against the regime in Iraq in March 2003 could affect the world economy and the political
stability of other countries. Any further military or other response by the United States and/or its allies or any
further terrorist activities could have significant negative effects on worldwide financial markets and the
Korean economy.
There was a widespread outbreak of Severe Acute Respiratory Syndrome (“SARS”), a highly contagious
disease, in many Asian countries in 2003. In response to the SARS outbreak, the World Health Organisation
issued a travel advisory recommending that persons travelling to certain affected areas consider postponing
all but essential travel. Recently, there have been media reports regarding the spread of the H5N1 virus or
“Avian Influenza A” among birds and in particular poultry as well as some isolated cases in certain countries
of transmission of the virus to humans. There can be no assurance that there will not be a serious outbreak
of a contagious disease. If there was such an outbreak in Korea it could have an adverse effect on the
performance of the Korean economy, which could have an adverse effect on the ability of the Obligors to
make payments under the Mortgage Loans.
Any material change in the financial markets or the Korean economy as a result of these attacks or contagion
or the responses thereto may adversely affect the Purchaser’s ability to pay under the Purchaser Senior Notes
and, ultimately, the Issuer’s ability to make payments on the Notes promptly or at all and could negatively
impact the performance of and return on the Notes and the price of the Notes.
Increased tensions between Korea and North Korea may have a material adverse effect on the market
value of the Notes
Relations between Korea and North Korea have been tense throughout the modern history of the Korean
peninsula. Since August 2003, representatives of Korea, the United States, North Korea, China, Japan and
Russia have engaged in five rounds of multi-lateral talks in an effort to resolve issues relating to North
Korea’s nuclear weapons programme. However, the fifth round of talks concluded in November 2005 without
implementation of the joint statement released after the fourth round of talks in September 2005 to the effect
that North Korea agreed to abandon all nuclear weapons and programmes and rejoin the Nuclear
Non-Proliferation Treaty at an early date.
On 5 July 2006, North Korea test-fired seven missiles, including a Taepodong-2 that is allegedly capable of
reaching parts of the United States. This test-fire prompted the Security Council of the United Nations to
immediately adopt a unanimous resolution on 15 July 2006, demanding North Korea to suspend all activities
related to its ballistic missile programme and requesting United Nations members to refrain from trading with
North Korea on missile-related goods and technology.
— 70 —
On 9 October 2006, North Korea announced that it had conducted a nuclear test. In response to this
announcement, the Security Council of the United Nations has passed a resolution of punitive sanctions
against North Korea. The level of tension between North Korea and Korea, the United States and the rest of
the international community has increased as a result of this announcement and no assurance can be given
that further nuclear tests will not be conducted or that the level of tensions will not continue to increase. In
addition, no assurance can be given that the reaction of Korea, the United States and the rest of the
international community to any further increase in tensions may not result in an outbreak of military
hostilities.
In February 2007, following a series of negotiations with China, Japan, Russia, the United States of America
and Korea, North Korea agreed to close its nuclear processing facilities within a specified period of time in
exchange for economic aid. The six party talks resumed in March 2007. In July 2007, United Nations
inspectors from the International Atomic Energy Agency verified the shutdown of North Korea’s main
nuclear processing facilities in Yongbyon. The terms of the 2007 agreement also requires that the Yongbyon
facility and all other facilities are required to be disabled and that North Korea is required to declare and
eliminate its stockpiles of nuclear weapons and weapons-making material. As of the date of this Prospectus,
progress has not been made in respect of the second phase of disarmament and no assurance can be given
that North Korea will adhere to the terms of the 2007 agreement. Any further increase in the tension or the
outbreak of military hostilities could have a material adverse effect on the Korean economy and/or the
economies of other countries in Asia, in general, and the financial condition of the Seller and the Purchaser
and in particular the result of their respective operations and also the Obligors’ financial positions. This in
turn could adversely affect the market value of the Notes and the ability of the Issuer to make payments under
the Notes when due, if at all.
OTHER RISKS
The Issuer will not be registered under the Investment Company Act
The Issuer has not registered with the SEC as an investment company pursuant to the Investment Company
Act of 1940, as amended (the “Investment Company Act”) in reliance on an exception for investment
companies that are not engaged in the business of issuing redeemable securities and fare-amount certificates
of the instalment type of periodic payment plan certificates, and that are primarily engaged in purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate. If the SEC or a court of
competent jurisdiction were to find that the Issuer is required, but in violation of the Investment Company
Act, has failed to register as an investment company, possible consequences include, but are not limited to,
the following: (i) the SEC could apply to a district court to enjoin the violation, (ii) investors could sue the
Issuer and recover any damages caused by the violation, and (iii) any contract to which the Issuer is a party
made in violation of, or whose performance involves a violation of, the Investment Company Act would be
unenforceable by any party to the contract unless a court were to find that under the circumstances
enforcement would produce a more equitable result than non enforcement and would not be inconsistent with
the purposes of the Investment Company Act. Should the Issuer be subjected to any or all of the foregoing,
the financial condition of the Issuer could be materially and adversely affected.
Conflicts of Interest
Citibank Korea Inc. and its affiliate, Citibank, N.A., are acting in a number of capacities in connection with
the issue of the Notes, including but not limited to as Seller and Initial Servicer of the Mortgage Loan Assets,
as holder of the Purchaser Junior Note, as Designated FX Bank, as Spot Bank and as Swap Counterparty, as
Issuer Transaction Administrator and as the Agents. In those capacities, Citibank Korea Inc. and Citibank,
N.A. will have only those duties and obligations expressly agreed to by it in such capacity, and by virtue of
it or its affiliate acting in any other capacity shall not have any other duties or responsibilities or be subject
to a standard of care other than that expressly provided for with respect to each such capacity in the
Transaction Documents.
There is no regulation of the Issuer by any Regulatory Authority
The Issuer is not required to be licensed, registered or authorised under any current securities, commodities
or banking laws of its jurisdiction of incorporation and will operate without supervision by any authority in
any jurisdiction. There can be no assurance, however, that regulatory authorities in one or more jurisdictions
— 71 —
would not take a contrary view regarding the applicability of any such laws to the Issuer. The taking of a
contrary view by such regulatory authority could have an adverse impact on the Issuer or the holders of any
Notes. An investment in any Notes does not have the status of a bank deposit and is not within the scope of
any deposit protection scheme.
The Notes could be characterised as equity for U.S. federal income tax purposes
The Issuer intends to treat the Notes as indebtedness and not as equity for U.S. federal income tax purposes.
However, no statutory, judicial or administrative authority directly addresses the characterisation of the Notes
or similar instruments for U.S. federal income tax purposes. If Notes are characterised as equity for U.S.
federal income tax purposes, holders of the Notes that are subject to U.S. federal income tax could suffer
material adverse consequences, including the application of the Passive Foreign Investment Company
(“PFIC”) rules. See “Tax Considerations — Certain U.S. Federal Income Tax Considerations” below.
Modifications and waivers
The Conditions of the Notes will contain provision for calling meetings of Noteholders to consider matters
affecting their interests generally. These provisions permit defined majorities to bind all Noteholders
including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a
manner contrary to the majority.
The Note Trustee may, without the consent of the Noteholders or the other Beneficiaries, agree to (or direct
the Security Agent to agree to), and the Security Agent may, without the consent or instructions of the Note
Trustee, agree to, certain amendments or supplements to, or modifications or waivers of, or the giving of
instructions or directions in relation to, the Notes or the provisions of the Transaction Documents, where the
same is to correct a typographical or manifest error or is a purely technical or administrative matter, or is in
the opinion of the Note Trustee or, as the case may be, the Security Agent, not materially prejudicial to the
interests the Noteholders’ or, as the case may be, the Secured Parties.
In determining whether a modification or waiver is “materially prejudicial”, the Note Trustee or, as the case
may be, the Security Agent, may rely on such advice as the Note Trustee or, as the case may be, the Security
Agent considers appropriate.
Each of the Note Trustee and the Security Agent will only have the limited powers in relation to
modifications, amendments, supplements, waivers, instructions and directions as set out above, and where
any matter falls outside the limited powers of the Note Trustee or, as the case may be, the Security Agent as
outlined above, the Note Trustee or, as the case may be, the Security Agent will not be able to act without
the instructions of the Noteholders pursuant to an Ordinary Resolution or, as the case may be, an
Extraordinary Resolution. There can be no assurance that the instructions of the Noteholders can be obtained
in a timely manner or at all, and in the absence of such instructions the Note Trustee or, as the case may be,
the Security Agent will not be entitled to act.
— 72 —
USE OF PROCEEDS
The net proceeds of the Offering are expected to be US$226,119,077.98 and will be applied by the Issuer in
purchasing the Purchaser Senior Notes on the Closing Date. The Purchaser will use the net proceeds, to make
payment of the Purchase Price under the Transfer Agreement for the Mortgage Loan Assets purchased from
the Seller pursuant to the Transfer Agreement. The remaining part of the Purchase Price in relation to the
Mortgage Loan Assets under the Transfer Agreement will be satisfied by the Purchaser by way of a set-off
against the Interim Collection Amount payable by the Seller to the Purchaser on the Closing Date pursuant
to the Transfer Agreement and the purchase price payable by the Seller to the Purchaser for the Purchaser
Junior Note.
SERVICING FEES AND EXPENSES
The Servicer, for so long as the Servicer is the Seller, will receive a Senior Servicer Fee in the amount of
40 basis points (0.40%) per annum of the aggregate principal amount outstanding of the Mortgage Loan
Assets, and the Subordinated Servicer Fee in the amount of 35 basis points (0.35%) per annum of the
aggregate principal amount outstanding of the Mortgage Loan Assets. If the Back-up Servicer assumes the
role of Servicer (whether during the period pending the appointment of a successor Servicer or during any
period when the Back-up Servicer is duly appointed as the Servicer by the Purchaser), it will be paid a senior
servicing fee equal to 75 basis points (0.75%) per annum of the aggregate principal amount outstanding of
the Mortgage Loan Assets, subject to a minimum amount of KRW85,000,000 per quarter (and, for the
avoidance of doubt, no subordinated servicing fee). The Back-up Servicer, before assuming the role of
Servicer, will receive a Back-up Servicer Fee in the amount of KRW8 million per annum. Each of the
Servicer and the Back-up Servicer will be reimbursed for any Senior Expenses and Junior Expenses, all to
the extent of, and to be paid pursuant to, the Transaction Administration Agreement and the other Transaction
Documents.
PURCHASER TRANSACTION ADMINISTRATOR AND SECURITY AGENT FEES AND
EXPENSES
The Purchaser Transaction Administrator will receive a Purchaser Transaction Administrator Fee in US
Dollars equal to US$5,000 per annum. The Security Agent will receive a Security Agent Fee in US Dollars
equal to US$6,000 per annum. The Purchaser Transaction Administrator and the Security Agent will be
reimbursed for any Senior Expenses and Junior Expenses, all to the extent of, and to be paid pursuant to, the
Transaction Administration Agreement and the other Transaction Documents.
ISSUER TRANSACTION ADMINISTRATOR FEES AND EXPENSES
The Issuer Transaction Administrator will not receive any annual fees. The Issuer Transaction Administrator
will be reimbursed for any Senior Expenses and Junior Expenses, all to the extent of, and to be paid pursuant
to, the Transaction Administration Agreement and the other Transaction Documents.
OTHER FEES AND EXPENSES
Other fees payable by the Issuer include fees payable in US Dollars to the Note Trustee equal to US$6,000
per annum, to the Security Trustee equal to US$3,000 and to the Issuer Corporate Administrator equal to
US$2,500 upfront and thereafter US$5,924 per annum. The Agents will not receive any annual fees. Other
fees payable by the Purchaser include fees to the Purchaser Corporate Administrator payable in Korean Won
of KRW20,000,000 per annum. The Note Trustee, the Security Trustee, the Issuer Corporate Administrator
and the Purchaser Corporate Administrator will be reimbursed for any Senior Expenses and Junior Expenses,
all to the extent of, and to be paid pursuant to, the Transaction Administration Agreement and the other
Transaction Documents.
— 73 —
SUMMARY OF PROVISIONS RELATING TO NOTES IN GLOBAL FORM
The Notes offered and sold in reliance on Regulation S will be represented by the Regulation S Global Note
Certificate. The Regulation S Global Note Certificate will be deposited by the Issuer with Citibank, N.A.,
London Branch as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC for the
accounts of Euroclear and Clearstream, Luxembourg. The principal amount of the Regulation S Global Note
Certificate may from time to time be increased or decreased by adjustments made in respect of the Notes on
the records of the Registrar as provided in the Trust Deed.
The Notes offered and sold in reliance on Rule 144A will be represented by the Rule 144A Global Note
Certificate. The Rule 144A Global Note Certificate will be deposited by the Issuer with Citibank, N.A.,
London Branch as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC. The
principal amount of the Rule 144A Global Note Certificate may from time to time be increased or decreased
by adjustments made in respect of the Notes on the records of the Registrar as provided in the Trust Deed.
The Global Note Certificates will become exchangeable in whole but not in part for Definitive Note
Certificates if (i) DTC notifies the Issuer that it is unwilling or unable to continue as depositary for such
Global Note Certificates, or DTC ceases to be a “Clearing Agency” registered under the United States
Securities Exchange Act of 1934, as amended, and a successor depositary is not appointed by the Issuer
within 90 days after receiving such notice from DTC or becoming aware that DTC is no longer so registered,
or (ii) the Note Trustee has instituted or been directed to institute judicial proceedings to enforce the rights
of Noteholders and been advised by counsel that in connection with such proceedings it is necessary or
appropriate for the Note Trustee to obtain possession of Definitive Note Certificates (each an “Exchange
Event”).
On and after the 30th day after an Exchange Event, each Global Note Certificate may be exchanged on any
day (other than a Saturday or Sunday) on which banks are open for business in New York City in whole but
not in part at the specified office of the Registrar (or such other place as the Note Trustee may agree) for
Definitive Note Certificates and the Issuer shall procure that the Registrar shall issue and deliver, in full
exchange for each such Global Note Certificate, Definitive Note Certificates in an aggregate principal
amount equal to the principal amount of the Global Note Certificate submitted for exchange.
In addition, each Global Note Certificate will contain provisions which modify the Note Conditions as they
apply to the Notes evidenced by such Global Note Certificate. Notwithstanding Note Condition 15 for so long
as all of the Notes are represented by Global Note Certificates and such Global Note Certificates are held on
behalf of or for a clearing system, notices to Noteholders may be given by delivery of the relevant notice to
that clearing system for communication by it to the entitled Noteholders. So long as the Notes are listed on
the Irish Stock Exchange, notices will also be published in accordance with any relevant rules of the Irish
Stock Exchange.
— 74 —
TERMS AND CONDITIONS OF THE NOTES
The following is the text of the Conditions of the Notes which will be endorsed on each Note in global form
or definitive form (if issued).
The US$228,000,000 Secured Floating Rate Notes due 2038 (the “Notes”) of Korea ACE Mortgage Company
(the “Issuer”) are constituted by, are subject to, and have the benefit of, a trust deed to be dated the Closing
Date (as amended or supplemented from time to time, the “Trust Deed”) between the Issuer and Capita Trust
Company Limited, as note trustee (the “Note Trustee”, which expression includes all persons for the time
being note trustee or note trustees appointed under the Trust Deed) and are the subject of an agency
agreement to be dated the Closing Date (as amended or supplemented from time to time, the “Agency
Agreement”) among the Issuer, the Note Trustee, Citibank, N.A., London Branch as issuer transaction
administrator, as registrar, as reference agent, as principal paying agent and as principal transfer agent
(respectively the “Issuer Transaction Administrator”, the “Registrar”, the “Reference Agent”, the
“Principal Paying Agent” and the “Principal Transfer Agent”, which expressions include, respectively, any
successor issuer transaction administrator, registrar, reference agent, principal paying agent and principal
transfer agent appointed from time to time in connection with the Notes) and Citibank International PLC as
Irish Paying Agent (the “Irish Paying Agent” which expression includes any successor Irish paying agent
appointed from time to time in connection with the Notes and, together with the Principal Paying Agent, the
“Paying Agents”, which expression includes any successor or additional paying agents appointed from time
to time in connection with the Notes). References herein to the “Agents” are to the Paying Agents, the
Principal Transfer Agent, the Reference Agent and the Registrar and any reference to an “Agent” is to any
one of them. Certain provisions of these Conditions are summaries of the Trust Deed, the Agency Agreement
and the other Transaction Documents (as defined below) and are subject to their detailed provisions. The
Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions
of the Trust Deed, the Agency Agreement, the Deed of Charge and the other Transaction Documents
applicable to them. Copies of the Trust Deed, the Agency Agreement and the other Transaction Documents
are available for inspection by the Noteholders during normal business hours at the Specified Offices (as
defined in the Agency Agreement) for the time being of each of the Agents, the initial Specified Offices of
which are set out below.
The definitions set out in the Master Definitions Schedule attached to the Note Certificates shall, save where
the relevant terms are otherwise defined in these Conditions, be incorporated by reference in these Conditions
with the same effect as though set out in full in these Conditions.
1
FORM, DENOMINATION, STATUS AND ISSUER SECURITY
(a)
Form and Denomination: The Notes will be in registered form in denominations of US$100,000
and integral multiples of US$1,000 in excess thereof (each an “Authorised Holding”).
(b)
Status: The Notes constitute direct, secured and unconditional obligations of the Issuer. The
Notes, together with certain other obligations of the Issuer, are secured by the Issuer Security.
Subject to the priority of payments set out in Clause 9 of the Transaction Administration
Agreement and in Clause 12 of the Deed of Charge, the Notes will rank at least pari passu with
all other present and future direct, secured and unconditional obligations of the Issuer, save for
such obligations as may be preferred by provisions of law that are both mandatory and of general
application.
The Notes will rank pari passu and pro rata between themselves with respect to payments of
interest and repayments of principal, in the event of the Issuer Security being enforced and in all
other respects
(c)
Issuer Security: The Issuer Security will be created pursuant to, and on the terms set out in, the
Deed of Charge and will constitute security for the Notes and for any amounts payable by the
Issuer to the other Beneficiaries.
— 75 —
The Issuer Security will include:
(i)
Assignments: assignments to the Security Trustee by way of security of all of the Issuer’s
right, title, benefit and interest in, to and under (A) the Purchaser Senior Notes and the
Purchaser Senior Notes Subscription Deed, (B) each Purchaser Security Agreement and (C)
the other Transaction Documents to which the Issuer is a party (other than any equity of
redemption which the Issuer may have by operation of law upon payment in full of the
Secured Obligations); and
(ii)
Charge: a charge in favour of the Security Trustee by way of (A) first fixed charge over the
Issuer USD Account and any other bank account in which the Issuer may acquire an interest
(other than the bank account referred to in (B) below) (including all sums of money from
time to time standing to the credit thereof) and the debt represented thereby and (B) a first
floating charge over the whole of the Issuer’s undertaking and all of its property, assets and
rights (other than the property or assets referred to in the foregoing clause (A) and Condition
1(c)(i), the Issuer Fee, the proceeds of the Issuer’s share capital and the bank account where
such amounts are deposited, and any equity of redemption which the Issuer may have by
operation of law upon payment in full of the Secured Obligations).
The Deed of Charge will provide for enforcement of the Issuer Security and the exercise of rights
generally by the Security Trustee in relation to the Issuer Security upon the delivery of a Note
Enforcement Notice to the Issuer and the Security Trustee by the Note Trustee.
The Deed of Charge will provide that at any time when the Security Trustee is required to exercise
any discretion or power (except to the extent that it is a Security Trustee Excluded Right), take
any action, make any decision or give any direction pursuant to the Deed of Charge or otherwise
in respect of the Issuer Security or in respect of the other Transaction Documents, the Security
Trustee will act solely on the instructions of the Note Trustee in accordance with Condition 1(d).
Clause 9 of the Transaction Administration Agreement and Clause 12 of the Deed of Charge will
contain provisions regulating the priority of application of amounts forming part of the Issuer
Security among the persons entitled thereto. After the service of a Note Enforcement Notice, the
claims of the Security Trustee, the Note Trustee, any Receiver appointed in respect of the Issuer,
the Issuer Transaction Administrator, the Agents and the Issuer Corporate Administrator pursuant
to the Transaction Documents (other than claims in respect of Junior Expenses and Expense
Accrued Interest) will be payable in priority to the claims of the Noteholders pursuant to the Deed
of Charge.
(d)
2
Interests of Noteholders: The Notes are constituted by the Trust Deed and are secured by the same
security. Subject to Condition 12, the Trust Deed contains provisions requiring the Note Trustee
to have regard only to the interests of the Noteholders as a single class as regards all powers,
trusts, authorities, duties and discretions of the Note Trustee (except where expressly provided
otherwise) and not to have any regard to the interests of the other Beneficiaries.
REGISTER, TITLE AND TRANSFERS OF NOTES
(a)
Register: The Issuer will procure that the Registrar maintains a register (the “Register”) in
respect of the Notes in accordance with the provisions of the Agency Agreement. In these
Conditions, the “Holder” of a Note means the person in whose name such Note is from time to
time registered in the Register (or, in the case of a joint holding, the first named thereof) and
“Noteholder” shall be construed accordingly. The note certificates in respect of the Notes (the
“Note Certificates”), each in the form or substantially in the form set out in Schedule 1 to the
Trust Deed will be issued to each holder of the Notes in respect of its registered holding of the
Notes. Each Note Certificate will be numbered serially with an identifying number which will be
recorded in the Register.
— 76 —
(b)
Global Notes Certificates: The Notes offered and sold outside the United States in reliance on
Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”)
will be represented by a Regulation S Global Note Certificate. The Notes offered and sold in the
United States to persons who are Qualified Institutional Buyers purchasing in reliance on the
exemption from registration under Rule 144A of the Securities Act will be represented by a Rule
144A Global Note Certificate. Noteholders may hold their interests represented by the Regulation
S Global Note Certificate directly through Euroclear or Clearstream, if they are accountholders
in such systems, or indirectly through organisations that are accountholders in such systems.
Noteholders may not hold such interests other than through Euroclear or Clearstream. Euroclear
and Clearstream will hold interests represented by the Regulation S Global Note Certificate on
behalf of their accountholders through customers’ securities accounts in their respective names on
the books of their respective depositaries, which in turn will hold such interests represented by
the Regulation S Global Note Certificate in customers’ securities accounts in the depositaries’
names on the books of DTC. Noteholders may hold their interests represented by the Rule 144A
Global Note Certificate directly through DTC, if they are participants in such system, or indirectly
through organisations that are participants in such system.
(c)
Title: Title to the Notes shall pass by transfer and registration in accordance with the provisions
of this Condition 2. The registered holder of each Note shall (except as otherwise required by law)
be treated as the absolute owner of such Note for all purposes (whether or not it is overdue and
regardless of any notice of ownership, trust or any other interest therein, any writing on the Note
Certificate relating thereto (other than the endorsed form of transfer)) or any notice of any
previous loss or theft of such Note Certificate) and no person shall be liable for so treating such
Holder. No person shall have any right to enforce any term or condition of the Notes or the Trust
Deed under the Contracts (Rights of Third Parties) Act 1999.
(d)
Transfers: Subject to Condition 2(f), Condition 2(g) and Condition 2(h) below, the Notes may be
transferred upon surrender of the relevant Note Certificate, with the endorsed form of transfer
duly completed and executed, at the Specified Office of the Registrar or the Principal Transfer
Agent, together with such evidence as the Registrar or (as the case may be) the Principal Transfer
Agent may reasonably require to prove the title of the transferor and the authority of the
individuals who have executed the form of transfer; provided however that Notes may not be
transferred unless the principal amount of Notes transferred and (where not all of the Notes held
by a Holder are being transferred) the principal amount of the balance of Notes not transferred
are Authorised Holdings. Where not all the Notes represented by the surrendered Note Certificate
are the subject of the transfer, a new Note Certificate in respect of the balance of the Notes not
transferred will be made available for collection at the Specified Office of the Registrar. No
transfer of a Note will be valid unless and until entered on the Register.
(e)
Registration and Delivery of Note Certificates: Within seven (7) business days of the receipt
by the Registrar of the surrendered Note Certificate in respect of the Notes together with the duly
completed and executed form of transfer in accordance with Condition 2(d) above, the Registrar
will register the transfer in question and make available for collection a new Note Certificate in
respect of the Notes of a like principal amount to the Notes transferred to each relevant Holder
at the Specified Office of the Registrar or (as the case may be) the Specified Office of the
Principal Transfer Agent or (at the written request and risk of any such relevant Holder) by
uninsured first class mail (airmail if overseas) to the address specified for the purpose by the
relevant Holder. In this Condition 2(e), “business day” means a day on which commercial banks
are open for business (including dealings in foreign currencies) in the city where the Registrar or
(as the case may be) the Principal Transfer Agent has its Specified Office.
— 77 —
3
(f)
No Charge: The transfer of a Note will be effected without charge by or on behalf of the Issuer,
the Registrar or the Principal Transfer Agent but upon payment, or against such indemnity as the
Issuer, the Registrar or (as the case may be) the Principal Transfer Agent may require, in respect
of any tax, government charge or other duty of whatsoever nature which may be levied or imposed
in connection with such transfer.
(g)
Closed Periods: Noteholders may not require transfers to be registered (i) during the period of
fifteen (15) days ending on the due date for any payment of principal or interest in respect of the
Notes or (ii) during the period of seven (7) business days ending on any Record Date as defined
in Condition 6(f).
(h)
Regulations Concerning Transfers and Registration: All transfers of Notes and entries on the
Register are subject to the detailed regulations concerning the transfer and registration of Notes
scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior
written approval of the Note Trustee and the Registrar. A copy of the current regulations will be
mailed by the Registrar to any Noteholder who requests in writing a copy of such regulations.
NEGATIVE COVENANTS OF THE ISSUER
As long as any of the Notes remain outstanding, the Issuer shall not engage in any business or activity
other than in respect of the transactions contemplated in the Transaction Documents, and the Issuer
shall not (except, in each case, if and to the extent permitted or required by the Transaction Documents):
(a)
Subsidiaries: form, or cause to be formed, any subsidiaries;
(b)
Payments to Shareholders: redeem any of its shares nor make any distributions to its shareholders,
including, without limitation, any distribution of dividends;
(c)
Encumbrances: create, incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a contingency or otherwise) the
creation, incurrence or existence of any Encumbrance on the Issuer Charged Property except for
the security created by the Deed of Charge in favour of the Security Trustee and other than liens
arising by operation of law;
(d)
Issue of Securities: issue any shares or rights, warrants or options in respect of the shares or
securities convertible into or exchangeable for shares, except for the shares issued to Walkers SPV
Limited on or prior to the date of the Trust Deed;
(e)
Interference with Enforcement: take any action, or fail to take any action, if such action or failure
to take action may interfere with the proper enforcement of any rights of the Security Trustee, the
Security Agent or the Note Trustee under the Transaction Documents;
(f)
Consolidation: consolidate with or merge with or into any person or transfer all or any amount
of its assets to any person or liquidate or dissolve or otherwise terminate its existence or enter into
any scheme of arrangement to do any of the foregoing;
(g)
Withholding Tax: take or (if within its control) permit to be taken any action which would have
the effect directly or indirectly of causing any amount to be deducted or withheld from interest
payments on any of the Notes for or on account of any taxes, assessments or governmental
charges of whatever nature;
(h)
Payment of Tax: fail to pay on or before the final due date any tax, charge or fee properly due and
payable with respect to the Issuer’s interest in the Issuer Charged Property unless and for so long
as the same is being contested in good faith;
— 78 —
(i)
Contracts: enter into any contract, transaction, amendment, obligation or liability other than the
Transaction Documents;
(j)
Accounts: open or have an interest in any account whatsoever with any bank or other financial
institution (other than the Issuer USD Account) and any other bank account contemplated in or
expressly permitted by the Transaction Documents;
(k)
Indebtedness: incur any indebtedness for borrowed money (other than the Notes) or give any
guarantee or indemnity in respect of any indebtedness;
(l)
Validity: do anything which would permit the validity or effectiveness of the Trust Deed or the
Deed of Charge or the priority of the Issuer Security to be avoided, amended, terminated,
postponed or discharged, or permit any person whose obligations form part of the Issuer Security
to be released from such obligations;
(m) Disposal of Assets: sell, factor, discount, transfer, assign or hire out, lend or otherwise dispose of
any of its assets or agree to do any of the foregoing except in accordance with the Transaction
Documents;
(n)
Business Activities: engage in any business or activity other than:
(i)
as provided for or permitted in the Transaction Documents to which it is a party including,
without limitation, entering into the Purchaser Senior Notes Subscription Deed, the
purchase of the Purchaser Senior Notes, the holding of the Issuer USD Account or any other
account as contemplated in or expressly permitted by the Transaction Documents and
entering into and performance under the Transaction Documents to which it is a party;
(ii)
the ownership, management, disposal and charging of the Issuer Charged Property as
provided in the Transaction Documents; and
(iii) such other matters which are incidental thereto;
(o)
Commingling: commingle any moneys held by it with those held by the Purchaser or any other
person;
(p)
Encumbrances: save as provided in the Deed of Charge and as provided for or permitted by any
Transaction Document to which it is a party, sell or grant any right or Encumbrance over, or agree
to sell or grant any right or Encumbrance over or otherwise dispose of, or agree to dispose of, the
benefit of the Issuer Charged Property;
(q)
Purchaser Senior Notes: request the Purchaser to subdivide the Purchaser Senior Notes or to issue
any further Purchaser Senior Note Certificates; and
(r)
Liabilities: enter into any loan, financial agreement or arrangement or incur any liability
(including contingent liabilities) for the purpose of (i) lending money to any person except to the
Purchaser pursuant to the Purchaser Senior Notes Subscription Deed and the Purchaser Senior
Notes and (ii) borrowing money from any person (except pursuant to the issuance of the Notes)
and shall not give any guarantee, indemnity or otherwise agree to be responsible for any
indebtedness or liability of any other person except as permitted by the Transaction Documents.
— 79 —
4
INTEREST
(a)
Accrual of Interest: The Notes bear interest on their Principal Amount Outstanding (as defined in
Condition 5(b) from the Closing Date, payable on the fifth (5th) day of March, June, September
and December, in each year commencing in September 2008 (each, a “Note Payment Date”),
subject as provided in Condition 6; provided that (i) if any Note Payment Date would otherwise
fall on a date which is not a Payment Business Day (as defined below), it will be postponed to
the next Payment Business Day unless it would thereby fall into the next calendar month, in which
case it will be brought forward to the preceding Payment Business Day and (ii) the Payment
Business Day following the Purchaser Liquidation Distribution Date shall also be a Note Payment
Date. The period beginning on (and including) the Closing Date and ending on (but excluding)
the first Note Payment Date and each successive period beginning on (and including) a Note
Payment Date and ending on (but excluding) the next Note Payment Date is herein called a “Note
Interest Period”. Each Note will cease to bear interest from the due date for final maturity or
redemption thereof unless, upon due presentation of the relevant Note Certificate, payment of
principal in full is not made, in which case it will continue to bear interest in accordance with this
Condition 4 (both before and after any judgment) until whichever is the earlier of (i) the day on
which all sums due in respect of such Note up to that day are received by or on behalf of the
relevant Noteholder and (ii) the day which is seven (7) days after the Principal Paying Agent or
the Note Trustee has notified the Noteholders that it has received all sums due in respect of the
Notes up to such seventh day (except to the extent that there is any subsequent default in
payment).
(b)
Rate of interest: The rate of interest applicable to the Notes for each Note Interest Period with
respect to the Notes will the sum of (A) LIBOR; (B) a margin of plus two per cent. (2%) per
annum (such margin, the “Note Margin”); and (C) following the Step-up Date, a step-up margin
of plus one per cent. (1.00%) per annum (such step-up margin, the “Step-up Margin”) (such sum,
the “Note Interest Rate”);
“LIBOR” in relation to a Note Interest Period will be determined by the Reference Agent on the
following basis:
(i)
Screen Rate: The Reference Agent will determine the rate for deposits in US dollars for a
period equal to the relevant Note Interest Period which appears on the Reuters Screen
LIBOR01 as of 11.00 a.m. (London time) on the second London Banking Day (as defined
below in Condition 4(f)) before the first day of the relevant Note Interest Period (the
“LIBOR Determination Date”);
(ii)
Swap Rate: If the screen rate does not appear on the page referred to in paragraph (i) above,
the Reference Agent shall, during the Swap Agreement Term, consult with the Calculation
Agent under the Swap Agreement and the Floating Rate determined in respect of the Swap
Transaction shall be “LIBOR” for the relevant Note Interest Period;
(iii) London Reference Banks: If the screen rate does not appear on the page referred to in
paragraph (i) above, the Reference Agent shall, after the Swap Agreement Term:
(A) request the principal London office of each of four major banks in the London
interbank market to provide a quotation of the rate at which deposits in US dollars are
offered by it at approximately 11.00 a.m. (London time) on the LIBOR Determination
Date to prime banks in the London interbank market for a period equal to the relevant
Note Interest Period and in an amount that is representative for a single transaction in
that market at that time; and
(B)
determine the arithmetic mean (rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point, 0.000005 being rounded upwards) of such
quotations;
— 80 —
(iv) New York Reference Banks: If fewer than two such quotations are provided as requested, the
Reference Agent will determine the arithmetic mean (rounded, if necessary, as aforesaid) of
the rates quoted by 5 major banks in New York City, selected by the Reference Agent, at
approximately 11.00 a.m. (New York time) on the first day of the relevant Note Interest
Period for loans in US dollars to leading European banks for a period equal to the relevant
Note Interest Period and in an amount that is representative for a single transaction in that
market at that time;
(v)
Preceding Interest Rate: If the Reference Agent is unable to determine a rate or (as the case
may be) an arithmetic mean in accordance with the above provisions in relation to any Note
Interest Period, then LIBOR in relation to such Note Interest Period will be the rate (or as
the case may be) arithmetic mean last determined in relation to the Notes in respect of the
preceding Note Interest Period; and
(vi) First Note Interest Period: In respect of the first Note Interest Period, the Reference Agent
will assume for the purposes of sub-paragraphs (i), (ii), (iii) or (iv) above, as the case may
be, that the first Note Interest Period has a duration of three (3) months.
(c)
Calculation of Note Interest Payments: The Reference Agent will, as soon as practicable after the
relevant Interest Determination Date in relation to each Note Interest Period, calculate the amount
of interest payable for such Note Interest Period in respect of the Notes (the “Note Interest
Payment”).
The Note Interest Payment will be calculated by applying the relevant Note Interest Rate for the
Notes for such Note Interest Period to the Principal Amount Outstanding of such Note as at the
first day of such Note Interest Period, multiplying the product by the actual number of days
elapsed in such Note Interest Period divided by 360 and rounding the resulting figure to the
nearest cent (half a cent being rounded upwards).
(d)
Publication: The Reference Agent will cause each Note Interest Rate and Note Interest Payment
determined by it, together with the relevant Note Payment Date, to be notified to the Issuer, the
Paying Agents, the Note Trustee, the Purchaser Transaction Administrator, the Issuer Transaction
Administrator, the Swap Counterparty, the Security Trustee and each stock exchange (if any) on
which the Notes are then listed as soon as practicable after such determination but in any event
not later than two (2) Payment Business Days after the relevant Interest Determination Date.
Notice thereof shall also promptly be given to the Noteholders in accordance with Condition 15.
The Reference Agent will be entitled to recalculate any Note Interest Payment (on the basis of the
foregoing provisions) without notice in the event of an extension or shortening of the relevant
Note Interest Period.
(e)
Notifications etc.: All notifications, opinions, determinations, certificates, calculations, quotations
and decisions given, expressed, made or obtained for the purposes of this Condition 4 by the
Reference Agent will (in the absence of manifest error, negligence, default, bad faith or fraud) be
binding on the Purchaser Transaction Administrator, the Swap Counterparty, the Issuer, the
Agents, the Note Trustee, the Issuer Transaction Administrator, the Security Trustee, the
Noteholders and (subject as aforesaid) no liability to any such person will attach to the Reference
Agent or (in the circumstances referred to in Condition 4(g) below) the Note Trustee in
connection with the exercise or non-exercise by it of its powers, duties and discretions for such
purposes.
(f)
Interpretation: In this Condition 4:
“Interest Determination Date” means the LIBOR Interest Determination;
— 81 —
“London Banking Day” means a day (other than Saturday or Sunday) on which US Dollar
deposits may be dealt in on the London inter-bank market and commercial banks and foreign
exchange markets settle payments and are open for business in London; and
“Payment Business Day” means a day (other than a Saturday or Sunday) on which commercial
banks and foreign exchange markets settle payments in Seoul, Hong Kong, New York and London
and the same shall be conclusive and binding on the relevant Noteholders and, without prejudice
to the Trust Deed, the Note Trustee shall have no responsibility for errors or omission in any
calculations or determinations made in accordance with this Condition 4.
(g)
5
Failure of Reference Agent: If the Reference Agent fails at any time to determine, in respect of
the Notes, a Note Interest Rate or to calculate a Note Interest Payment as aforesaid, the Note
Trustee may determine such Note Interest Rate for the Notes as it in its sole discretion considers
fair and reasonable in the circumstances (having such regard as it thinks fit to Condition 4(b)
above) or (as the case may be) calculate such Note Interest Payment in accordance with Condition
4(c) above, and such determinations and/or calculations made by the Note Trustee shall be
deemed to have been made by the Reference Agent.
REDEMPTION AND PURCHASE
(a)
Final Redemption: Unless previously redeemed and cancelled, each Note will be redeemed at its
Principal Amount Outstanding together with accrued interest and all other amounts payable on
such Note on the Note Payment Date falling in June 2038 (the “Note Maturity Date”).
(b)
Mandatory Redemption on a Note Payment Date: To the extent that on any Purchaser Note
Payment Date or on the Purchaser Liquidation Distribution Date the Issuer received from the
Purchaser an amount in respect of the repayment of principal of the Purchaser Senior Notes under
Clause 8.5.10(b) or, as the case may be, Clause 8.7.4(b)(ii) of the Transaction Administration
Agreement, the Issuer shall, after payment of all amounts then due which rank in priority thereto
under Clause 9.2 of the Transaction Administration Agreement or, after the Note Enforcement
Date, Clause 12.1 of the Deed of Charge, redeem the Notes on such Note Payment Date (in
accordance with and subject to the provisions of Clause 9.2.6 of the Transaction Administration
Agreement or, following the Note Enforcement Date, Clause 12.1.4(b) of the Deed of Charge)
until all the Notes have been redeemed on such Note Payment Date (the aggregate amount of the
Notes to be so redeemed, the “Note Principal Payment”).
The “Principal Amount Outstanding” of the Notes at any time means the principal amount
outstanding of the Notes as at the Closing Date less the aggregate of all repayments of principal
in respect of the Notes made prior to that date. The Issuer Transaction Administrator shall, subject
to timely receipt by it of all requisite information to enable it to make such determinations,
determine the Note Principal Payment due on the next following Note Payment Date under this
Condition 5(b) and inform the Reference Agent of such determinations. Each determination by the
Issuer Transaction Administrator of any Note Principal Payment or Principal Amount Outstanding
of a Note shall in each case (in the absence of negligence, default, bad faith, fraud or manifest
error) be final and binding on all persons.
If the Issuer Transaction Administrator does not at any time for any reason determine a Note
Principal Payment or Principal Amount Outstanding in accordance with the preceding provisions
of this paragraph, such Note Principal Payments and Principal Amount Outstanding may be
determined by the Note Trustee in accordance with this Condition 5(b) and each such
determination or calculation shall be deemed to have been made by the Issuer.
— 82 —
The Reference Agent will cause each determination of the Note Principal Payment and Principal
Amount Outstanding to be notified forthwith to the Issuer, the Swap Counterparty, the Note
Trustee, the Security Trustee, the Purchaser Transaction Administrator, the Issuer Transaction
Administrator, the Principal Paying Agent, the other Agents and each stock exchange (if any) on
which the Notes are then listed and will cause notice of each determination of the Note Principal
Payments and Principal Amounts Outstanding to be given to the Noteholders in accordance with
Condition 15 at the same time as the notice referred to in Condition 4(d) is given. If any Note
Principal Payments are to be made on the Notes on any Note Payment Date, a notice to this effect
will be given by the Issuer to the Noteholders.
6
(c)
No Other Redemption: Without prejudice to the rights of the Note Trustee and the Security Trustee
under Condition 9, the Issuer shall not be entitled to redeem the Notes otherwise than as provided
in Condition 5(a) and Condition 5(b) above.
(d)
No Purchase: The Issuer may not purchase any Notes in the open market or otherwise.
(e)
Cancellation: All Notes redeemed by the Issuer shall be cancelled and may not be reissued or
resold.
PAYMENTS
(a)
Principal: Payments of principal shall be paid to Noteholders by US dollar cheque drawn on, or
upon application by a Noteholder to the Specified Office of the Principal Paying Agent not later
than the fifteenth day before the due date for any such payment, by transfer to a US dollar account
(or other account to which US dollars may be credited or transferred) specified in its application
by such Noteholder maintained by the payee with a bank in New York City, and for the Notes (in
the case of their final redemption) upon surrender (or, in the case of part payment only,
endorsement) of the relevant Note Certificates at the Specified Office of any Paying Agent.
(b)
Interest: Payments of interest shall be paid to Noteholders by US dollar cheque drawn on, or upon
application by a Noteholder to the Specified Office of the Principal Paying Agent not later than
the fifteenth day before the due date for any such payment, by transfer to a US dollar account (or
other account to which US dollars may be credited or transferred) specified in its application by
such Noteholder maintained by the payee with, a bank in New York City, and for the Notes (in
the case of their final redemption) upon surrender (or, in the case of part payment only,
endorsement) of the relevant Note Certificates at the Specified Office of any Paying Agent.
(c)
Payments Subject to Fiscal Laws: All payments in respect of the Notes are subject in all cases to
any applicable fiscal or other laws and regulations, but without prejudice to the provisions of
Condition 7. No commissions or expenses shall be charged to the Noteholders in respect of such
payments.
(d)
Payments on Business Days: If the due date for payment of any amount in respect of any Note
is not a business day in the place of presentation, the holder shall not be entitled to payment in
such place of the amount due until the next succeeding business day in such place and shall not
be entitled to any further interest or other payment in respect of any such delay.
In this Condition 6(d), “business day” means any day on which banks are open for business
(including dealings in foreign currencies) in New York City and in the case of surrender (or, in
the case of part payment only, endorsement) of a Note Certificate, in the place in which the Note
Certificate is surrendered (or, as the case may be, endorsed).
(e)
Partial payments: If a Paying Agent makes a partial payment in respect of any Note, the Issuer
shall procure that the amount and date of such payment are noted on the Register and, in the case
of partial payment upon presentation of a Note Certificate, that a statement indicating the amount
and date of such payment is endorsed on the relevant Note Certificate.
— 83 —
(f)
7
Record Date: Each payment in respect of a Note will be made to the person shown as the Holder
in the Register at the opening of business in the place of the Registrar’s Specified Office on the
fifteenth day before the due date for such payment (the “Record Date”). Where payment in
respect of a Note is to be made by cheque, the cheque will be mailed to the address shown as the
address of the Holder in the Register at the opening of business on the relevant Record Date.
TAXATION
All payments of principal and interest in respect of the Notes shall be made subject to any withholding
or deduction for any taxes, duties, assessments or governmental charges of whatsoever nature. None of
the Issuer or any Paying Agent will be obliged to pay any additional amounts in respect of such
withholding or deduction.
8
EVENTS OF DEFAULT
An Event of Default shall occur if any of the following occur:
(a)
Failure to Pay: the Issuer fails to pay any amount of principal in respect of the Notes on the Note
Maturity Date or fails to pay any amount of interest (other than a Step-up Margin Payment) in
respect of the Notes on the due date for payment thereof;
(b)
Insolvency: the occurrence of an Insolvency Event in relation to the Issuer;
(c)
Winding-up: an order is made by any competent court or an effective resolution is passed for the
winding-up or dissolution of the Issuer;
(d)
Liquidation Proceedings: proceedings are initiated against the Issuer under any applicable
liquidation, insolvency, composition, reorganisation or other similar laws including, for the
avoidance of doubt, presentation to the court of an application for an administration order; or a
liquidator, an administrative receiver or other receiver, administrator or other similar official shall
be appointed in relation to the Issuer or in relation to the whole or any substantial part of the
undertaking or assets of the Issuer; or an encumbrancer shall take possession of the whole or any
substantial part of the undertaking or assets of the Issuer; or a distress, execution, attachment,
sequestration, diligence or other process shall be levied or enforced upon or sued out or put in
force against the whole or any substantial part of the undertaking or assets of the Issuer and, in
any of the foregoing cases, the relevant proceedings or appointments shall not be discharged or
annulled within fourteen (14) days;
(e)
Scheme of Arrangement: the Issuer shall initiate or consent to judicial proceedings relating to
itself under any applicable liquidation, insolvency, composition, reorganisation or other similar
laws or shall make a conveyance or assignment for the benefit of its creditors generally (or any
class of creditors) or shall enter into an arrangement or composition with its creditors generally
(or any class of creditors);
(f)
Misrepresentation: any representation or warranty made by the Issuer in any Transaction
Document is or proves to be, in the sole opinion of the Note Trustee, incorrect or misleading in
any material respect when made or any Statement of Condition is or proves to be, in the sole
opinion of the Note Trustee, incorrect or misleading in any material respect on any day having
regard to the then-prevailing facts and circumstances; or
(g)
Other Default: default is made by the Issuer in the performance or observance of any obligation,
condition or provision binding on it under the Notes or the Trust Deed or the Deed of Charge or
the Transaction Administration Agreement or any other Transaction Document to which it is a
party (other than any obligation for the payment of any principal or interest on the Notes) and
— 84 —
such default is, in the sole opinion of the Security Trustee (acting at the instructions of the Note
Trustee), (i) incapable of remedy, or (ii) capable of remedy and continues for thirty (30) days after
notice by the Security Trustee (acting at the instructions of the Note Trustee) to the Issuer
requiring the same to be remedied.
9
10
ACCELERATION AND ENFORCEMENT
(a)
Acceleration by Notice: If an Event of Default (other than an Insolvency Event with respect to the
Issuer) shall have occurred and is not remedied or waived in accordance with the Transaction
Documents, the Noteholders may direct, by Ordinary Resolution, the Note Trustee to give notice
to the Issuer and the Security Trustee (the “Note Enforcement Notice”) declaring the Notes to
be immediately due and payable, and the Note Trustee, subject always to the Note Trustee being
indemnified and/or secured to its satisfaction, shall give such notice whereupon the Notes shall
become immediately due and payable at their Principal Amount Outstanding together with
accrued interest without further action or formality.
(b)
Automatic Acceleration: Upon the occurrence of an Insolvency Event with respect to the Issuer,
the Notes shall immediately and automatically (without notice or demand by any person) become
immediately due and payable at their Principal Amount Outstanding together with accrued
interest.
(c)
All payments of principal and interest in respect of the Notes following the giving of a Note
Enforcement Notice or in the circumstances set out in Condition 9(b) will be made in accordance
with the priority of payments set out in Clause 12.1 of the Deed of Charge.
PRESCRIPTION
Claims for principal and interest shall become void unless presentation for payment is made as required
by Condition 6 within five (5) years of the appropriate Relevant Date, in the case of claims for interest,
or within ten (10) years of the appropriate Relevant Date, in the case of claims for principal.
In these Conditions, “Relevant Date” means whichever is the later of (1) the date on which the payment
in question first becomes due and (2) if the full amount payable has not been received in New York City
by the Principal Paying Agent or the Note Trustee on or prior to such due date, the date on which (the
full amount having been so received) notice to that effect has been given to the Noteholders.
11
REPLACEMENT OF NOTE CERTIFICATES
If any Note Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the
Specified Office of the relevant Replacement Agent, subject to all applicable laws and stock exchange
requirements, upon payment by the claimant of the expenses incurred in connection with such
replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer or the
relevant Replacement Agent (as the case may be) may reasonably require. Mutilated or defaced Note
Certificates must be surrendered to the relevant Replacement Agent before replacements will be issued.
12
NOTE TRUSTEE, SECURITY TRUSTEE AND AGENTS
The Trust Deed and the Deed of Charge contain provisions for the indemnification of the Note Trustee
and the Security Trustee, respectively, and for their relief from responsibility, including (without
limitation) provisions relieving them from taking proceedings to enforce the security for the Notes and
repayment of the Notes unless indemnified and/or secured to their respective satisfaction against any
liabilities and expenses which may be incurred by them in the execution of their duties, trusts, powers,
authorities, rights or discretions under any of the Transaction Documents. The Note Trustee and the
Security Trustee will each be entitled to enter into business transactions with the Issuer and/or any other
party to the Transaction Documents without accounting for any profit resulting from such transactions.
The Note Trustee and the Security Trustee will not be responsible for any loss, expense or liability
— 85 —
which may be suffered as a result of any Issuer Charged Property, or any deeds or documents of title
thereto, being uninsured or inadequately insured or being held by or to the order of the Security Trustee
or any of their affiliates or by clearing organisations or their operators or by any other person on behalf
of the Note Trustee or the Security Trustee. The Noteholders may, by Ordinary Resolution, remove
either the Note Trustee under the Trust Deed or the Security Trustee under the Deed of Charge. No such
removal shall become effective unless the Note Trustee or, as the case may be, the Security Trustee has
been replaced by a trust corporation under the terms of the Trust Deed or the Deed of Charge, as
applicable.
In acting under the Agency Agreement and in connection with the Notes, the Agents act solely as agents
of the Issuer and (to the extent provided therein) the Note Trustee and do not assume any obligations
towards or relationship of agency or trust for or with any of the Noteholders.
The initial Agents and their initial Specified Offices are listed below. The Issuer reserves the right (with
the prior approval of the Note Trustee) at any time to vary or terminate the appointment of any Agent
and to appoint a successor registrar, principal transfer agent, principal paying agent, reference agent or
additional or successor paying agents; provided however that the Issuer shall at all times maintain a
registrar, a principal transfer agent, a principal paying agent, a reference agent and, so long as the Notes
are listed on the Irish Stock Exchange, a paying agent in Ireland. Notice of any change in any of the
Agents or in their Specified Offices shall promptly be given to the Noteholders by the Issuer in
accordance with Condition 15.
13
MEETINGS OF NOTEHOLDERS; MODIFICATION, WAIVER AND SUBSTITUTION
(a)
Convening: The Trust Deed contains provisions for convening meetings of Noteholders to
consider matters affecting their interests, including the modification of any provision of these
Conditions or the Trust Deed or the other Transaction Documents. Any such modification may be
made if sanctioned by an Ordinary Resolution or, in respect of certain matters referred to in
Condition 13(f)(v) below or a Basic Terms Modification, by an Extraordinary Resolution. Such
a meeting may be convened by the Note Trustee, the Issuer or by the Note Trustee upon the
request in writing of Noteholders holding not less than one-tenth of the aggregate Principal
Amount Outstanding of all outstanding Notes.
(b)
Quorum: The quorum at any meeting of Noteholders shall be as follows:
(i)
Ordinary Resolution: for passing an Ordinary Resolution the quorum shall be at least two
(2) persons holding or representing over fifty per cent. (50%) of the aggregate Principal
Amount Outstanding of the Notes (calculated after excluding the Principal Amount
Outstanding of any Notes held by Citibank, N.A. and its affiliates and agents) or, at any
adjourned meeting, at least two (2) persons present holding or representing Noteholders
whatever the aggregate Principal Amount Outstanding, and whatever the Notes then
outstanding so held or represented;
(ii)
Extraordinary Resolution: for passing an Extraordinary Resolution the quorum shall be at
least two (2) persons holding or representing over seventy five per cent. (75%) of the
aggregate Principal Amount Outstanding of the Notes (calculated after excluding the
Principal Amount Outstanding of any Notes held by Citibank, N.A. and its affiliates and
agents) or, at any adjourned meeting, at least two (2) persons present holding or representing
Noteholders whatever the aggregate Principal Amount Outstanding, and whatever the Notes
then outstanding so held or represented; or
— 86 —
(iii) Basic Terms Modification: for passing an Extraordinary Resolution in respect of a Basic
Terms Modification the quorum shall be at least two (2) persons holding or representing not
less than seventy five per cent. (75%) of the aggregate Principal Amount Outstanding of the
Notes (calculated after excluding the Principal Amount Outstanding of any Notes held by
Citibank, N.A. and its affiliates and agents) or, at any adjourned meeting, at least two (2)
persons present holding or representing not less than twenty five per cent. (25%) of the
aggregate Principal Amount Outstanding of the Notes (calculated after excluding the
Principal Amount Outstanding of any Notes held by Citibank, N.A. and its affiliates and
agents).
(c)
Votes: Each Noteholder (excluding Citibank, N.A. and its affiliates and agents) will be entitled to
one vote for each one US dollar (US$1) of the Principal Amount Outstanding of the Notes held
by such Noteholder.
(d)
Binding on Noteholders: An Extraordinary Resolution passed at any meeting of the Noteholders
shall be binding on all Noteholders, whether or not they are, or are entitled to be, present at the
meeting.
(e)
Written Resolution: A Written Resolution (as defined in the Trust Deed) shall take effect as if it
were an Extraordinary Resolution.
(f)
Modification of the Trust Deed and Transaction Documents:
(i)
The Trust Deed may not be modified, amended or supplemented, and none of the terms of
the Trust Deed may be waived, except pursuant to a written instrument executed as a deed
by the Issuer and the Note Trustee and if unless prior notification of the same has been given
to each Rating Agency.
(ii)
The Trust Deed provides that the Note Trustee, to the extent permitted by law, is entitled,
without obtaining the instructions of the Noteholders, to consent (or to instruct the Security
Agent or the Security Trustee to consent) to any amendment or supplement to, or
modification or waiver of any of the terms of, the Trust Deed or any other Transaction
Document where such amendment, supplement modification or waiver:
(A) is to correct a typographical or manifest error or is a purely technical or administrative
matter; or
(B)
in the opinion of the Note Trustee (based on such advice as the Note Trustee considers
appropriate to obtain) will not be materially prejudicial to the interests of the
Noteholders.
The Note Trustee shall give notice to Noteholders in accordance with Condition 15 of the
Notes of any modification, amendment, supplement or waiver, as the case may be, made
pursuant to Condition 13(f)(ii)(B).
(iii) The Trust Deed also provides that the Note Trustee, to the extent permitted by law, is
entitled to exercise any right or discretion to perform any duty, take any action or give any
instruction or other consent under the Trust Deed or any other Transaction Document (or to
instruct the Security Agent or the Security Trustee to do so) where the Note Trustee (based
on such advice as the Note Trustee considers appropriate to obtain) considers the same will
not be materially prejudicial to the interests of the Noteholders.
(iv) The Trust Deed sets out certain matters in respect of which the Note Trustee is required to
obtain the instructions of the Noteholders. Additionally, where Condition 13(f)(ii) and
13(f)(iii) do not apply, the Note Trustee shall only (or and shall only instruct the Security
Agent or the Security Trustee to) agree to amend, supplement or modify, or to waive any
— 87 —
of the terms of, the Trust Deed or any other Transaction Document, and shall only exercise
(and shall only instruct the Security Agent or the Security Trustee to exercise) any right or
discretion to perform any duty, take any action or give any instruction or other consent, in
each case as contemplated under the Trust Deed or any other Transaction Document, with
the approval or at the direction of an Ordinary Resolution of the Noteholders.
(v)
Notwithstanding the foregoing, such approval or direction must be given pursuant to an
Extraordinary Resolution of the Noteholders, where such amendment, supplement,
modification or waiver or, as the case may be the performance of such duty, the taking of
such action or the giving of such instructions or consent would result in any of the following
events occurring:
(A) a change in any date scheduled for the payment of interest on any Note, the Note
Maturity Date or the date determined for any mandatory redemption of any Note;
(B)
a reduction of the Principal Amount Outstanding or the interest rate payable in respect
of any Note not expressly contemplated by the Transaction Documents;
(C)
an impairment of the right to enforce payment on any Note;
(D) a change in the method of computing the amount of principal of, or interest on, any
Note; or
(E)
any amendment to this Condition 13(f),
and in any other case, an Ordinary Resolution of the Noteholders.
(g)
14
Notification: The Issuer Transaction Administrator will give notice to each Rating Agency of any
modification, amendment, supplement or waiver or, as the case may be, the giving of such
instructions by the Issuer under Condition 13(f), whether or not consent of the Holders is required
thereto.
ENFORCEMENT OF ISSUER SECURITY
(a)
Direction: On or after the Note Enforcement Date, the Note Trustee, if so directed by an Ordinary
Resolution of the Noteholders, shall direct the Security Trustee to enforce the Issuer Security in
accordance with Clause 8 of the Deed of Charge but the Note Trustee shall not be bound to direct
the Security Trustee to so enforce the Issuer Security unless the Note Trustee and the Security
Trustee have been indemnified or provided with security to their satisfaction.
(b)
Enforcement by Security Trustee: Following receipt of a direction from the Note Trustee in
accordance with Condition 14(a) to enforce the Issuer Security, the Security Trustee may without
further notice to the Issuer or any other person take such steps or institute such proceedings as
it may think fit to enforce the Issuer Security (subject always to it being indemnified and/or
secured to its satisfaction).
(c)
Liability: The Note Trustee and the Security Trustee will not be liable for any decline in the value
nor any loss realised upon any sale or other disposition, of the Issuer Security or any part of the
Issuer Security, made pursuant to the Deed of Charge. No Noteholder may proceed directly in
respect of the Issuer Security. The rights of recourse of the Noteholders, the Note Trustee and the
Security Trustee in respect of amounts due to them are limited to those assets and rights
represented by the Issuer Charged Property and/or the actual amount received or recovered from
time to time in respect of the Issuer Charged Property. Any unpaid obligations which remain
unsatisfied when no further amounts are available or recoverable in respect of the Issuer Charged
Property and all funds comprising the Issuer Charged Property and/or representing the proceeds
of realisation thereof have been applied in accordance with Clause 12 of the Deed of Charge shall
— 88 —
be extinguished. Each of the Note Trustee and the Security Trustee has in Clause 2.2 of the Deed
of Charge agreed not to petition a court for, or take any other action or commence any proceeding
which it may legally be entitled to take for, the liquidation, winding-up or reorganisation of the
Issuer or any other bankruptcy or insolvency proceeding with respect to the Issuer until the expiry
of one year and one day after the Secured Obligations have been discharged in full. However,
nothing in Clause 2.2 of the Deed of Charge shall:
15
(i)
prevent the Security Trustee from initiating any liquidation proceeding against the Issuer or
appointing any receiver, administrator, administrative receiver, trustee, liquidator,
sequestrator or similar officer of the Issuer, in each case for the purpose of enforcing the
Secured Obligations or from obtaining a declaratory judgment as to the obligations of the
Issuer under the Transaction Documents owed to any party thereto (provided that no steps
or proceedings are taken or commenced to enforce or implement such judgment); or
(ii)
prevent any party to the Deed of Charge from lodging a claim in any action or legal
proceeding initiated by any person other than the Security Trustee for the winding-up,
dissolution or re-organisation of, or for the appointment of a receiver, administrator,
administrative receiver, trustee, liquidator, sequestrator or similar officer of, the Issuer or of
any or all of its revenues and assets.
NOTICES
(a)
Publication: Any notice to Noteholders shall be validly given if such notice is either:
(i)
published in The Irish Times or, if such newspaper shall cease to be published or timely
publication therein shall not be practicable, in such English language newspaper or
newspapers as the Note Trustee shall approve having a general circulation in Dublin; or
(ii)
published on the Relevant Screen.
(b)
Date of publication: Any notices so published shall be deemed to have been given on the date on
which it was so published or, if published more than once or on different dates, on the first date
on which publication shall have been made in the newspaper or newspapers in which publication
is required or on the Relevant Screen.
(c)
Other Methods: The Note Trustee shall be at liberty to approve some other method of giving
notice to the Noteholders or category of them if, in its opinion, such other method is reasonable
having regard to market practice then prevailing and to the requirements of the stock exchange
on which the Notes are then listed and provided that notice of such other method is given to the
Noteholders in such manner as the Note Trustee shall require.
“Relevant Screen” means a page of the Reuters Service or of the Bloomberg service, or of any other
medium for the electronic display of data as may be previously approved by the Note Trustee and as
has been notified to the Noteholders in accordance with Condition 15.
In addition, so long as Notes are listed on the Irish Stock Exchange and the guidelines of that Exchange
so permit, notices to Noteholders will be filed with the Irish Stock Exchange’s Company Announcement
Office.
16
NOTIFICATIONS AND OTHER MATTERS TO BE FINAL
Notifications, opinions, determinations, certificates, calculations, quotations and decisions given,
expressed, made or obtained for the purposes of the provisions of the Notes, whether by the Issuer, the
Reference Agent, the Issuer Transaction Administrator, the Security Trustee or the Note Trustee, shall
(in the absence of wilful default, bad faith or manifest error unless otherwise provided for in these
— 89 —
Conditions) be binding on the Purchaser Transaction Administrator, the Swap Counterparty, the Issuer,
the Reference Agent, the Note Trustee, the Issuer Transaction Administrator, the Registrar, the Principal
Transfer Agent, the Principal Paying Agent, the other Paying Agents, the Security Trustee and all
Noteholders.
17
18
GOVERNING LAW AND JURISDICTION
(a)
Governing Law: The Trust Deed and the Notes are governed by, and shall be construed in
accordance with, English law.
(b)
Jurisdiction: The Issuer has in the Trust Deed (i) submitted irrevocably to the jurisdiction of the
courts of England for the purposes of hearing and determining any suit, action or proceedings or
settling any disputes arising out of or in connection with the Trust Deed or the Notes; (ii) waived
any objection which it might have to any such courts being nominated as the forum to hear and
determine any such suit, action or proceedings or to settle any such disputes and agreed not to
claim that any such court is not a convenient or appropriate forum; (iii) designated a person in
England to accept service of any process on its behalf; (iv) consented to the enforcement of any
judgment; and (v) to the extent that it may in any jurisdiction claim for itself or its assets
immunity from suit, execution, attachment (whether in aid of execution, before judgment or
otherwise) or other legal process, and to the extent that in any such jurisdiction there may be
attributed to itself or its assets or revenues such immunity (whether or not claimed), agreed not
to claim and irrevocably waived such immunity to the full extent permitted by the laws of such
jurisdiction.
CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
No person shall have any right to enforce any term or condition of the Notes under the Contracts
(Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which
exists or is available apart from that Act.
19
DEEMED INDEBTEDNESS
The Issuer agrees and the Noteholders will be deemed to have agreed for all purposes to treat the Notes
as indebtedness for all regulatory, financial accounting and tax purposes (including U.S. federal, state
and local income and franchise tax purposes) and not to take any position inconsistent with the
foregoing at any time.
20
PROVISION OF INFORMATION
For so long as any of the Notes remain outstanding and are restricted securities within the meaning of
Rule 144(a)(3) under the Securities Act, the Issuer undertakes that it will, during any period in which
it is neither a reporting company under Section 13 or Section 15(d) of the United States Securities
Exchange Act of 1934, as amended (the “Exchange Act”), nor exempt from reporting pursuant to Rule
12g3-2(b) under the Exchange Act, furnish on written request to any holder of such restricted securities,
or to any prospective purchaser thereof designated by such holder, such information as is required to
be provided pursuant to Rule 144A(d)(4) under the Securities Act in order to permit compliance with
Rule 144A in connection with the resale of such restricted securities.
— 90 —
SPECIFIED OFFICES OF THE AGENTS
The Registrar:
CITIBANK, N.A., LONDON BRANCH
21st Floor, Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
England
Fax:
(44) 207 508 3878
Attention: Agency and Trust
The Principal Paying Agent:
CITIBANK, N.A., LONDON BRANCH
21st Floor, Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
England
Fax:
(44) 207 508 3878
Attention: Agency and Trust
The Principal Transfer Agent:
CITIBANK, N.A., LONDON BRANCH
21st Floor, Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
England
Fax:
(44) 207 508 3878
Attention: Agency and Trust
The Irish Paying Agent:
CITIBANK INTERNATIONAL PLC
1 North Wall Quay
Dublin 1
Ireland
Fax:
(353)1 6022 2222
Attention: Global Securities Services
The Reference Agent:
CITIBANK, N.A., LONDON BRANCH
21st Floor, Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
England
Fax:
(44) 207 508 3878
Attention: Agency and Trust
— 91 —
THE ISSUER
Korea ACE Mortgage Company (the “Issuer”) was registered and incorporated as an exempted company
under the laws of the Cayman Islands on 23 May 2007, with its registered office at the offices of Walkers
SPV Limited at Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9002, Cayman Islands
and having registered number WK-187926, as a special purpose vehicle for the purposes of issuing
asset-backed securities. The authorised share capital of the Issuer is USD250 divided into 250 shares of a
nominal or par value of USD1.00 each, which shares have all been issued at par and fully-paid up to Walkers
SPV Limited. All of the issued shares (the “Shares”) are held by Walkers SPV Limited as share trustee (the
“Share Trustee”) under the terms of a declaration of trust (the “Declaration of Trust”) dated on or about
17 June 2008 under which the Share Trustee holds the Shares in trust until the Termination Date (as defined
in the Declaration of Trust) and may only dispose or otherwise deal with the Shares at the written instructions
of the Note Trustee for so long as there are Notes outstanding. Prior to the Termination Date, the trust is an
accumulation trust, but the Share Trustee has power with the consent of the Note Trustee, to benefit all or
such one or more Qualified Charities (as defined in the Declaration of Trust). It is not anticipated that any
distribution will be made while any Note is outstanding. Following the Termination Date (as defined in the
Declaration of Trust), the Share Trustee will wind up the trust and make a final distribution to charity. The
Share Trustee has no beneficial interest in, and derives no benefit (other than its fee for acting as Share
Trustee) from, its holding of the Shares.
BOARD OF DIRECTORS
In accordance with the Memorandum and Articles of Association of the Issuer, the affairs of the Issuer are
managed by its board of directors (the “Board of Directors”). The Board of Directors currently consists of
three directors.
The Directors of the Issuer are John Cullinane, Alasdair Foster and Rachael Rankin. Their business address
is Walkers SPV Limited, Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9002, Cayman
Islands and their other principal occupations outside of the Issuer are employees of Walkers SPV Limited.
The secretary of the Issuer is Walkers SPV Limited. The phone number of the registered office of the Issuer
is +345 945 4757.
The Issuer has no employees and will have no employees as at the Closing Date.
The Issuer will not have any substantial assets apart from the Issuer Charged Property.
Certain of the affairs of the Issuer (to include various corporate, secretarial and administrative services) will
be managed by Walkers SPV Limited (the “Issuer Corporate Administrator”) of Walker House, 87 Mary
Street, George Town, Grand Cayman KY1-9002, Cayman Islands under a corporate services agreement (the
“Corporate Services Agreement”) made between the Issuer and Walkers SPV Limited. The appointment of
Walkers SPV Limited as Issuer Corporate Administrator may be terminated and Walkers SPV Limited may
resign from its role as Issuer Corporate Administrator in accordance with the provisions of the Corporate
Services Agreement. Under the Corporate Services Agreement, any resignation of the Issuer Corporate
Administrator will not be effective until a replacement issuer corporate administrator acceptable to the Note
Trustee has been appointed and such replacement issuer corporate administrator accepts its appointment.
Article 3 of the Issuer’s Memorandum of Association states that the Issuer has unrestricted objects. The
activities of the Issuer as set out in the Transaction Documents will be limited to purchasing the Purchaser
Senior Notes from the Purchaser, issuing the Notes, entering into the Issuer Security Documents, the Trust
Agreement, the Swap Agreement and the other Transaction Documents to which it is a party and undertaking
activities pursuant to or contemplated in the documents and transactions referred to in this Prospectus to
which it is or will be a party.
As an exempted company, the Issuer may not trade in the Cayman Islands with any person, firm or
corporation except in furtherance of the business of the Issuer carried on outside the Cayman Islands.
— 92 —
CAPITALISATION OF THE ISSUER
The following table sets forth the unaudited capitalisation of the Issuer (as adjusted to reflect the issue of the
Notes) as at 17 June 2008:
As at 17
June 2008
USD
Share Capital
250 shares of USD1.00 each authorised, 250 shares issued and fully paid ................................
250
250
Debt
Notes............................................................................................................................................ 228,000,000
Total Capitalisation ................................................................................................................... 228,000,250
Note:
Other than as described above, there has been no material change in the capitalisation of the Issuer since 23 May 2007.
The Issuer’s financial year ends on 31 December in each year. Since the date of its incorporation, other than
entering into the Transaction Documents to which it is a party and documents ancillary thereto, the Issuer has
not commenced operations and has not produced any statutory accounts. Under the terms of the Trust Deed,
the Issuer is required to certify to the Note Trustee on an annual basis that no event of default or other matter
which is required to be brought to the attention of the Note Trustee has occurred. Under the terms of the Trust
Deed, the Issuer is required to produce annual financial statements but the same will not be audited unless
required under relevant applicable laws or by the Irish Stock Exchange.
— 93 —
THE PURCHASER
Hanmi Mortgage Securitization Specialty Company (the “Purchaser”) was incorporated in Korea as a
limited liability company under the ABS Act on 29 June 2007, with its registered office at 25, 1-Ka,
Bongrae-Dong, Chung-Ku, Seoul, Korea and having registered number 110114-0068939, as a special purpose
vehicle for the purpose of issuing asset-backed securities. The authorised equity capital of the Purchaser is
KRW10,000,000 divided into 1,000 units of a nominal or par value of KRW10,000 each, of which 995 units
have been issued at par and fully paid up to Hanmi Holding Company and 5 units have been issued at par
and fully paid up to the Seller. All of the issued units are subject to a pledge granted by Hanmi Holding
Company and the Seller (as unitholders) pursuant to the Equity Pledge Agreement in favour of the Secured
Parties. See “Transaction Summary — The Purchaser Notes — Purchaser Security” above.
DIRECTOR
In accordance with the Articles of Incorporation of the Purchaser, the affairs of the Purchaser are managed
by the director of the company (the “Director”). The Director shall chair each general meeting of the
unitholders and supervise and control all of the business affairs of the company. The company has one
Director.
The Director of the Purchaser is Tae-Seok Roh. His address is Jaeji-cheung 1 ho, Jaena-dong 226-15,
Noryangjin-dong, Dong-jak-gu, Seoul, Korea and his principal occupation outside of the Purchaser is an
assistant professor. Although the Purchaser has a registered office, all matters in relation to it are directed to
The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch as Purchaser Corporate
Administrator, its telephone number being (822) 760-0592.
The Purchaser has no employees and will have no employees as at the Closing Date.
The Purchaser will not have any substantial assets apart from the Secured Property.
The Purchaser has not commenced operations since the date of incorporation and no financial statements
have been made up as of the date of this Prospectus.
CAPITALISATION OF THE PURCHASER
The following table sets forth the unaudited capitalisation of the Purchaser (as adjusted to reflect the issue
of the Purchaser Senior Notes and the Purchaser Junior Note on the Closing Date) as at 17 June 2008:
As at 17
June 2008
KRW
Equity Capital
1,000 units of KRW10,000 each ....................................................................................
10,000,000
Total ...............................................................................................................................
Loan Capital...................................................................................................................
Purchaser Senior Notes (US$228,000,000) ....................................................................
10,000,000
234,338,400,000
Purchaser Junior Note ....................................................................................................
33,561,526,817
Total ...............................................................................................................................
Total Capitalisation ........................................................................................................
267,899,926,817
267,909,926,817
Note:
Other than as described above, there has been no material change in the capitalisation of the Purchaser since 29 June 2007.
— 94 —
The Purchaser’s financial year ends on 31 December in each year.
The Purchaser has no employees and will have no employees as at the Closing Date. The Purchaser will not
have any substantial assets apart from the Purchaser Charged Property.
The objects of the Purchaser as set out in Article 2 of its Articles of Incorporation will be to carry out
activities pursuant to the ABS Act and will include entering into agreements necessary for the performance
of the obligations under the transaction specified in the securitisation plan registered with the FSC.
The Purchaser has not engaged, since its incorporation, in any material activities other than those regarding
or incidental to the issue of the Purchaser Notes, the matters contemplated in this Prospectus and the
Transaction Documents and the authorisation of its entry into the other documents and transactions referred
to in this Prospectus to which it is or will be a party.
The Purchaser does not intend to publish audited financial statements. Under the terms of the Purchaser
Senior Notes Subscription Deed, the Purchaser is required to confirm in writing to the Security Agent on an
annual basis that no Purchaser Senior Notes Event of Default or other matter which is required to be brought
to the attention of the Security Agent has occurred.
— 95 —
THE SELLER
BUSINESS OVERVIEW
Citibank Korea Incorporated (also referred to as the “Seller” or “CKI”) was formed on 1 November 2004,
as a result of business transfer and merger between KorAm Bank and Citibank, N.A. Korea branches, which
had operated in Korea since 1967.
On 23 February 2004, Citigroup announced its intention to acquire KorAm Bank, founded in 1983 as a joint
venture between a consortium of Korean conglomerates and Bank of America. Through a tender offer and
a purchase of global depositary receipts owned by a Carlyle consortium, Citigroup invested a total of KRW
3,146 billion (USD 2.7 billion) in KorAm Bank leading to the formation of CKI in November 2004.
Citigroup’s investment in KorAm Bank was one of the largest foreign direct investments in Korea’s financial
services sector and one of the largest acquisitions for Citigroup in Asia. Citigroup retains a 99.9%
shareholding in CKI.
Citibank Overseas Investment Corporation (“COIC”) and Citibank, N.A., fully owned subsidiaries of
Citigroup are the major stockholders of CKI with 77.49% and 22.46% stakes respectively.
CKI is engaged in commercial banking business under the Banking Act, trust business under the Trust
Business Act and foreign exchange business with approval from the Bank of Korea (“BOK”) and the
Ministry of Strategy and Finance (“MOSF”). The bank’s head office is in Seoul, Korea and operates through
221 domestic branches. Total assets of CKI as of December 2007 were KRW 47 trillion with over 6 million
accounts in Korea. As of March 2008, CKI is rated “A” by Standard & Poor’s, “A2” in terms of long-term
FCY deposits by Moody’s, “AA-” by Fitch and “AAA” by three leading Korean domestic credit rating
agencies, National Information & Credit Evaluation, Korea Ratings and Korea Investor Services.
CKI recorded net income of KRW 468.1 billion for the financial year ended 2007 with total revenues of KRW
8,582.2 billion and total net interest income of KRW 1,206.6 billion. Net income increased by 44% from 2006
due to increase in credit card assets and increase in fee revenue arising from sales of investment,
bancassurance, and derivatives.
Lending
The following table presents an analysis of CKI’s loans by customer type as of the dates indicated:
(KRW in Billion)
Dec. 07
Dec. 06
Year-on-Year
Amount
%
Corporate Loans .............................................................
Consumer Loans .............................................................
Credit Cards ...................................................................
13,421.1
12,248.3
2,913.8
14,810.4
12,275.1
2,534.3
-1,389.4
-26.8
379.4
-9.4%
-0.2%
15.0%
Total ...............................................................................
28,583.2
29,619.8
-1,036.7
-3.5%
Note:
Corporate Loans included inter bank loans and call loans.
The consumer-banking segment is a major strategic focus area in CKI’s strategy for growth. CKI currently
provides a variety of financial products and services to consumers, principally individuals and small
businesses. These loan products and services include consumer loans, personal loans, mortgages and credit
card services. CKI offers these products through its multi-channel distribution network encompassing the
branch network, direct sales, telemarketing and the internet.
— 96 —
CKI also provides financial products and services to corporations and other large entities in Korea. Among
the products and services provided to these entities are lending, cash management, trade finance and
securities. CKI also offers foreign exchange and derivative product services through a dealing room in Korea.
CKI also focuses on small and medium-sized enterprises (“SMEs”) as part of its overall strategy. Among the
products and services provided to these SMEs are corporate loans, overdraft facilities, deposit products, bills
and receivables discounting, trade-related financing, payment remittances, foreign exchange transactions and
the issuance of guarantees.
Deposit Products
CKI’s principal source of funding is Won-denominated deposits, including demand deposits, savings
deposits, time deposits, instalment deposits and certificates of deposit. The following is the breakdown of
CKI’s local currency deposits as of the dates indicated:
(Unit: KRW in Billion)
Dec. 07
Demands .........................................................................
Time & Savings .............................................................
NCDs ..............................................................................
Total ...............................................................................
% of low cost deposits (1) ..............................................
1,963.8
13,912.1
5,670.1
21,546.0
31%
Dec. 06
1,968.1
17,325.6
5,048.8
24,342.5
28%
Year-on-Year
Amount
%
-4.3
-3,413.5
621.3
-2,796.5
—
-0.2%
-19.7%
12.3%
-11.5%
3%
Note:
(1)
Low cost deposits: Demand deposits + Savings + Corporate free deposits.
CKI had about 3 million consumer deposit customers as of April 2008. CKI’s retail deposit products currently
fall into the following general categories: demand deposits, savings deposits, time deposits, certificates of
deposit, instalment deposits and foreign currency deposits.
CKI currently offers deposit products tailored to fit the needs of different segments of corporate customers
(including SMEs). CKI sets rates on its deposit products based upon market interest rates as well as the
interest rate characteristics of its portfolio of assets and funding structure, except for deposits subject to rate
regulation by the BOK. However, CKI may occasionally offer preferential terms to certain customers based
on overall relationship. Rates paid on deposits are reviewed on a regular basis. As of 31 December 2007,
corporate deposits comprised 38% of CKI’s total deposits.
Risk management
CKI’s overall risk management policy is set by the Risk Management Committee (“RMC”). The RMC
consists of 3 or more directors who are nominated by the Nomination & Governance Committee and elected
through a resolution of the Board of Directors. Matters to be submitted to the RMC are divided into either
matters to be the subject of resolutions or matters to be reported.
1.
Resolutions are required in relation to the following:
•
Establishing basic principles on risk management in line with management strategies;
•
Determining the level of risk that can be borne by a financial institution;
•
Approving overall guidelines for portfolio management and risk taking levels;
•
Enacting and revising the risk management regulations appropriate to the businesses;
— 97 —
2.
•
Matters related to risk by each section; and
•
Other matters that the board of directors deems necessary.
The following are matters to be reported:
•
Reporting a non-performing loan exceeding 10 billion won per case; and
•
Reporting new credit exposure in excess of 10/100 of the equity under the Banking Act.
The Consumer Credit Risk Management Procedures of CKI is governed by CKI’s Consumer Credit and
Fraud Risk Policies and CKI’s Commercial Markets Business Credit Policies and Procedures.
In addition, risk management policy related to consumer loans is set by the Consumer Credit Committee
(“CCC”), which is composed of the CKI CRO (Risk Management Group Head), the GCD (CRM,
Consumer Risk Division Head) and SCOs (Senior Credit Officers).
The CCC is responsible for deliberation and resolution on the following items:
•
Decisions on major credit policies related to consumer banking;
•
Credit review and approval on matters separately defined under related regulations; and
•
Matters otherwise deemed necessary by the Chairman.
Meanwhile, pricing on consumer business products is separately decided by the Pricing Committee.
Credit Risk Management
The principal goal of CKI’s consumer credit risk management policy is the prudent management and
expansion of CKI’s credit exposure through rigorous and consistent application of credit underwriting
standards with the following guidelines:
•
A comprehensive understanding of the environment in which CKI does business (e.g. the market,
competition, economic, political and legal/regulatory) and its impact on the portfolio are fundamental
and critical for any type of lending.
•
Each business must establish financial return goals including risk-adjusted yields and credit
benchmarks that set out short and long term expectations.
•
An adequate management information system (“MIS”) must be established prior to launching a
product. The MIS must be adequate to originate, manage and track the performance of individual
credits as well as support portfolio analysis.
•
Proactive modifications to the target market, solicitation program, underwriting standards, and policies,
and collateral verification criteria must be made based on available information such as MIS trends,
collection/fraud feedback, customer complaints/issues, discussions with third party dealers/vendors and
competitor performance.
•
Sensitivity analysis and monitoring based on macro & micro economic market indicators.
Legal and Regulatory Framework
The banking system in Korea is governed by the Bank Act of 1950, as amended and the Bank of Korea Act
of 1950, as amended. In addition, Korean banks come under the regulations and supervision of the BOK, the
Monetary Policy Committee, the Financial Services Commission (the “FSC”) and the Financial Supervisory
Service (the “FSS”).
— 98 —
The BOK, established in June 1950 under the Bank of Korea Act, performs the customary functions of a
central bank. It seeks to contribute to the sound development of the national economy by price stabilization
through establishing and implementing efficient monetary and credit policies. The BOK acts under
instructions of the Monetary Policy Committee, the supreme policy-making body of the BOK.
Under the Bank of Korea Act, the Monetary Policy Committee’s primary responsibilities are to formulate
monetary and credit policies and to determine the operations, management and administration of the BOK.
The FSC, established on 1 April 1998, exerts direct control over commercial banks pursuant to the Bank Act,
including establishing guidelines on capital adequacy of commercial banks, and prepares regulations relating
to supervision of banks. Furthermore, pursuant to the Amendment to the Government Organization Act and
the Bank Act promulgated on 24 May 1999, the FSC, instead of the MOSF, now regulates market entry into
the banking business. The FSC has expanded its supervisory role by absorbing the finance policymaking unit
which previously was a part of the MOSF and changed its name from the Financial Supervisory Commission
to the Financial Services Commission as of 3 March 2008.
The FSS was established on 4 January 1999 as a unified body consisting of several regulatory bodies then
in existence, including the former Bank Supervisory Authority (the successor to the Office of Bank
Supervision), the Securities Supervisory Board, the Insurance Supervisory Board and the Credit Management
Fund. The FSS is subject to the instructions and directives of the FSC and carries out the supervision and
examination of commercial banks. In particular, the FSS promulgates and implements regulations for prudent
control of liquidity, capital adequacy and reporting, pursuant to which banks are required to submit annual
reports on financial performance and shareholdings, regular reports on management strategy and
non-performing loans, including write-offs, and management of financially troubled companies and plans for
the settlement of non-performing loans.
Recent Regulations Relating to Retail Household loans
In March 2006, the FSS required that banks should apply 40 per cent. debt-to-income (“DTl”) ratio to loans
secured by apartments with title transfer within three (3) months and appraisal value of more than KRW 600
million in speculative areas in order to reinforce the risk management of mortgage loans.
In November 2006, the FSS issued guidelines to:
•
apply Loan-To-Value (“LTV”) ratio of up to 60% in respect of loans with a maturity of more than ten
(10) years which are secured by apartments with appraisal value of not more than KRW 600 million in
the designated speculative areas;
•
apply a 40% LTV ratio in respect of loans with a maturity of more than ten (10) years which are secured
by apartments with appraisal value of more than KRW 600 million in the designated speculative areas;
•
apply a 40% LTV ratio in respect of loans with a maturity of not more than ten (10) years in the
designated speculative areas; and
•
require Korean commercial banks to apply 40 per cent. DTI ratio on loans secured by apartments with
appraisal value of more than KRW 600 million in the designated speculative areas and the metropolitan
areas which are prone to property speculation.
Due to a rapid increase in loans secured by homes and other forms of housing, the FSC and the FSS have
amended certain regulations in relation to provisioning policy to curb the increase of such loans. Effective
from the fourth quarter of 2006, the FSC and the FSS raised the minimum provisioning requirements for
household loans classified as precautionary from 8.0 per cent, to 10.0 per cent and for household loans
classified as normal from 0.75 per cent. to 1.0 per cent.
Also, the government requires Korean commercial banks to strengthen risk management of multiple
mortgage loans, which includes imposing on extension limit of mortgage loans due to borrowers who have
more than two mortgage loans in designated speculative areas.
— 99 —
In March 2007, Korean commercial banks began to apply DTI regulations to all loans other than loans of less
than KRW 50 million secured by apartments in the designated speculative areas and the designated
speculative-prone areas under the guidance of the FSS. Applied DTI ratios vary from 40 per cent. to 60 per
cent. in accordance with the interest rate type, payment type and income documents in relation to such loans.
In April 2007, the National Assembly passed an amendment bill of the Housing Law, aimed at the disclosure
of construction costs and imposing price ceilings for newly built apartments in order to curb the rising of
residential property value.
Legal Proceedings
CKI is subject to threatened or filed legal actions from time to time in the ordinary course of business. As
of 31 March 2008, CKI was a defendant in 28 legal actions for an aggregate claim amount of KRW 74,469
million. CKI made reserves in the aggregate amount of KRW 7,260 millions for some of these legal actions.
CKI was also a plaintiff in 809 legal actions for an aggregate claim amount of KRW 84,969 million as of 31
March 2008.
MORTGAGE LOAN BUSINESS
The information contained in the following sections is a general description of CKI’s mortgage loan business.
Investors should rely solely on the information contained in “Description of the Mortgage Loan Assets”
below, “Transaction Summary — Servicing” above and “The Servicer” below with respect to the
characteristics of and selection criteria applied to the Mortgage Loan Assets and the collection, reporting and
management services in relation to the Mortgage Loan Assets.
CKI has more than 14 years of mortgage loan lending experience, and mortgage lending increased from a
balance of KRW6,580 billion as of 31 December 2002 to KRW7,538 billion as of 31 March 2008. As of
March 2008, CKI held approximately 3.4% of the retail mortgage loans held by Korean banks (including
wholesale mortgage loans).
Most of CKI’s mortgage loans are extended to buyers of apartments and houses in Korea who intend to
occupy the premises or purchase for investment purposes. Some of the mortgage loans, however, are made
to owners who wish to refinance their existing mortgage loans or take a secured loan for general household
expenditures.
CKI provides mortgage products in various forms; based on loan product, there are instalment and revolving;
and, based on repricing tenor, there are 3-month floating rate mortgage and long-term floating rate mortgage,
for which interest rates are changed every 6, 12, 24, 36 or 60 months as set at the time of underwriting.
Repayment types offered for the above mentioned products are: bullet (interest only), equal principal
instalments with variable interest payable based on outstanding principal amount of loan (which may or may
not have balloon payments at maturity), and equal principal and interest instalments. Loans with maturity
equal to or longer than 10 years may have an interest-only period of up to 3 years.
Interest is charged on the outstanding principal balance of each mortgage loan. Default interest is charged on
overdue payments of principal or interest (depending on the period of delinquency) at a rate set by the related
mortgage loan agreement. The borrower is entitled to prepay the mortgage loan in whole or in part but may
be subject to a prepayment penalty as set out in the related mortgage loan agreement. CKI has the right to
foreclose the mortgage and subject the underlying property to court auction proceedings to recover any sums
in the event of a default in payment by the borrower. See “— Collection” below.
— 100 —
CKI reviews its origination, underwriting and on-going review, billing and payment, servicing, collection and
delinquency procedures (described below), as well as the terms and conditions of the mortgage loan
agreements, from time to time as it deems appropriate, and may change such procedures or terms and
conditions at any time in accordance with its business judgment, applicable law and guidelines issued by
regulatory authorities.
Origination
CKI issued over KRW 2 trillion of new mortgage loans in 2007 (including wholesale mortgage loans). CKI’s
sales activities have traditionally been conducted primarily through its extensive branch network and direct
sales force. As of March 2008, CKI had 221 domestic branches and a direct sales force of 170, who are
contractors to the bank. The majority of these branches are located in Seoul and its surrounding areas.
Underwriting and ongoing review
Mortgage underwriting criteria is based on bureau scores, internal underwriting policy and FSS guideline
overlays and is validated annually by Consumer Credit Risk Management.
Mortgage Risk Management team is involved in product development, risk policy establishment, portfolio
management, and quality assurance to confirm the adherence to risk polices by branches.
A separate modeling & analytics team, Business Analytics Unit (“BAU”), is working for business
optimization and managing risk related solutions through customer demographic information, portfolio data
and credit bureau data.
The BAU is also developing internal, customized scores. Various external data sources are utilized to update
borrower financial information in developing the internal score. For example, Korea Federation of Banks
(“KFOB”) provides loan and guarantee information of a customer as well as delinquency information such
as delinquency in tax payments or any filing with Individual work-out plan or Chapter 2/Chapter 4
proceedings. With KFOB, NICE and credit card network information, BAU develops Korea Bureau Score
(“KB Score”), which is then converted into Level 1~19 and exception group for easy reference. Depending
on the level of delinquency, a customer will fall into the Exclusion group. KB Score is used in mortgage
underwriting as a cut-off score.
Loan clerks at CKI’s branches handle inquiries from potential borrowers and receive loan applications. Once
an application is made, a loan clerk inputs complete application information through CKI’s Consumer Loan
Approval System (“CLAS”) for underwriting and a request is made for an appraisal of the property offered
as collateral at the same time. If the collateral is an apartment, CKI takes the general transaction value quoted
by Kookmin Bank’s database in accordance with FSS guidelines. If the collateral is not an apartment or its
value is not available in Kookmin Bank’s database, CKI takes the appraisal value from 1) Korean Appraisal
Board 2) an external independent appraisal company, or 3) standard price disclosed by National Tax Services.
The adequacy of the appraisal value is verified through cross validation across appraisal companies on a
semi-annual basis.
If the loan application is approved, CKI engages a judicial scrivener to establish a keun-mortgage right on
the property and once the mortgage has been established, the proceeds of the mortgage loan are credited to
the borrower’s designated account.
The total process normally takes from three to six business days after the application is submitted.
Billing and Payment
All mortgage loan borrowers are required to establish an account at CKI where all loan drawdowns and
repayments are transacted. In general, payments on the mortgage loans in CKI’s mortgage loan portfolio are
made on a monthly basis for interest payments and a monthly or annual basis for principal repayments, with
the first payment date falling approximately one month, in respect of monthly payments, and one year, in
respect of annual payments, after the loan disbursement date. At the time of the disbursement of the mortgage
loan, each borrower is notified of the required payment due each month for the entire term of the loan. CKI
does not send any other billing statements to borrowers, except to notify borrowers of any changes in the
— 101 —
original terms of the relevant mortgage. CKI is not required to send any notices to borrowers when interest
rates on loans are reset as a result of changes in the benchmark rate. If a borrower objects to any such change,
such borrower may prepay the entire outstanding principal balance of the loan plus accrued and unpaid
interest within one month of such notice, without any prepayment penalty.
Payment dates fall throughout the month, with concentrations towards the end of each month. A borrower can
make payments by auto-debit through pre-authorised automatic withdrawals by CKI from his or her
designated bank account, by ATM direct debit, by internet banking, by tele-banking or in person at any
branch of CKI in Korea. If the balance standing to the credit of a borrower’s designated bank account for
automatic withdrawal as of a payment date is insufficient to cover the payment then due, the related
auto-debit bank will continue to debit the account on a periodic basis. In the interim, CKI will commence
its collection procedures against such borrower. See “— Collections” below.
INFORMATION AND SYSTEMS
Since the acquisition of KorAm Bank in 2004, the CKI Technology Division has successfully completed
some major milestones, including the relocation of the legacy Citibank systems from the regional office in
Singapore to Korea and the migration of the two banks’ core systems into one standard system in July 2006.
Incorporating the design for Continuity of Business, CKI now offers highly available systems in two data
centers backing each other, the primary centre being located in Incheon and the secondary centre being
located in Yongin.
Along with the adoption of advanced banking technology, the CKI Technology division also implements
information security programs and developing applications such as anti-money laundering systems to protect
its assets, reputation and customer perception.
CKI Technology has invested more than KRW 150 billion in hardware and software including the migration
projects since the acquisition of KorAm Bank.
COLLECTION
CKI’s collection activities are carried out based on collection strategies designed by Credit Risk Management
to maximize collection of past due amounts while maintaining adequate relationship with customers, meeting
service quality standards and conforming to all relevant legal, regulatory and internal policy requirements.
If a customer fails to make the contractual payment on the payment due date, the customer’s account becomes
delinquent. The collection activities are initiated with respect to payments that are at least one day past due
(“dpd”).
The delinquent accounts are usually grouped into three different categories (so called “delinquency
buckets”), consisting of (i) Front End (for payments that are 1 to 29 dpd), (ii) Mid Range (for payments that
are 30 to 59 dpd) and (iii) Hard Core (for payments that are more than 60 dpd). Each delinquency bucket
requires different collection strategies. For accounts belonging to Front End, the focus is on customer
retention, while for accounts belonging to Hard Core, the focus is on asset preservation. The delinquent
accounts are treated with various collection tools, such as calls, letters, text messages and telegrams.
Customer contact method is based on the appropriate strategy for that delinquency bucket, with the support
of the skip tracing and site visit team to locate skipped customers. CKI also utilises the Computer-Assisted
Collections System (“CACS”) and Predictive Auto Dialer, which automatically dials to customers and route
calls to available collection agents to enhance collection activities.
— 102 —
Set out below is a brief summary of collection procedures:
Collection Procedures
Days
Delinquent Treatment
(If customer can be reached)
Treatment
(If customer can’t be reached)
1-29 days
•
•
Locate customer information
•
When located, make collection
call
•
Locate & Skip Trace
•
Visit Collateral site
30-59 days
Make collection calls to
customers using Predictive Auto
Dialer
•
Get payment promise (when,
how much)
•
If promise is broken, resume
making collection calls until
payment is completed
•
If customer does not make
payments as promised for several
times, it is routed to supervisor’s
queue for review/call
•
Risk mitigation for eligible
customers
•
First collection letter to
customers at 18 days delinquent
•
Collection calls made manually
to better manage delinquent
customers
•
Explain consequences of
continued delinquency on
collection calls
—
Negative credit information
passed on to Credit
Bureaus
—
Foreclosure Initiation
•
Warning letter that the debt
becomes due and payable in full
at 30 days delinquent
60-89 days
•
Initiate property
investigation
90 days+
•
Final letter that the debt becomes
due and payable in full to
customers at 90 days delinquent
•
Transfer to legal collection team
and initiate foreclosure process
•
File Foreclosure
courts
and
with
— 103 —
credit
district
Historical Portfolio Delinquency Experience
Although changes in economic conditions can be expected to affect delinquency and defaults and there can
be no assurance that past experience will predict future results, the following graphs summarise the recent
delinquency experience of the segments of CKI’s mortgage loan portfolio which are similar to the Mortgage
Loan Assets. Such graphs are provided for illustrative purposes only and no prediction can be made as to the
actual delinquency and default rates which will be experienced on the Mortgage Loans to be included in the
Mortgage Loan Assets.
90+ day delinquency by Repayment type
1.00%
0.90%
Equal P Loans
0.80%
Equal P&I Loans
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
May-04
Nov-04
May-05
Nov-05
May-06
Nov-06
May-07
Nov-07
90+ day delinquency by Original LTV
3.00%
< =30%
2.50%
30~40%
40~50%
2.00%
50~60%
60~70%
1.50%
1.00%
0.50%
0.00%
May-04
Nov-04
May-05
Nov-05
May-06
— 104 —
Nov-06
May-07
Nov-07
Historical Repayment Rates
Although changes in economic conditions can be expected to affect repayment rates and there can be no
assurance that past experience will predict future results, the following tables summarise the recent
repayment experience of the segments of CKI’s mortgage loan portfolio which are similar to the Mortgage
Loan Assets. Such tables are provided for illustrative purposes only and no prediction can be made as to the
actual rate of repayment which will be experienced on the Mortgage Loans to be included in the Mortgage
Loan Assets.
Historical Monthly Repayment Rates - Equal P&I Loans
Month ended
Quarter Ended
Year Ended
31 Dec.
2007
30 Nov.
2007
31 Dec.
2007
30 Sep.
2007
30 Jun.
2007
31 Dec.
2007
31 Dec.
2006
Lowest ..........................................
2.18%
2.72%
2.18%
2.52%
2.38%
2.18%
2.73%
Highest .........................................
2.18%
2.72%
3.49%
3.10%
3.35%
4.51%
6.94%
Monthly Average ..........................
2.18%
2.72%
2.80%
2.79%
2.77%
3.01%
5.12%
Historical Monthly Repayment Rates - Equal P Loans
Month ended
Quarter Ended
Year Ended
31 Dec.
2007
30 Nov.
2007
31 Dec.
2007
30 Sep.
2007
30 Jun.
2007
31 Dec.
2007
31 Dec.
2006
Lowest ..........................................
3.46%
3.88%
3.46%
2.87%
3.02%
2.87%
3.77%
Highest .........................................
3.46%
3.88%
4.99%
3.48%
3.25%
4.99%
6.50%
Monthly Average ..........................
3.46%
3.88%
4.11%
3.23%
3.14%
3.57%
5.08%
Historical Monthly Repayment Rates - IO + Equal P&I Loans and IO + Equal P Loans
Month ended
Quarter Ended
Year Ended
31 Dec.
2007
30 Nov.
2007
31 Dec.
2007
30 Sep.
2007
30 Jun.
2007
31 Dec.
2007
31 Dec.
2006
Lowest ..........................................
1.60%
1.58%
1.58%
1.33%
1.59%
1.03%
1.96%
Highest .........................................
1.60%
1.58%
1.69%
1.82%
1.73%
1.93%
4.36%
Monthly Average ..........................
1.60%
1.58%
1.62%
1.61%
1.64%
1.57%
3.01%
— 105 —
DESCRIPTION OF THE MORTGAGE LOAN ASSETS
OVERVIEW
The Mortgage Loan Assets will comprise of all of the Seller’s right, title, interest and benefit in, to, under
and in respect of: (i) the principal amounts outstanding under certain Mortgage Loan Agreements entered into
by the Seller with various Borrowers as at the Cut-off Date and from time to time thereafter and (ii) all
interest (including default interest) accrued thereon and due or to become due thereunder on the Transfer Date
and from time to time thereafter. For the avoidance of doubt, any interest or other amounts (other than
principal) accrued during the period from (and including) the Cut-off Date to (and excluding) the Transfer
Date will be excluded from the Mortgage Loan Assets. The Mortgage Loan Assets will be a static portfolio.
Accordingly, there will not be further purchases of Mortgage Loan Assets after the Transfer Date. The
Mortgage Loan Agreements included in the Mortgage Loan Assets are secured by Mortgages over residential
properties located in Korea.
The Purchaser will purchase the Mortgage Loan Assets from the Seller pursuant to the Transfer Agreement.
In the Transfer Agreement, the Seller will make specific representations and warranties as of the date of the
Transfer Agreement, the Cut-off Date, the Transfer Date and the Closing Date with respect to the Mortgage
Loan Assets. The Seller will also agree to accept the return, under certain circumstances, of any Mortgage
Loan Asset with respect to which any such representation is untrue or if there is a breach of any such
warranty. The Purchaser will pledge the Mortgage Loan Assets in favour of the Secured Parties, including
the Issuer, on or about the Closing Date pursuant to the Pledge Agreement. Under the Pledge Agreement, the
Purchaser will also pledge all of its rights under the Transfer Agreement, including its right to enforce the
Seller’s return obligations, in favour of the Secured Parties.
ELIGIBILITY CRITERIA
The Eligibility Criteria for selection of the Mortgage Loan Transactions as Mortgage Loan Assets were:
1.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, the
Mortgage Loan is secured by a First Mortgage or a Second Mortgage.
2.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, the
Mortgaged Property is a residential only property located in South Korea.
3.
No Mortgage Loan comprising part of the Mortgage Loan Assets has an original term of less than three
(3) years.
4.
If the Mortgaged Property is owned by more than one person, each such person (other than the
Mortgagor) has consented in writing that in the event of an enforcement of the related Mortgage and
the Seller shall have the right to enforce against the entire Mortgaged Property.
5.
No Mortgage Loan comprising part of the Mortgage Loan Assets had a LTV of above seventy per cent.
(70%) at the time of origination of such Mortgage Loan and at the Cut-off Date.
6.
No Mortgage Loan comprising part of the Mortgage Loan Assets has a maturity date falling later than
18 months prior to the maturity date of the Purchaser Senior Notes.
7.
Each Mortgage Loan comprising part of the Mortgage Loan Assets at the time of origination had a
maximum principal amount of not more than KRW six hundred million (600,000,000).
8.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, the
amounts payable by each Obligor or Collateral Security Provider in respect thereof are denominated in
Korean Won only.
— 106 —
9.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, as of the
Cut-off Date no payment of any amount due thereunder from any Obligor is unpaid.
10.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, no
payment of any amount due thereunder from any Obligor was unpaid for more than sixty (60) days after
the due date therefor on more than one occasion during the twelve (12) months preceding the Cut-off
Date.
11.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, no
payment in respect thereof has been rescheduled, amended, re-aged or changed to avoid or eliminate
a delinquency or default or following a delinquency or default.
12.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, the related
Mortgage Loan Agreement stipulates one of the following repayment methods:
13.
(a)
equal monthly instalment payments of interest and principal until the maturity date of the
Mortgage Loan provided that, in the case where the rate of interest in respect of such Mortgage
Loan Transaction has changed pursuant to the terms of such Mortgage Loan Agreement, the
amount of the monthly instalment payment shall be adjusted accordingly while the maturity date
of such Mortgage Loan shall remain the same;
(b)
monthly payments of interest only during the initial period of up to three (3) years, thereafter
equal monthly instalment payments of interest and principal until the maturity date of the
Mortgage Loan provided that, in the case where the rate of interest in respect of such Mortgage
Loan Transaction has changed pursuant to the terms of such Mortgage Loan Agreement, the
amount of the monthly instalment payment shall be adjusted accordingly while the maturity date
of such Mortgage Loan shall remain the same;
(c)
monthly payments of interest only during the initial period of up to three years, thereafter equal
instalment payments of principal at such regular repayment intervals as shall have been selected
by the relevant Borrower at the time of origination of the Mortgage Loan and monthly interest
payment based on the then outstanding principal balance until the maturity date of the Mortgage
Loan and repayment of the then outstanding balance on the maturity date of the Mortgage Loan
provided that, in the case where the rate of interest in respect of such Mortgage Loan Transaction
has changed pursuant to the terms of such Mortgage Loan Agreement, the amount of the monthly
instalment payment shall be adjusted accordingly while the maturity date of such Mortgage Loan
shall remain the same; or
(d)
equal instalment payments of principal at such regular repayment intervals as shall have been
selected by the relevant Borrower at the time of origination of the Mortgage Loan and monthly
interest payment based on the then outstanding principal balance until the maturity date of the
Mortgage Loan and repayment of the then outstanding balance on the maturity date of the
Mortgage Loan provided that, in the case where the rate of interest in respect of such Mortgage
Loan Transaction has changed pursuant to the terms of such Mortgage Loan Agreement, the
amount of the monthly instalment payment shall be adjusted accordingly while the maturity date
of such Mortgage Loan shall remain the same.
In respect of each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, none of
the related Mortgage Loan Agreement, the related Mortgage or the related Collateral Security contains
any provision whereby the Borrower, the Mortgagor or the relevant Collateral Security Provider (as the
case may be) may require that the relevant Mortgage Loan Agreement, Mortgage or, as the case may
be, Collateral Security be replaced, the terms of the relevant Mortgage Loan Agreement, Mortgage or,
as the case may be, Collateral Security be varied or the related Collateral Security be exchanged and
no such provision has otherwise been agreed to in writing or orally.
— 107 —
14.
Each of the Mortgage Loan Agreements and the Mortgages comprising part of the Mortgage Loan
Assets prohibits the related Borrower or, as the case may be, Mortgagor from assigning its rights under
such Mortgage Loan Agreement or, as the case may be, Mortgage without the consent of the Seller.
15.
All Obligors in respect of each Mortgage Loan Transaction comprising part of the Mortgage Loan
Assets are individual persons who are Korean citizens or permanent residents and who were aged
twenty (20) years old or more at the time of origination.
16.
No Borrower in respect of any Mortgage Loan Agreement comprising part of the Mortgage Loan Assets
was more than sixty five (65) years old at the time of origination.
17.
In respect of each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, the related
Mortgage Loan Agreement does not contain a provision which permits the relevant Borrower to make
payments after the scheduled payment date and no such provision has otherwise been agreed in writing
or orally.
18.
Each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets complied at the time of
origination in all material respects with the Seller’s policies, practices and procedures for the
origination of mortgage loans of the same type as the Mortgage Loan Assets.
19.
The text of each Mortgage Loan Agreement comprising part of the Mortgage Loan Assets conforms in
all material respects with one of the standard forms of Mortgage Loan Agreement delivered by the
Seller to the Purchaser (and copied to each Rating Agency) on or before the Transfer Date and certified
by a duly authorised officer of the Seller to be true and accurate in all respects.
20.
The text of each Mortgage comprising part of the Mortgage Loan Assets conforms in all material
respects with one of the standard forms of mortgage delivered by the Seller to the Purchaser (and copied
to each Rating Agency) on or before the Transfer Date and certified by a duly authorised officer of the
Seller to be true and accurate in all respects.
21.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, no
payment (except for the payment of an up-front fee in accordance with the related Mortgage Loan
Agreement) has been made by the related Borrower, whether by way of deposit or advance payment,
prior to such payment becoming due and payable. This does not include payments paid and applied to
the loan.
22.
Each Mortgage Loan Agreement comprising part of the Mortgage Loan Assets stipulates a variable rate
of interest of not less than the average of the 3 month FDAAA Rate and the 3 month CD Rate plus an
interest margin per annum of not less than one tenth of one per cent. (0.10%).
23.
No Mortgage Loan Transaction comprising part of the Mortgage Loan Assets was originated under the
Seller’s staff loan programme and no Obligor is a staff member of the Seller.
24.
In relation to each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets, none of
the related Obligors or Collateral Security Providers were listed as of the time of origination of the
Mortgage Loan Transaction and as of the Cut-off Date on the list of bad debtors pursuant to the Rule
Concerning Credit Information Management of the Korean Federation of Banks or were at the time of
origination of the Mortgage Loan Transaction and as of the Cut-off Date bankrupt or the subject of
insolvency proceedings.
25.
The aggregate principal amount on the Cut-off Date of all Mortgage Loans comprising part of the
Mortgage Loan Assets where the aggregate amounts deposited in one or more accounts of the
corresponding Borrower held at the Seller is more than thirty per cent. (30%) of the principal amount
outstanding under the related Mortgage Loan, does not exceed five per cent. (5%) of the total principal
amount of all the Mortgage Loans comprising part of the Mortgage Loan Assets on the Cut-off Date.
— 108 —
26.
No Borrower has entered into more than three (3) Mortgage Loan Transactions comprising part of the
Mortgage Loan Assets.
27.
No Borrower in respect of the Mortgage Loan Assets has more than one Mortgage Loan Transaction
secured by the same Mortgaged Property as of Cut-off Date.
28.
There is no Mortgage Loan Asset the related Mortgaged Property of which was as at the time of
origination under construction or otherwise incomplete.
29.
Each Mortgage Loan Transaction comprising part of the Mortgage Loan Assets has been originated at
least four (4) months prior to the Cut-off Date and at least one interest payment has been made by the
Borrower in respect thereof.
30.
Each Mortgage Loan Asset comprising all of the Mortgage Loan Assets which has the benefit of
Collateral Security provided by a third party Collateral Security Provider was originated at least six (6)
months prior to the Closing Date. For the avoidance of doubt, the Seller has the right to enforce against
the entire Mortgaged Property provided by a third party Collateral Security Provider.
31.
In relation to each Mortgage Loan comprising part of the Mortgage Loan Assets, the related Mortgage
was registered with the relevant real estate registry in Korea at or about the time of origination of such
Mortgage Loan and the Seller is not aware of any change to such registration.
THE MORTGAGE LOAN PORTFOLIO
The statistical information in this Prospectus concerning the Mortgage Loan Assets is presented as of the
Cut-off Date. The aggregate outstanding principal balance of the Mortgage Loan Assets as of the Cut-off Date
was KRW267,899,926,817. As of the Cut-off Date, there were no Mortgage Loan Transactions which were
in arrears.
The statistical distribution of the characteristics of the Mortgage Loan Assets as of the Closing Date may vary
from the statistical distribution of the characteristics of the Mortgage Loan Assets as of the Cut-off Date due
to the fact that payments have been made in respect of some of the Mortgage Loan Transactions and some
of the Mortgage Loan Transactions will be excluded from the final pool as a result of difficulties in contacting
the Borrower or the Borrower notifying the Seller of its objection to the transfer of the related Mortgage Loan
Asset from the Seller to the Purchaser.
Information in respect of the Mortgage Loan Assets portfolio as of the Cut-off Date (the “Portfolio”) is set
out in the following tables. All weighted average and percentage calculations are based on the mortgage loan
balances on the Cut-off Date. Numbers may not add up to the total or percentages to 100% due to rounding.
Summary Statistics of Mortgage Loan Assets
Summary Statistics
Number of Mortgage Loans ..........................................................................................
Total Current Balance (KRW)........................................................................................
Average Current Balance (KRW) ...................................................................................
Total Original Balance (KRW).......................................................................................
Average Original Balance (KRW) ..................................................................................
Weighted Average Coupon (%) ......................................................................................
Weighted Average Original Term (months)....................................................................
Weighted Average Stated Remaining Term (months).....................................................
Weighted Average Seasoning (months) ..........................................................................
Weighted Average Original LTV (%) .............................................................................
Average Age of Borrowers (years).................................................................................
— 109 —
3,113
267,899,926,817
86,058,441
319,582,350,000
102,660,569
6.65%
257.29
230.94
25.46
50.32%
39.64
Total Portfolio by Type of Collateral
Type of Collateral
Number of
Mortgage
Loans
Apartments
3,085
Other Residential Property
Total
% of Total
Loans
Current Loan Balance
Amount (KRW)
99.10%
% of Total
Current
Balance
265,677,682,086
Average
Current Balance
(KRW)
99.17%
86,119,184
28
0.90%
2,222,244,731
0.83%
79,365,883
3,113
100.00%
267,899,926,817
100.00%
86,058,441
Total Portfolio by Loan Type
Loan Type
Number of
Mortgage
Loans
% of Total
Loans
Current Loan
Balance Amount
(KRW)
% of Total
Current
Balance
Average
Current
Balance
(KRW)
Weighted
Average
Seasoning
Weighted
Average
Original
LTV
Equal P Loan
279
8.96%
19,538,262,428
7.29%
70,029,614
27.81
49.09%
IO + Equal P Loan
802
25.76%
68,014,892,062
25.39%
84,806,599
27.00
50.50%
Equal P&I Loan
361
11.60%
28,490,572,476
10.63%
78,921,253
24.33
48.40%
IO + Equal P&I
Loan
1,671
53.68%
151,856,199,851
56.68%
90,877,439
24.69
50.75%
Total
3,113
100.00%
267,899,926,817
100.00%
86,058,441
25.46
50.32%
Total Portfolio by Location
Number of
Mortgage
Loans
Location
% of Total
Loans
Current Loan Balance
Amount (KRW)
% of Total
Current
Balance
Average
Current
Balance (KRW)
Weighted
Average
Original
LTV
Seoul
700
22.49%
86,830,162,545
32.41%
124,043,089
48.88%
Pusan
45
1.45%
2,511,675,554
0.94%
55,815,012
51.05%
Chung-cheong-buk-do
2
0.06%
144,905,499
0.05%
72,452,750
52.90%
Chung-cheong-nam-do
5
0.16%
254,771,999
0.10%
50,954,400
56.97%
Daejeon
116
3.73%
7,305,248,484
2.73%
62,976,280
52.44%
Daegu
101
3.24%
6,130,838,199
2.29%
60,701,368
51.55%
56.76%
Jeon-ra-buk-do
6
0.19%
306,064,318
0.11%
51,010,720
Jeon-ra-nam-do
—
0.00%
—
0.00%
—
Incheon
567
18.21%
31,302,857,268
11.68%
55,207,861
—
53.15%
Jeju
—
0.00%
—
0.00%
—
Kang-won-do
—
0.00%
—
0.00%
—
Kwang-ju
29
0.93%
1,355,655,654
0.51%
46,746,747
55.52%
Kyung-sang-buk-do
5
0.16%
261,101,533
0.10%
52,220,307
51.69%
Kyung-gi-do
—
—
1,520
48.83%
130,691,371,761
48.78%
85,981,166
50.31%
Kyung-sang-nam-do
16
0.51%
770,437,491
0.29%
48,152,343
50.07%
Woolsan
1
0.03%
34,836,512
0.01%
34,836,512
60.00%
3,113
100.00%
267,899,926,817
100.00%
86,058,441
50.32%
Total
Total Portfolio by Income Document Type
Income Document Type
Number of
Mortgage
Loans
Full Doc
2,607
Other Doc
Total
% of Total
Loans
Current Loan Balance
Amount (KRW)
83.75%
228,808,079,116
% of Total
Current
Balance
85.41%
Average
Current Balance
(KRW)
87,766,812
506
16.25%
39,091,847,701
14.59%
77,256,616
3,113
100.00%
267,899,926,817
100.00%
86,058,441
— 110 —
Total Portfolio by Employment
Employment
Number of
Mortgage
Loans
Salary Earner
2,654
85.26%
216,009,028,223
80.63%
81,389,988
Self-employed
449
14.42%
51,243,891,176
19.13%
114,128,934
Other Form of Employment
10
0.32%
647,007,418
0.24%
64,700,742
3,113
100.00%
267,899,926,817
100.00%
86,058,441
Total
% of Total
Loans
Current Loan Balance
Amount (KRW)
% of Total
Current
Balance
Average
Current Balance
(KRW)
Total Portfolio by Original LTV
Original LTV
Number of
Mortgage
Loans
% of Total
Loans
Current Loan Balance
Amount (KRW)
% of Total
Current
Balance
Average
Current Balance
(KRW)
Weighted
Average
Original
LTV
< 10%
1
0.03%
97,000,000
0.04%
97,000,000
9.43%
~ < 20%
45
1.45%
2,995,382,519
1.12%
66,564,056
16.51%
~ < 30%
206
6.62%
15,664,661,938
5.85%
76,042,048
26.06%
~ < 40%
416
13.36%
29,670,655,032
11.08%
71,323,690
35.69%
~ < 50%
643
20.66%
54,540,940,203
20.36%
84,822,613
45.48%
~ < 60%
1,299
41.73%
117,859,447,320
43.99%
90,730,906
56.43%
~ =< 70%
503
16.16%
47,071,839,805
17.57%
93,582,186
60.13%
3,113
100.00%
267,899,926,817
100.00%
86,058,441
50.32%
Total
Total Portfolio by Seasoning
Seasoning (months)
Number of
Mortgage
Loans
% of Total
Loans
Current Loan
Balance Amount
(KRW)
% of Total
Current
Balance
Average
Current
Balance
(KRW)
Weighted
Average
Seasoning
Weighted
Average
Original
LTV
~<5
—
0.00%
—
0.00%
—
—
—
~ < 10
—
0.00%
—
0.00%
—
—
—
~ < 15
63
2.02%
7,839,380,667
2.93%
124,434,614
14.00
47.96%
~ < 20
970
31.16%
97,172,122,244
36.27%
100,177,446
17.54
48.83%
~ < 25
508
16.32%
51,110,540,392
19.08%
100,611,300
20.59
47.35%
~ < 30
216
6.94%
17,768,126,080
6.63%
82,259,843
28.17
51.80%
30 =< ~
1,356
43.56%
94,009,757,434
35.09%
69,328,730
36.75
53.38%
Total
3,113
100.00%
267,899,926,817
100.00%
86,058,441
25.46
50.32%
Total Portfolio by Remaining Term to Maturity
Remaining Term
(years)
Number of
Mortgage
Loans
% of Total
Loans
Current Loan Balance
Amount (KRW)
% of Total
Current
Balance
Average
Current Balance
(KRW)
Weighted
Average
Original
LTV
~<5
46
1.48%
2,330,388,614
0.87%
50,660,622
42.65%
~ < 10
471
15.13%
36,600,910,559
13.66%
77,708,940
47.89%
~ < 15
781
25.09%
51,766,354,266
19.32%
66,282,144
49.65%
~ < 20
661
21.23%
73,130,396,766
27.30%
110,636,001
49.18%
~ < 25
53
1.70%
3,701,975,633
1.38%
69,848,597
51.73%
~ < 30
1,101
35.37%
100,369,900,979
37.47%
91,162,490
52.50%
= 30
—
0.00%
—
0.00%
—
Total
3,113
100.00%
267,899,926,817
100.00%
86,058,441
— 111 —
—
50.32%
Total Portfolio by Original Loan Term
Original Loan Term
(years)
Number of
Mortgage
Loans
% of Total
Loans
Current Loan Balance
Amount (KRW)
% of Total
Current
Balance
Average
Current Balance
(KRW)
Weighted
Average
Original
LTV
~<5
14
0.45%
781,806,679
0.29%
55,843,334
32.98%
~ < 10
34
1.09%
1,632,147,184
0.61%
48,004,329
47.47%
~ < 15
504
16.19%
39,073,829,727
14.59%
77,527,440
47.93%
~ < 20
790
25.38%
52,085,270,195
19.44%
65,930,722
49.76%
~ < 25
644
20.69%
72,183,773,090
26.94%
112,086,604
49.21%
~ < 30
29
0.93%
2,073,864,712
0.77%
71,512,576
49.61%
= 30
1,098
35.27%
100,069,235,230
37.35%
91,137,737
52.53%
Total
3,113
100.00%
267,899,926,817
100.00%
86,058,441
50.32%
Total Portfolio by Borrower Credit Score at the time of origination
Credit score
Distribution
Average
Current
Balance
(KRW)
Number of
Current Loan % of Total
Mortgage % of Total Balance Amount Current
Loans
Loans
(KRW)
Balance
Average
score
Min. score Max score
Non rated
182
5.85%
13,306,976,094
4.97%
73,115,253
550~ < 600
62
1.99%
5,410,229,751
2.02%
87,261,770
587
562
599
600~ < 620
96
3.08%
8,501,335,532
3.17%
88,555,578
610
600
619
620~ < 640
236
7.58%
19,779,861,410
7.38%
83,812,972
631
620
639
640~ < 660
370
11.89%
29,772,596,930
11.11%
80,466,478
650
640
659
660~ < 680
631
20.27%
52,740,885,025
19.69%
83,583,019
669
660
679
680 =< ~
1,536
49.34%
138,388,042,075
51.66%
90,096,382
707
680
737
Total
3,113
100.00%
267,899,926,817
100.00%
86,058,441
680
562
737
Total Portfolio by Borrower Age
Borrower Age
Number of
Mortgage
Loans
% of Total
Loans
Current Loan Balance
Amount (KRW)
% of Total
Current
Balance
Average
Current Balance
(KRW)
Weighted
Average
Original
LTV
20 ~ < 30
260
8.35%
16,764,083,835
6.26%
64,477,246
52.81%
30 ~ < 40
1,442
46.32%
111,423,138,153
41.59%
77,269,860
50.43%
40 ~ < 50
1,117
35.88%
107,013,534,711
39.95%
95,804,418
50.36%
50 ~ < 60
294
9.44%
32,699,170,118
12.21%
111,221,667
48.51%
60 ~ < 65
—
0.00%
—
0.00%
—
3,113
100.00%
267,899,926,817
100.00%
86,058,441
Total
— 112 —
—
50.32%
Total Portfolio by Original Loan Amount and Outstanding Principal Balance
Original
Loan
Amount
(KRW mm)
Number
of
Mortgage
Loans
% of
Total
Loans
Current Loan
Balance Amount
(KRW)
% of
Total
Current
Balance
Average
Current
Balance
(KRW)
Original Loan
Balance
Amount
(KRW)
% of
Total
Original
Balance
Average
Original
Balance
(KRW)
0 ~ < 20
—
0.00%
—
0.00%
—
—
0.00%
—
20 ~ < 30
—
0.00%
—
0.00%
—
—
0.00%
—
30 ~ < 40
230
7.39%
7,038,039,861
2.63%
30,600,173
7,641,400,000
2.39%
33,223,478
40 ~ < 50
329
10.57%
11,733,980,172
4.38%
35,665,593
14,012,700,000
4.38%
42,591,793
50 ~ < 60
374
12.01%
16,450,103,265
6.14%
43,984,233
19,390,850,000
6.07%
51,847,193
60 ~ < 70
319
10.25%
16,650,312,838
6.22%
52,195,338
19,877,600,000
6.22%
62,312,226
70 ~ < 80
310
9.96%
18,311,860,927
6.84%
59,070,519
22,291,200,000
6.98%
71,907,097
80 ~ < 90
246
7.90%
16,697,963,583
6.23%
67,877,901
20,149,900,000
6.31%
81,910,163
90 ~ < 100
185
5.94%
14,234,579,172
5.31%
76,943,671
17,198,800,000
5.38%
92,966,486
100 ~ < 150
562
18.05%
54,102,262,248
20.19%
96,267,371
64,384,900,000
20.15%
114,563,879
150 ~ < 200
216
6.94%
30,003,240,657
11.20%
138,903,892
35,539,300,000
11.12%
164,533,796
200 ~ < 250
133
4.27%
23,275,537,249
8.69%
175,004,039
28,389,900,000
8.88%
213,457,895
250 ~ < 300
83
2.67%
19,048,920,005
7.11%
229,505,060
22,202,800,000
6.95%
267,503,614
300 ~ < 350
51
1.64%
13,324,403,549
4.97%
261,262,815
15,878,000,000
4.97%
311,333,333
350 ~ < 400
19
0.61%
6,013,624,232
2.24%
316,506,539
6,956,000,000
2.18%
366,105,263
400 ~ < 450
30
0.96%
10,205,769,513
3.81%
340,192,317
12,445,000,000
3.89%
414,833,333
450 ~ < 500
11
0.35%
4,439,379,757
1.66%
403,579,978
5,103,000,000
1.60%
463,909,091
500 ~ < 550
10
0.32%
3,893,644,698
1.45%
389,364,470
5,197,000,000
1.63%
519,700,000
550 ~ < 600
3
0.10%
1,676,305,091
0.63%
558,768,364
1,724,000,000
0.54%
574,666,667
600 ~ < 650
2
0.06%
800,000,000
0.30%
400,000,000
1,200,000,000
0.38%
600,000,000
650 ~ < 700
—
0.00%
—
0.00%
—
—
0.00%
—
100.00% 267,899,926,817
100.00%
86,058,441 319,582,350,000
100.00%
102,660,569
Total
3,113
— 113 —
THE SERVICER
The Purchaser has appointed Citibank Korea Inc. of 39, Da-dong, Chung-Ku, Seoul, Korea as the Servicer
to provide certain collection, reporting and management services in relation to the Mortgage Loan Assets as
set out in the Servicing Agreement, including receiving payments in respect of any Mortgage Loan
Transactions, enforcing payment obligations, lawful dealings with Obligors and Credit Support Providers,
reporting to other transaction parties and matters incidental thereto.
Citibank Korea Inc. may delegate (subject to certain conditions and at the cost of the Servicer) any of the
above services to a delegate (other than those services relating to the preparation and certification of Servicer
Reports and Monthly Reports) who is qualified to undertake such services but such delegation will not relieve
Citibank Korea Inc. of its primary obligations to perform or procure the performance of the services so
delegated.
Under the Servicing Agreement, the Servicer’s appointment will terminate if the Security Agent delivers a
termination notice to the Servicer after the occurrence of a Servicer Termination Event, but the Servicer will
continue to perform the obligations of the Servicer under the Servicing Agreement until the date on which
the appointment of a Substitute Servicer becomes effective in accordance with the terms of the Servicing
Agreement. See “Transaction Summary — Servicing” and “Risk Factors — Risk relating to the Mortgage
Loan Assets — Changes in the Servicer may result in delays in payments on the Notes” above.
The Hongkong and Shanghai Banking Corporation Limited whose unsecured long-term and short-term
unguaranteed and unsubordinated foreign currency debt obligations are currently rated “AA” and “F1+”,
respectively, by Fitch, “Aa2” and “P-1”, respectively, by Moody’s and “AA” and “A-1+”, respectively, by
Standard & Poor’s, has been appointed to act as back-up servicer (the “Back-up Servicer”) and will assume
the role of Servicer in the event of the termination of Citibank Korea Inc.’s appointment as Servicer (see
“Transaction Summary — Servicing — Servicer Termination Events” and “ — Back-up Servicer” above). To
ensure the effective transfer of the duties upon the appointment of the Back-up Servicer as Servicer, the
Back-up Servicer has the right to request information from the Servicer that it considers, in its reasonable
opinion, necessary for the performance of its obligations under the Servicing Agreement, and will receive all
relevant reports and communications generated by the Servicer or delivered to the Servicer pursuant to the
Servicing Agreement.
Although a Back-up Servicer has been appointed under the Servicing Agreement, the Back-up Servicer will
not be required to perform any duty until 7 Seoul Business Days after it has received notice of the occurrence
of a Servicer Downgrade Event. There is no assurance that a Servicer Termination Event will not occur prior
to the occurrence of a Servicer Downgrade Event. There is no assurance that the Back-up Servicer or any
Substitute Servicer, when required, will be able to perform the collection and management services as well
as the Initial Servicer or in a timely manner. In particular, it may take up to 3 months from the date of the
appointment of the Back-up Servicer as Servicer before the information system of the Back-up Servicer or
any Substitute Servicer is fully integrated with that of the Servicer. This could cause delays in the collection
and management of payments due by Obligors in respect of the Mortgage Loans. Any such change of Servicer
could adversely affect the Purchaser’s ability to pay principal and/or interest under the Purchaser Senior
Notes and, ultimately, the Issuer’s ability to make payments on the Notes promptly or at all (see “Risk Factors
— Risk relating to the Mortgage Loan Assets — Changes in the Servicer may result in delays in payments
on the Notes” above).
In the event of the termination of the appointment of Citibank Korea Inc. as Servicer in accordance with the
Servicing Agreement, The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch, in its
capacity as Back-up Servicer, will act as Servicer on receiving written notice of appointment from the
Security Agent (acting on the instructions of the Note Trustee) and will perform such duties undertaken by
Citibank Korea Inc. as Servicer under the Servicing Agreement in accordance with the terms and subject to
the conditions set out in the Servicing Agreement.
The Back-up Servicer may appoint an agent or delegate who is qualified to undertake such duties to perform
such duties on its behalf but any such appointment will not relieve the Back-up Servicer of its primary
obligations to perform or procure the performance of the services so delegated.
— 114 —
THE SWAP COUNTERPARTY
On the Closing Date, the Purchaser will enter into the Swap Agreement with Citibank, N.A., Singapore
Branch (the “Swap Counterparty”) at 15th Floor, Centennial Tower, 3 Temasek Avenue, Singapore 039190.
See “The Seller” above.
As of the date of this Prospectus, the unsecured long-term and short-term unguaranteed and unsubordinated
foreign currency debt obligations of the Swap Counterparty are currently rated “AA-” and “F1+”,
respectively, by Fitch, “Aa1” and “P-1”, respectively, by Moody’s and “AA” and “A-1+”, respectively, by
Standard & Poor’s.
The Swap Agreement will be governed by English law and will be documented on standard forms published
by the International Swaps and Derivates Association, Inc. as modified by the schedule thereto and including
the related Credit Support Annex and Swap Transaction Confirmation in respect of the Swap Transaction. The
Swap Agreement is intended to provide a hedge against mismatches between the rates of interest receivable
under the Mortgage Loan Assets and the rate of interest payable under the Purchaser Senior Notes and
between the Korean Won denominated payments receivable by the Purchaser under the Mortgage Loan Assets
and the US dollar denominated amounts payable by the Purchaser under the Purchaser Senior Notes.
Although it is intended that the Swap Agreement will provide a hedge against substantially all of the Won/US
dollar and interest rate mismatches between the amounts due on the Purchaser Senior Notes and the amounts
receivable by the Purchaser under the Mortgage Loan Assets, no assurance can be given that any such
mismatch will not occur.
— 115 —
RATINGS
Certain characteristics of the Mortgage Loan Assets and the arrangements for the protection of the
Noteholders in light of the risks involved have been reviewed by Fitch, Moody’s and Standard & Poor’s. It
is a condition of the issuance of the Notes that the Notes are assigned, on issue, ratings of “AAA” by Fitch,
“Aaa” by Moody’s and “AAA” by Standard & Poor’s. These ratings will relate to the timely payment of
interest on the Notes and full repayment of principal of the Notes on or before the Note Maturity Date. A
rating is not a recommendation to buy, sell or hold securities, does not address the likelihood or timing of
prepayment, if any, or the receipt of default interest and may be subject to revision, suspension or withdrawal
at any time by the assigning rating organisation. See “Risk Factors — Risks Relating to the Notes — The
ratings on the Notes may be changed at any time and may adversely affect the fair market value of the Notes”
above.
— 116 —
AVERAGE LIFE OF THE NOTES
The average life of the Notes refers to the average amount of time that each US dollar of principal amount
will remain outstanding. The transaction will be structured as a limited “pass-through”, which means that
payments of principal on the Mort age Loan Transactions may result in principal payments being made on
the Notes on the first Note Payment Date. The principal repayments on the Mortgage Loan Transaction may
be in the form of scheduled amortisation, prepayments or enforcement proceeds on the Mortgaged Properties
in the case of a payment default by the Obligors. Noteholders will, therefore, take some prepayment risk on
the Notes. Prior to final maturity, the Notes will be subject to quarterly principal repayments, in part, on each
Note Payment. The average life of the Notes will be influenced by, among other things, the rate at which the
principal on the Purchaser Senior Notes is repaid which in turn depends on the rate at which principal on the
Mortgage Loan Transactions is repaid. The average life of the Notes cannot therefore be predicted with
certainty as the actual rates at which the Mortgage Loan Transactions will be repaid or become defaulted
Mortgage Loan Transactions and a number of other relevant factors are unknown. See the section “Risk
Factors — The average life of the Notes, and the Noteholders’ return on their investment, will depend on the
prepayment rate of the Mortgage Loans”.
The model used in this Prospectus for the Mortgage Loan Transactions assumes a constant per annum
prepayment rate (“CPR”) applied on a monthly basis to the then scheduled outstanding principal balance of
a pool of mortgages. CPR does not purport to be either a historical description of the prepayment experience
of the Mortgage Loans or a prediction of the expected rate of prepayment of the Mortgage Loans. The
following table has been prepared on the basis of certain assumptions some of which are described below:
(a)
There are no delinquencies or defaults or losses on the Mortgage Loans;
(b)
No Mortgage Loan is sold by the Purchaser or repurchased by the Seller;
(c)
Under the 0 per cent. CPR scenario, the Mortgage Loans amortise as per the agreed upon repayment
schedule without prepayments in each Mortgage Loan Agreement;
(d)
In the case of the tables stating “With Optional Redemption”, the Notes are redeemed at their principal
amount outstanding on the Note Payment Date immediately following the Note Payment Date on which
the principal amount outstanding of the Notes is less than or equal to 10 per cent. of the initial principal
amount of the Notes;
The actual characteristics and performance of the Mortgage Loans will differ from the assumptions used
herein. The tables are hypothetical in nature and are provided to give a general sense of how the principal
cash flows might behave under varying prepayment scenarios. For example, it is not expected that Mortgage
Loans will be prepaid at a constant rate until maturity or that all the Mortgage Loans will be prepaid at the
same rate or that there will be no delinquencies or losses on the Mortgage Loans. In addition, certain
assumptions of the Seller were used in the preparation of the tables below. The tables should not be relied
upon or regarded as containing the Seller’s predictions as to either the likely rate or schedule of prepayments.
The average lives shown below were determined by (a) multiplying the principal amount repaid on the Notes
on each Note Payment Date by the number of years (measured based on an actual days to 360 day year day
count convention) from the Closing Date to such Note Payment Date (b) adding the results and (c) dividing
the sum by the aggregate amount of principal repaid in (a) above.
Subject to the foregoing discussion and assumptions, the following table indicates the average life of the
Notes and the percentages of the initial principal amount outstanding of the Note after each Note Payment
Date at the CPRs shown:
— 117 —
Percentage of Original Principal Amount Outstanding of
the Notes at the Specified CPR Percentages
Percentage of Original Principal Amount Outstanding of the Notes at the Specified CPR Percentages
CKI
Assumption
Class A
Constant Prepayment Rate
Note
Payment Date
CKI
Expected
Schedule
Quarterly
Payment
Rate
0%
10%
17%
19%
21%
23%
25%
35%
17-Jun-08 ..........
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
5.25%
5-Sep-08 ...........
98.65%
93.80%
90.22%
89.16%
88.09%
87.00%
85.89%
80.10%
88.09%
5.25%
5-Dec-08 ...........
97.75%
90.15%
84.67%
83.07%
81.46%
79.84%
78.20%
69.79%
81.46%
5.25%
5-Mar-09 ...........
96.83%
86.60%
79.38%
77.31%
75.24%
73.16%
71.07%
60.58%
75.24%
5.25%
5-Jun-09............
95.79%
83.06%
74.28%
71.80%
69.32%
66.86%
64.40%
52.31%
69.32%
5.25%
5-Sep-09 ...........
94.82%
79.69%
69.51%
66.66%
63.84%
61.06%
58.30%
44.98%
63.84%
5.25%
5-Dec-09 ...........
93.69%
76.30%
64.87%
61.71%
58.61%
55.56%
52.56%
38.38%
58.61%
5.25%
5-Mar-10 ...........
92.57%
73.03%
60.48%
57.07%
53.73%
50.47%
47.28%
32.51%
53.73%
5.25%
5-Jun-10............
91.42%
69.84%
56.31%
52.67%
49.14%
45.72%
42.39%
27.28%
49.14%
5.25%
5-Sep-10 ...........
90.29%
66.78%
52.37%
48.56%
44.87%
41.32%
37.89%
22.64%
44.87%
5.25%
5-Dec-10 ...........
89.10%
63.78%
48.62%
44.66%
40.86%
37.21%
33.72%
18.49%
40.86%
5.25%
5-Mar-11 ...........
87.90%
60.87%
45.06%
40.98%
37.10%
33.39%
29.87%
14.80%
37.10%
5.25%
5-Jun-11 ............
86.53%
57.93%
41.60%
37.44%
33.51%
29.78%
26.26%
11.48%
33.51%
5.25%
5-Sep-11 ...........
85.35%
55.23%
38.43%
34.21%
30.24%
26.51%
23.00%
8.58%
30.24%
5.25%
5-Dec-11 ...........
84.12%
52.59%
35.41%
31.16%
27.18%
23.46%
19.98%
5.99%
27.18%
5.25%
5-Mar-12 ...........
82.84%
50.00%
32.53%
28.27%
24.30%
20.61%
17.19%
3.69%
24.30%
5.25%
5-Jun-12............
81.57%
47.51%
29.81%
25.55%
21.61%
17.97%
14.62%
1.64%
21.61%
5.25%
5-Sep-12 ...........
80.36%
45.14%
27.28%
23.03%
19.13%
15.55%
12.28%
0.00%
19.13%
5.25%
5-Dec-12 ...........
78.98%
42.76%
24.81%
20.60%
16.76%
13.26%
10.07%
0.00%
16.76%
5.25%
5-Mar-13 ...........
77.56%
40.43%
22.46%
18.31%
14.54%
11.12%
8.04%
0.00%
14.54%
5.25%
5-Jun-13............
76.16%
38.19%
20.25%
16.16%
12.47%
9.15%
6.17%
0.00%
12.47%
5.25%
5-Sep-13 ...........
74.90%
36.11%
18.22%
14.20%
10.59%
7.36%
4.49%
0.00%
10.59%
5.25%
5-Dec-13 ...........
73.43%
34.00%
16.23%
12.29%
8.78%
5.66%
2.90%
0.00%
8.78%
5.25%
5-Mar-14 ...........
72.08%
32.02%
14.39%
10.54%
7.12%
4.11%
1.46%
0.00%
7.12%
5.25%
5-Jun-14............
70.68%
30.08%
12.64%
8.88%
5.57%
2.67%
0.13%
0.00%
5.57%
5.25%
5-Sep-14 ...........
69.29%
28.22%
11.00%
7.33%
4.13%
1.34%
0.00%
0.00%
4.13%
5.25%
5-Dec-14 ...........
67.93%
26.44%
9.45%
5.89%
2.79%
0.11%
0.00%
0.00%
2.79%
5.25%
5-Mar-15 ...........
66.62%
24.75%
8.01%
4.55%
1.56%
0.00%
0.00%
0.00%
1.56%
5.25%
5-Jun-15............
65.27%
23.10%
6.64%
3.29%
0.40%
0.00%
0.00%
0.00%
0.40%
5.25%
5-Sep-15 ...........
63.85%
21.48%
5.33%
2.09%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-15 ...........
62.24%
19.83%
4.05%
0.93%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-16 ...........
60.87%
18.35%
2.91%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-16............
59.47%
16.91%
1.82%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-16 ...........
58.09%
15.53%
0.80%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-16 ...........
56.63%
14.17%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-17 ...........
55.24%
12.89%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-17............
53.56%
11.54%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-17 ...........
52.05%
10.31%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-17 ...........
50.43%
9.09%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-18 ...........
49.11%
8.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-18............
47.59%
6.91%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-18 ...........
46.30%
5.93%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-18 ...........
45.07%
5.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
— 118 —
CKI
Assumption
Class A
Constant Prepayment Rate
Note
Payment Date
0%
10%
17%
19%
21%
23%
25%
35%
CKI
Expected
Schedule
Quarterly
Payment
Rate
5-Mar-19 ...........
43.83%
4.11%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-19............
42.54%
3.24%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-19 ...........
41.26%
2.40%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-19 ...........
39.87%
1.56%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-20 ...........
38.55%
0.77%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-20............
36.96%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-20 ...........
35.58%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-20 ...........
34.26%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-21 ...........
33.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-21............
31.67%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-21 ...........
30.18%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-21 ...........
28.97%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-22 ...........
27.72%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-22............
26.53%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-22 ...........
25.37%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-22 ...........
24.16%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-23 ...........
22.97%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-23............
21.71%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-23 ...........
20.56%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-23 ...........
19.31%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-24 ...........
18.09%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-24............
16.87%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-24 ...........
15.69%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-24 ...........
14.40%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-25 ...........
13.22%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-25............
12.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-25 ...........
10.81%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-25 ...........
9.51%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-26 ...........
8.16%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-26............
6.93%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-26 ...........
5.55%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-26 ...........
4.49%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-27 ...........
3.31%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Jun-27............
2.34%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Sep-27 ...........
1.40%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Dec-27 ...........
0.45%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
5-Mar-28 ...........
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
5.25%
Average Life
(yrs) ..................
9.84
4.46
2.99
2.71
2.47
2.27
2.09
1.45
2.47
Expected
Maturity (yrs)
(without Call
Option) .............
19.71
11.97
8.47
7.71
7.22
6.71
6.22
4.22
7.22
Principal
Payment
Begins............... 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08
5-Sep-08
— 119 —
CKI
Assumption
Class A
Constant Prepayment Rate
Note
Payment Date
0%
Principal
Payment Ends
(without Call
Option) ............. 5-Mar-28
35%
CKI
Expected
Schedule
5-Jun-20 5-Dec-16 5-Mar-16 5-Sep-15 5-Mar-15 5-Sep-14 5-Sep-12
5-Sep-15
10%
17%
19%
21%
23%
25%
(With Optional Redemption at earlier of March 2014 or 10% of Senior Notes Balance)
Average Life
(yrs) ..................
4.99
3.58
2.80
2.60
2.42
2.21
2.05
1.42
2.42
Expected
Maturity (yrs)
(with Call
Option) .............
5.71
5.71
5.71
5.71
5.71
5.22
4.97
3.47
5.71
Principal
Payment
Begins............... 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08 5-Sep-08
5-Sep-08
Principal
Payment Ends
(with Call
Option) ............. 5-Mar-14 5-Mar-14 5-Mar-14 5-Mar-14 5-Dec-13
5-Dec-13
— 120 —
5-Jun-13 5-Mar-13 5-Sep-11
Quarterly
Payment
Rate
THE KOREAN RESIDENTIAL MORTGAGE INDUSTRY
The information and statistics set out in this section are derived from various public and private sources. The
Seller has not independently verified or checked any such information and statistics.
INTRODUCTION
Korea has experienced a strong economic recovery from the Asian financial crisis, which began in the second
half of 1997. Korea’s gross domestic product (“GDP”) increased from US$910.9 billion as of 31 December
2003 to US$1,112.7 billion as of 31 December 2006, the tenth largest among member countries of the
Organisation for Economic Cooperation and Development (“OECD”). The population in Korea is
approximately 48 million. Korea is the third most densely populated country in the world (479 people per
square kilometre), with mountains and forest covering 66% of the land. The population in Korea is
concentrated in the capital city of Seoul and six other metropolitan cities: Busan, Daegu, Ulsan, Incheon,
Daejeon and Gwangju. Over 48% of the total population of Korea lives in those seven major cities, and 21%
resides in Seoul. The population growth for 2007 in Korea was 0.3%. This level of increase in population is
expected to continue to create excess demand for homes especially in the urban areas, resulting in a much
lower Housing Supply Ratio (“HSR”) for urban areas than the national average of 107.1% in 2006. The HSR
is calculated by dividing the number of available homes in Korea by the number of households in Korea.
Most of the newly built residential properties are high-rise apartment complexes. A typical Korean home is
an apartment designed for single household occupancy. The average size of a unit is approximately 82-116
square metres. The majority of homes are owner-occupied, with apartments and multi-household complexes
demonstrating higher home ownership ratios due to greater availability of financing and greater liquidity for
such housing types in the housing market.
Koreans who do not own a home normally enter into a unique Korean lease contract called Chonsei. Chonsei
refers to the key money deposit which is paid upfront by the tenant to the landlord, which typically ranges
from 50% to 70% of the market value of the property. During the lease term, the tenant is not required to pay
any rent. Instead, the landlord is free to invest the key money deposit and keep the proceeds thereof in lieu
of monthly rental payments. The entire amount of the key money deposit is returned to the tenant after the
expiry of the lease contract without any interest thereon. Historically, when returns on capital were high,
Chonsei provided an attractive source of income for the landlord. In recent years, the use of Chonsei has
declined as a result of lower returns on capital and rental arrangements with monthly rental payments
(“Wolsei”) have increased.
RESIDENTIAL MARKET
In Korea, the residential housing market has been managed through public policy administered by the
Ministry of Construction and Transportation.
In 1988, the Government initiated a two million apartment unit construction project by increasing the supply
of usable land to private construction companies. Total housing construction for the period from 1988 to 1992
totalled 2.7 million apartment units. As a result, the housing supply has caught up with the housing demand
and, in 2004, the housing supply ratio reached 102.2. However, the ratio was still below 100 in Seoul and
other metropolitan areas because of the recent growth in employment-driven migration from rural areas to
urban areas.
During the Asian financial crisis, housing prices declined by 19.8% but by 1999, the housing market began
to show signs of recovery. With the increasing role of commercial banks in mortgage financing, the
favourable interest rate environment and the relative shortage of supply in urban areas, the average price
index of an apartment in Seoul rose from 40.2 at the end of 1999 to 100 in December 2007.
In August 2005, the Government announced strict measures to curb speculative investment. These measures
include: limiting the availability of mortgage loan financing and introducing changes in taxation policies.
— 121 —
In April 2007, the National Assembly passed an amendment bill to the Housing Law, aimed at the disclosure
of construction costs and imposing price ceilings for newly built apartments in order to curb the rising of
residential property values.
The tables below, which were extracted from tables compiled by Kookmin Bank, illustrate changes in
apartment prices since 1999 in Seoul, metropolitan cities excluding Seoul and as nationwide figures. All
figures are expressed as a comparison against the base figure of 100, being prices in December 2007.
Housing Purchase Price Composite Index : Seoul
(2007.12=100.0)
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
— 122 —
March
June
38.2
36.2
39.3
44.8
52.1
61.4
57.1
54.7
52.9
53.1
52.9
54.8
51.4
48.2
51.0
52.1
64.0
71.4
76.7
75.6
81.9
97.1
102.8
37.4
35.8
40.1
46.7
54.9
61.8
54.9
53.5
52.8
52.9
52.8
54.6
47.2
48.4
51.2
53.7
65.7
74.0
76.9
77.6
85.0
97.6
September December
37.3
36.7
41.1
46.7
57.3
61.2
55.5
53.1
53.0
52.9
53.2
55.0
47.6
49.9
51.9
57.1
71.0
76.0
76.0
79.3
86.2
98.8
36.5
37.3
40.6
47.4
58.9
57.6
54.5
52.7
53.0
52.7
53.5
54.5
47.3
50.0
51.5
58.1
71.2
76.1
75.1
79.8
94.9
100.0
Housing Purchase Price Composite Index : 6 Large Cities*
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
*
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
Busan, Incheon, Daejeon, Daegu, Ulsan and Kwangju
— 123 —
March
June
50.8
50.1
61.2
69.1
78.9
92.4
86.9
83.6
81.0
80.9
81.2
82.1
77.1
72.9
73.6
73.4
84.4
91.1
93.6
92.0
94.5
98.5
100.8
50.1
50.6
64.6
72.9
82.1
94.0
84.6
82.4
80.9
80.8
81.1
81.9
73.2
73.1
73.3
75.0
86.2
93.4
93.5
93.1
95.4
98.9
September December
49.9
54.1
66.9
72.4
85.9
92.0
84.2
81.7
80.9
80.8
81.2
81.7
72.2
73.7
73.3
78.6
88.8
94.7
92.9
93.9
95.6
99.4
50.0
56.6
66.1
73.8
90.0
88.4
83.4
81.3
80.9
80.7
81.0
81.0
71.4
73.2
72.8
79.9
89.7
93.9
91.9
93.9
97.7
100.0
Housing Purchase Price Composite Index : Total
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
...............................................................................
March
June
44.8
43.3
49.5
56.6
65.5
75.7
72.1
69.3
67.2
67.1
67.3
69.5
66.0
61.8
63.5
63.6
74.6
81.6
85.3
83.9
88.1
98.3
101.4
44.0
43.4
51.4
59.5
68.5
77.0
70.1
68.2
67.0
67.0
67.3
69.5
61.6
62.0
63.3
65.0
76.1
84.3
85.2
85.5
90.2
98.6
September December
43.9
45.3
53.1
59.5
71.0
76.0
70.1
67.5
67.1
67.0
67.7
69.7
61.2
63.1
63.6
68.1
80.1
85.5
84.5
86.7
91.1
99.3
43.5
46.6
52.7
60.4
73.2
72.8
69.1
67.1
67.1
66.9
67.9
69.3
60.7
62.8
63.1
69.3
80.7
85.3
83.5
86.9
97.0
100.0
MORTGAGE LOAN MARKET
Prior to 1997, the Korean mortgage market was dominated by the National Housing Fund (the “NHF”),
which provided government subsidised mortgage loans through the Housing and Commercial Bank
(“H&CB”) at low interest rates. At that time, Government restrictions imposed on commercial banks
prevented them from originating mortgage loans with terms of more than ten years. Insurance companies who
engaged in the mortgage loan business as an ancillary business, however, were not subject to such
restrictions. Since the privatisation of H&CB and the removal of such restrictions on the mortgage loan
business in 1997, almost all commercial banks and other financial institutions have entered the market. As
a result, competition among mortgage lenders has increased. However, H&CB, which merged with Kookmin
Bank in 2001, is still a dominant player in the market.
After the Asian financial crisis, the housing market rapidly recovered and, as the house prices increased,
mortgage loans have more than doubled since 1998, from KRW13 trillion to KRW29 trillion. As of the end
of 2007, the amount of outstanding mortgage loans was approximately KRW220 trillion.
Due to the low interest rate environment, lenders have introduced market based floating rates of interest,
which are primarily based on the prevailing market rate for certificates of deposits in Korea. In 2006, floating
rates mortgage loans accounted for more than 95% of the total mortgage loans. Until 1998, mortgage loans
typically carried terms of 20 years. However, due to rising housing prices and increased trading of properties,
mortgage loans featuring terms of three-to-five years were introduced. However, the government has recently
started again to promote long-term amortising mortgage loans. Meaningful historical prepayment data for
mortgage loans was limited until 1999 as the applicable interest rates for mortgage loans provided by the
NHF were lower than the prevailing market rates and there was limited competition in the mortgage loan
business given H&CB’s market dominance. Since 1999, prepayments have increased due to increased
competition among mortgage lenders and falling interest rates for mortgage loans.
— 124 —
The most frequently used form of loan security for residential property in Korea is the Keun-mortgage, which
differs from a more traditional mortgage. With more traditional mortgages, a mortgagee’s rights are
automatically extinguished upon satisfaction of the underlying debt, whereas with a Keun-mortgage, the
mortgagee’s rights are not automatically extinguished upon satisfaction of the underlying debt. Instead, a
mortgagee’s rights are extinguished when the term of the Keun-mortgage agreement expires or if it is
terminated sooner by the parties. Furthermore, the amount of the secured claim may be increased or
decreased within the maximum amount as agreed upon by the mortgagee and borrower of the secured claim
(which is duly registered in the relevant real estate registry) during the term of the Keun-mortgage agreement.
Since the mortgage rights and obligations are not automatically extinguished, the contracting parties are not
required to enter into and record separate mortgage agreements each time a subsequent loan is made.
Keun-mortgages can be enforced in the same manner as various other real estate rights, including
enforcement through petition for auction and entitlement to distribution in accordance with recorded
priorities. Korea is a “race” jurisdiction that assigns claim priority in chronological order by date of the
registration of the mortgages and other security interests. Statutory liens are exceptions to this rule and may
rank senior to prior recorded mortgages and other security interests.
REGULATORY OVERVIEW
For a discussion of the regulatory overview of the mortgage loan business, see “Korean Legal Considerations
— General Law Relating to the Mortgage Loan Business” below.
— 125 —
KOREAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS
GENERAL
In the past, the Foreign Exchange Management Act (Law No. 4447, 27 December 1991 as amended) and the
Presidential Decree and regulations thereunder (collectively the “Foreign Exchange Management Laws”)
regulated investment in Korean securities by non-residents and issuance of securities outside Korea by
Korean companies. With effect from 1 April 1999, the Foreign Exchange Management Laws were abolished
and the Foreign Exchange Transaction Act (Law No. 5550, 16 September 1998 as amended) and the
Presidential Decree and regulations (collectively, the “FETL”) were enacted. Under the FETL, many
restrictions on foreign exchange transactions have been reduced and many currency and capital transactions
have been liberalised. Although non-residents may invest in Korean securities only to the extent specifically
allowed by such laws or otherwise permitted by the Ministry of Strategy and Finance (“MOSF”), many
approval requirements have been relaxed. The FSC has also adopted, pursuant to its authority under the
Korean Securities and Exchange Act, regulations that restrict investment by foreigners (as defined therein)
in Korean securities. However, Korean law does not limit the right of non-residents to hold Notes issued
pursuant to the FETL outside Korea.
With effect from 1 January 2006, the Presidential Decree and regulations under the Foreign Exchange
Transaction Act have been amended for further liberalisation of foreign exchange transactions. In accordance
therewith, certain transactions that previously required approval from the Bank of Korea now require only
a report to the Bank of Korea, although such report must be accepted by the Bank of Korea.
Under the FETL, if the Government deems that (a) it is necessary in the event of natural disasters or the
outbreak of any wars or conflict of arms or the occurrence of grave and sudden changes in domestic/foreign
economic circumstances or other situations equivalent thereto, the Minister of Strategy and Finance may
temporarily suspend payments, or the receipt of payments, on the whole or part of transactions to which the
FETL applies or imposes an obligation on the transaction parties to safekeep or deposit with or sell to, certain
Korean governmental agencies or financial institutions, the means of payment of the transaction (including
any gold, non-negotiable gold coins or other gold products) or (b) the international balance of payments and
international finance are confronted or are likely to be confronted with serious difficulty or the movement
of capital between Korea and foreign jurisdictions causes or is likely to cause a serious obstruction to the
conduct of currency policies, exchange rate policies and other macroeconomic policies, the Minister of
Strategy and Finance may take action to require any person who intends to perform capital transactions
(which include, among other things, the generation, alteration or extinction of claims from contracts of
deposit, trust, the lending of money, the acquisition of securities, etc.) to obtain permission or to require any
person who performs capital transactions to deposit part of the payment acquired in such transactions with
certain Korean governmental agencies or financial institutions, in each case subject to certain limitations
thereunder.
GOVERNMENT REVIEW OF ISSUANCES OF NOTES AND AUTHORISATION FOR
PAYMENTS ON THE PURCHASER SENIOR NOTES
In order for the Purchaser to issue any Purchaser Senior Notes to a non-resident, the Purchaser is required
to file a report to the MOSF through the designated foreign exchange bank on the issuance of the Purchaser
Senior Notes. There are certain other regulatory approvals or reports that are required under the FETL in
connection with the execution, delivery and performance of the Transaction Documents by the parties thereto.
Effective 30 November 2006, the FSC’s Regulation on Securities Issuance and Disclosure were amended.
Under such amended regulations, the transfer of the Bonds to a Korean resident (as defined in the FETL) is
prohibited during the first year of their issuance.
— 126 —
KOREAN LEGAL CONSIDERATIONS
The following is a summary of certain Korean legal issues relevant to the Noteholders. The following
summary is not intended to be exhaustive. Prospective Noteholders should consider the nature of and
investment in notes of this type and the political and legal environment of Korea, and should make such
further investigations as they, in their sole discretion, deem appropriate.
THE ABS ACT
The Mortgage Loan Assets will be transferred from the Seller to the Purchaser pursuant to the Transfer
Agreement and in accordance with the ABS Act. Under the ABS Act, the Purchaser and the Seller are required
to register a plan of asset securitisation (in the case of the Purchaser) and the transfer of the Mortgage Loan
Assets (in the case of the Seller), respectively, with the Financial Services Commission (“FSC”).
The ABS Act also provides four criteria which must be satisfied for the transfer of assets to be a true sale
for Korean law purposes rather than a secured lending transaction. They are as follows: (a) the transfer is by
way of a sale and purchase or exchange; (b) the transferee must have the right to the profits of, and the right
to dispose of, the transferred assets, except that the transferor may have a right of first refusal when the
transferee disposes of the assets; (c) the transferor does not have any right to demand for the return of the
transferred assets and the transferee does not have any right of reimbursement with respect to the
consideration for the transferred assets; and (d) the transferee assumes all risks with respect to the transferred
assets, except the transferor may bear such risks for a certain period of time or provide warranties for defects
(including the warranty of claims for financial ability of obligors). Korean counsel to the Lead Arranger has
advised that the transfer of the Mortgage Loan Assets in this transaction will satisfy the above criteria for true
sale treatment for Korean law purposes, subject to certain assumptions and qualifications set forth in their
opinion.
GENERAL LAWS RELATING TO THE MORTGAGE LOAN BUSINESS
There is no specific legislation in Korea for regulating mortgage loan businesses other than basic private
laws, including, among others, the Korean Civil Code, the Civil Enforcement Act, and the Registration of
Real Estate Act. Financial institutions carrying on mortgage loan businesses, however, are subject to specific
laws that regulate such financial institutions, such as the Bank Act, the Credit Specialised Finance Business
Act and the Insurance Business Act. Commercial banks, credit specialised finance companies and insurance
companies must comply with the relevant laws and regulations in originating and servicing mortgaged loans
and are regulated by the FSC under such laws.
Keun-Mortgages
The most frequently used form of loan security for residential property in Korea is the Keun-mortgage, which
differs from a more traditional mortgage. With more traditional mortgages, a mortgagee’s rights are
automatically extinguished upon satisfaction of the underlying debt, whereas with a Keun-mortgage, the
mortgagee’s rights are not automatically extinguished upon satisfaction of the underlying debt. Instead, a
mortgagee’s rights are extinguished when the term of the Keun-mortgage agreement expires or if sooner
terminated by the parties. Furthermore, the amount of the secured claim may be increased or decreased within
the maximum amount as agreed upon by the mortgagee and the borrower of the secured claim (which is duly
registered in the relevant real estate registry) during the term of the Keun-mortgage agreement. Since the
mortgage rights and obligations are not automatically extinguished, the contracting parties are not required
to enter into and record separate mortgage agreements each time a subsequent loan is made.
Keun-mortgages can be enforced in the same manner as various other real estate rights, including
enforcement through petition for auction and entitlement to distribution in accordance with recorded
priorities. Korea is a “race” jurisdiction that assigns claim priority in chronological order by date of the
registration of the mortgages and other security interests. Statutory liens are exceptions to this rule and may
rank senior to prior recorded mortgages and other security interests.
— 127 —
Transfer of the Mortgage and the Mortgage Loan
Notice is not required to be given to the borrowers for the transfer of the mortgage itself. However, in order
to perfect the sale of the relevant mortgage loan, a fixed date-stamped notice must be given to the borrowers
on or after the Transfer Date. Under the ABS Act, however, upon the registration with the FSC of the transfer
of the Mortgaged Loan Assets in accordance with the ABS Act, the sale of the Mortgage Loan Assets would
be perfected against third parties (other than the borrowers) without any notice. In order to perfect the transfer
against the borrowers as well, the transferor or the transferee must notify the borrowers on or after the
Transfer Date.
Consent of the Borrowers to Transfer the Mortgage
Unless otherwise agreed in the relevant agreement, in general, the approval or consent from the borrower is
not required for the transfer of a mortgage. In cases where the mortgage is a Keun-mortgage, however, the
secured claims must be fixed prior to the transfer of such mortgage. If the secured claims are not fixed,
consent from the borrower in order to fix the secured claims is required.
In this regard, the ABS Act provides that, in case the securitisation assets purported to be transferred or
entrusted pursuant to the securitisation plan are claims secured by Keun-mortgage, and the transferor sends
the borrower a notice by content-proof mail setting forth its intention that the amount of the claims secured
by Keun-mortgage will be fixed without creating additional claims and the entire claims will be transferred
or entrusted, the relevant claims will be deemed to be fixed on the day immediately following the date on
which the notice is sent; provided, however, that if the borrower raises an objection within ten days, the
foregoing shall not be applicable. Therefore, under the ABS Act, the claims secured by Keun-mortgage may
be fixed by the notice given to the borrower and the Keun-mortgage may be transferred without any approval
or consent of the borrower by sending a notice to the borrower, except when a borrower raises an objection
within ten days.
GENERAL DESCRIPTION OF JUDICIAL AUCTION LAWS IN KOREA
General
A mortgagee of record, a creditor in possession of a validly notarised promissory note or a judgment creditor
may apply for a court auction of real estate. All foreclosures of real estate based on general claims or
mortgage loans must be carried out through a judicial auction. Nevertheless, financial institutions generally
use mortgage agreements which provide that, if a mortgagor consents, creditors may dispose of the
mortgaged property by any method that is reasonable and customary, with the proceeds of such disposition
being applied to satisfy its secured obligations.
The procedures for auction are governed by the Civil Enforcement Act.
Requirements for Exercising Remedies
The Gyongmae Shinchung, or petition for auction, must be filed with the relevant court having jurisdiction
over the district in which the real estate is located. The petition for auction must set forth supporting facts
and grounds for requesting an auction, and must be accompanied by various documents including a copy of
the mortgage agreement, a certified copy of the court register relevant to the subject property and a
registration tax payment certificate.
The court will order an appraisal to determine the value of the real estate. Fees and expenses incurred in
connection with an auction generally amount to between 2% and 3% of the real estate’s appraised value. In
addition, a registration tax of 0.2% of the claim amount and an educational surtax of 20% of the registration
tax must be paid to the relevant municipal office. This registration tax is different from the registration tax
imposed on the transfer of title to the property.
Procedures for Auction
Once a petition for auction has been filed, the court will examine the petition and the supporting documents
and will issue its order to commence the auction (usually within 2 to 3 days of the petition). Typically within
7 days, the court order for auction is then entered in the Deungki-Bu (real estate registry) of the subject
property.
— 128 —
The first auction date is generally set approximately two to three months from the date of petition filing. In
the absence of any objection filed by the mortgagor or any other interested party, the auction will take place
on the date set by the court. On the day of the auction, bidders must deposit 10% of the minimum price set
by the court with the court unless the court decides otherwise. Distribution of auction proceeds will take place
approximately 70 to 80 days after the auction date. However, it is not common that the property is sold at
a first auction, thus necessitating subsequent auctions. A subsequent auction date is set for a date
approximately one month following the first auction date. In subsequent auction, the court issues advance
notice containing the schedule of events for the next 5 months. Each time an auction closes without a
successful bid, the minimum price is lowered by 20%-30%.
There are no restrictions preventing the mortgagee of a property to be auctioned from bidding in the auction.
A mortgagee may decide to purchase such property if the minimum auction price falls below a certain level.
If a mortgagee is selected as the successful bidder, then such mortgagee may off-set its claim amount against
its bidding price. However, the mortgagee purchaser must still pay in cash the amount sufficient to cover the
senior claims and statutory liens having priority over its claim.
Priority of Distribution
Although priority among mortgages is determined by the chronological order of their registration with the
court, certain statutory liens and expenses (arising by operation of law) are given priority over registered
mortgages. The statutory liens and expenses that have priority over mortgage claims which are registered
prior to the due date of tax claims on the auctioned real estate are as follows (listed in the order of priority):
1.
Auction expenses;
2.
Refunds of key money deposits for small leases (“Super-Priority Right for Small Leases”) up to the
statutory limit on residential properties (see “— Key Money Deposit Protection” below); back wages
of the mortgagor’s employees for the last three months of employment, severance payments accrued
within the last three years and accident compensation allowances under the Labour Standards Act;
3.
Certain national taxes and additional dues thereon (e.g., inheritance tax, gift tax and asset revaluation
tax) and local taxes and additional dues thereon (e.g., property tax, aggregate real estate tax, city
planning tax and common facility tax) directly connected with the auctioned real estate; and
4.
Mortgage claims and Chonsei-kwon claims registered prior to the due date of tax claims/refund of key
money deposit having Priority Rights for residential properties (see “— Key Money Deposit Protection”
below).
For mortgage claims registered after the due date of tax claims on the auctioned real estate, other national
and local taxes (lower in priority than those identified in paragraph 3 above) would have priority over the
mortgage claims.
With respect to the priority among the mortgage claim, a Chonsei-kwon claim and the refund of the key
money deposit, priority is determined by the chronological order of their registration with the court (in the
case of a mortgage claim and a Chonsei-kwon claim) or satisfaction of all the requirements as specified in
“— Rights of Tenants of Residential Leases — Priority Right” below (in the case of refund of the key money
deposit) (see “— Key Money Deposit Protection” below for more detail).
Key Money Deposit Protection
It is a common practice in Korea for tenants to pay a lump sum deposit (a “key money deposit”), to be kept
by a landlord until the expiration of a lease. During the lease term, the tenant is not required to make a
monthly rental payment. Instead, the landlord is free to invest the key money deposit and keep the proceeds
thereof in lieu of such monthly rental payment. Upon the termination or expiration of the lease, the landlord
is required to return the key money deposit to the tenant without any interest thereon.
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Chonsei-kwon
A Chonsei-kwon is a type of mortgage granted by a lessor to a lessee as security for the repayment of a
lessee’s key money deposit and also allows the lessee to occupy the leased premises until the later of (i) the
date on which the lease term expires or (ii) the lessor returns the key money deposit to the lessee. A
Chonsei-kwon must be registered with the court. Upon such registration, the lessee with the Chonsei-kwon
is afforded similar protections as a mortgagor and can initiate foreclosure proceedings against the
lessor/debtor until the expiration or termination of the lease. Typically, a Chonsei-kwon is granted on the
building and not on the land. With respect to priority between a mortgage claim and a Chonsei-kwon claim,
priority is determined by the chronological order of their registration with the court.
Rights of Tenants of Residential Leases
Under the Residential Tenant Protection Act, there are three levels of protection that are afforded to tenants
of residential leases (even if they are not registered with the real estate registry) for their key money deposits:
the Super-Priority Rights for Small Leases, the Priority Right and the Holdover Right.
1.
Super-Priority Right for Small Leases
In order to secure a Super-Priority Right for Small Leases, the tenant must take possession of the
relevant property (“Occupancy Requirement”) and file his relocation to the property with the local
government office (“Move-in Report Requirement”). In addition, the key money deposits must be
equal to or less than the following amounts (depending on where the property is located): (a) KRW 40
million for properties located in the Seoul metropolitan areas (including Incheon and Suwon), (b) KRW
35 million for other metropolitan areas (such as Pusan, Daegu, etc.), and (c) KRW 30 million for other
areas. The tenants satisfying the above requirements have super-priority rights in terms of the refund
of key money deposits over all mortgages and other security interests on the property, for the following
amounts out of the total amount of the key money deposit: (a) KRW 16 million for the Seoul
metropolitan areas, (b) KRW 14 million for other metropolitan areas, and (c) KRW 12 million for other
areas; provided that such amounts do not exceed one-half of the sold or auctioned price for the relevant
property.
2.
Priority Right
The requirements for a Priority Right are the Occupancy Requirement and Move-in Report
Requirement, plus an additional requirement that the lease document be fixed date-stamped by a notary
public, post office, or other government office. Upon the perfection of the Priority Right, the tenant has
priority in terms of the refund of the entire key money deposit over all mortgages that are registered
after the date on which all of the requirements are satisfied.
3.
Holdover Right
The requirements for a Holdover Right are the Occupancy Requirement and the Move-in Report
Requirement. Upon the perfection of the Holdover Right, the tenant has the following rights: (i) if there
are no other mortgages perfected ahead of the tenant’s rights at the time of auction sale, then the tenant
is deemed to have a Holdover Right, in which case the acquirer of the relevant property pursuant to an
auction must assume all of the terms and conditions of the lease, including the key money deposits
unless the acquirer chooses to terminate the lease and refund the entire amount of the key money
deposit; and (ii) if there is any mortgage perfected ahead of the tenant’s rights, then the tenant is not
deemed to have Holdover Right, in which case the acquirer of the relevant property pursuant to an
auction need not assume any of the terms and conditions of the lease, including the key money deposits.
Generally, if a tenant has a Holdover Right, the acquirer of the relevant property will reduce the
purchase price by the amount of the Holdover Right which it has to assume.
If a tenant refuses to vacate the premises, the acquirer may take the following actions to evict the tenant.
Within six months after the acquirer has paid the purchase price for the property, the acquirer may
obtain an eviction order from the court that handled the auction process to evict the tenant. If the tenant
refuses to vacate the premises, the tenant may be forcibly removed by court appointed persons.
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Following the six month period, the acquirer has to initiate an eviction proceeding, which is separate
from the auction proceeding and handled by a different court. In such case, it can take from six months
to one year to obtain a court order to evict the tenant. As such, it is more efficient and less time
consuming for the acquirer to obtain the eviction order during the six month period following the
payment of the purchase price. Moreover, the acquirer may seek an injunction to enjoin the tenant from
transferring the lease to a third party.
Objections
An interested party, including the mortgagor, may file an objection to an auction at any time prior to a
successful bidder paying the balance of its bid amount. Such parties may also file an objection to the
declaration of the successful bidder within one week of such declaration. Objections can be made based on
either procedural (e.g., irregularities or defects in the auction procedure) or substantive (e.g., defects in the
title of the property or the underlying obligation) grounds. An objecting party may apply for an injunction
(to delay the auction) by filing an action challenging the validity of the mortgagee’s underlying claim and
posting a bond that is usually equivalent to all or substantial part of the amount claimed by the mortgagee
in the auction petition.
Effect of Insolvency Laws on Auction Proceedings
Prior to 1 April 2006, the basic insolvency laws in Korea were the Bankruptcy Act, the Composition Act, the
Corporate Reorganisation Act and the Act on Individual Debtor Rehabilitation. They were replaced by the
Consolidated Insolvency Act on 1 April 2006, with the exception of the Composition Act which was
abolished. Under the Consolidated Insolvency Act, the ability of secured creditors to enforce their rights to
security may be subject to rescheduling under the debtor rehabilitation proceeding. Under the bankruptcy
proceeding and the individual debtor rehabilitation proceeding, however, it is possible for secured creditors
to enforce their security interests, subject to certain restrictions. In addition to the Consolidated Insolvency
Act, if the draft reinstatement and amendment of the expired Corporate Restructuring Promotion Act is
passed by the National Assembly, it could restrict certain creditor financial institutions’ ability to enforce
security interests given by an insolvent company which is a “Failing Company” as defined in such Act. With
respect to individual debtors in financial difficulty, the Korean financial industry’s Agreement among
Financial Institutions for Assisting the Credit Recovery Support Plan could restrict a creditor financial
institution’s ability to enforce a mortgage or other security given by an individual debtor. See “— Individual
Work-out Plans” below.
INSOLVENCY LAWS
On 2 March 2005, the National Assembly passed the Consolidated Insolvency Act which combines and
amends the Bankruptcy Act, the Act on Individual Debtor Rehabilitation, the Corporate Reorganisation Act
and the Composition Act. The Consolidated Insolvency Act became effective from 1 April 2006, and contains
the following:
1.
provisions applicable to rehabilitation pursuant to Chapter 2 of the Consolidated Insolvency Act, which
are based on the Corporate Reorganisation Act and expand the scope of eligible applicants for Chapter
2 Proceedings to all types of legal entities, including corporations, and unincorporated foundations or
associations, as well as individuals;
2.
provisions applicable to bankruptcy proceedings, which are based on the Bankruptcy Act;
3.
provisions applicable to individual rehabilitation pursuant to Chapter 4 of the Consolidated Insolvency
Act, which are based on the Act on Individual Debtor Rehabilitation and are applicable only to certain
individual debtors who earn wages or business income with debts of no more than a certain specified
amount; and
4.
provisions applicable to international insolvency proceedings, which have been newly introduced.
— 131 —
When the Consolidated Insolvency Act became effective, all of the previous bankruptcy, corporate
reorganisation and individual rehabilitation procedures, which has been regulated under separate laws, were
consolidated into one law, and composition proceedings which were permitted under the Composition Act
were abolished. Under the Consolidated Insolvency Act, the petitioner must specify which procedure it
wishes to use.
For a debtor that has filed for a bankruptcy proceeding, after the court issues an order preserving the debtor’s
assets, a receiver will be appointed to liquidate the assets of the debtor and to distribute the proceeds to its
creditors on a pro-rata basis. Secured creditors remain free to exercise their interests under the bankruptcy
proceedings.
On the other hand, the goal of Chapter 2 Proceedings and Chapter 4 Proceedings is to rehabilitate insolvent
companies or, as the case may be, individual debtors. While in a Chapter 2 Proceeding, secured creditors will
not be able to enforce their security outside such Chapter 2 Proceedings, secured creditors in a Chapter 4
Proceeding will be able to exercise their security interests notwithstanding such Chapter 4 Proceeding (x)
unless the court issues an order to suspend or prohibit such exercise during the period after the filing of the
petition for the Chapter 4 Proceeding but before the court decides to commence the Chapter 4 Proceeding,
or (y) once the court decides to commence the Chapter 4 Proceeding, only after the earlier of (i) the court’s
approval of the repayment plan or (ii) the final decision by the court to discontinue such Chapter 4
Proceeding.
The Consolidated Insolvency Act makes it easier for the court to avoid the debtor’s transactions with certain
shareholders or equityholders of the debtor (“specially related persons”), by presuming that the specially
related persons acted knowingly in such transactions. In addition, under the previous law, transactions made
by debtors for, or relating to, the grant of security or the extinguishment of obligations within sixty days
before the suspension of payment, without the obligation to do so, could be avoided. However, the
Consolidated Insolvency Act extends this sixty-day period to one year in the case of transactions with
specially related persons. Further, under the previous law, gratuitous or equivalent acts performed by the
debtor within six months before the suspension of payment, etc. could be avoided, and the Consolidated
Insolvency Act also extends this six-month period to one year with regard to transactions with specially
related persons.
Chapter 2 Proceedings
The Chapter 2 Proceeding (i.e., the rehabilitation proceeding) is designed for use by an insolvent debtor
which desires to rehabilitate itself. This proceeding is tightly controlled by the court so that most of the
material actions or decisions of the debtor may be taken or made only with the approval of the court.
One of the most significant changes effected through the Consolidated Insolvency Act with respect to Chapter
2 Proceedings in comparison with corporate reorganisation proceedings under the Corporate Reorganisation
Act is that all types of legal entities, including joint stock companies, limited liability companies, and
unincorporated foundations or associations, as well as individuals, can rehabilitate pursuant to Chapter 2
Proceedings, whereas under the Corporate Reorganisation Act, only joint stock companies were subject to
reorganisation proceedings. Although individual debtors can rehabilitate pursuant to Chapter 2 Proceedings,
since this is a new feature of the Consolidated Insolvency Act, it is not clear how frequently and on what
criteria the court will apply such procedures to individual debtors. In addition, although under the Corporate
Reorganisation Act, a limited liability company such as the Purchaser had not been subject to corporate
reorganisation proceedings because it is not a joint stock company, it will be subject to Chapter 2 Proceedings
under the Consolidated Insolvency Act due to the expansion of eligible debtors as described above.
Another significant change is that, although the Consolidated Insolvency Act maintains the previous system
of appointing a permanent receiver in Chapter 2 Proceedings, it provides that, in principle, the debtor itself
or, in case where the debtor is a company, its own representative, and not a third party, should be elected as
the receiver with certain exceptions whereas the previous Corporate Reorganisation Act replaced the
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incumbent management with the receiver appointed by the court. Further, the Consolidated Insolvency Act,
unlike the current Corporate Reorganisation Act, permits a legal entity to be appointed as the receiver of the
rehabilitation proceeding, in which case this legal entity shall designate one of its directors to exercise the
rights and powers conferred to it as the receiver and shall report such designation to the court.
Under the Consolidated Insolvency Act, the debtor may file a petition to the court for Chapter 2 Proceedings
in the case where (i) debts cannot be repaid without causing material damage to the continuance of the
debtor’s business or (ii) any events leading to bankruptcy of the debtor may arise. If the debtor is a joint stock
company or a limited liability company, (a) a creditor who has claims in an amount of not less 10% of the
debtor’s paid-in capital or (b) a shareholder or equityholder who holds shares or equity interests not less than
10% of the debtor’s paid-in capital may also apply for Chapter 2 Proceedings. If the debtor is not a joint stock
company or a limited liability company, a creditor who has claims in the amount of not less than KRW 50
million or an equityholder who holds equity interest not less than 10% of the debtor’s equity interest can
apply for Chapter 2 Proceedings.
When the debtor itself or its creditor or equityholder satisfying the above requirements applies for a Chapter
2 Proceeding, the court may, upon request from interested parties or in its sole discretion, but after hearing
the opinion of the management committee, issue a preservation order against individual assets of the debtor,
and may issue an injunction against bankruptcy proceedings or enforcement proceedings initiated by its
secured or unsecured creditors. Further, if the Court determines that the object of the Chapter 2 Proceedings
may not be achieved through individual asset preservation orders, it may issue a comprehensive injunction
against enforcement proceedings initiated by creditors against the assets of the debtor. If a comprehensive
injunction is issued, enforcement proceedings that are already in progress will be suspended, and the court
may cancel such enforcement proceedings upon the request of the debtor or, as the case may be, the receiver,
if deemed necessary for the continuance of the debtor’s business. However, if the court determines that a
creditor may sustain unjust damages as a result of such comprehensive injunction, the court may revoke the
injunction for that particular creditor upon the request of such creditor.
When the petition for a Chapter 2 Proceeding is filed, the court is required within one month of the date of
petition to determine whether to commence a Chapter 2 Proceeding . Once the commencement of the Chapter
2 Proceeding is declared, most claims against the debtor that arose prior to such commencement date are
automatically stayed, while claims arising after such commencement date are generally not subject to the
Chapter 2 Proceeding. Also, the court will appoint a permanent receiver, who has the power to conduct all
of the debtor’s business and manage all of the debtor’s properties, subject to court supervision.
The Consolidated Insolvency Act strengthens the role of the committee of creditors by mandating its
composition, unless the debtor is a small or medium sized enterprise or an individual, and granting the
committee the right to nominate an auditor and to request investigation of the debtor company’s business
status after the approval of the rehabilitation plan.
As a general rule, any creditor whose claim against the debtor arose prior to the commencement of the
Chapter 2 Proceeding, whether secured or unsecured, may not enforce such claims other than as provided for
in the rehabilitation plan adopted at the meeting of interested parties and approved by the court. The
rehabilitation plan may alter or modify the rights of creditors or shareholders. Accordingly, there can be no
assurance that the rights of the creditors, whether secured or unsecured, will not be adversely affected by a
Chapter 2 Proceeding. Further, a creditor who intends to participate in the rehabilitation plan must file its
claim with the court within the period fixed by the court.
Under the Chapter 2 Proceeding, creditors are classified into three basic categories: (i) creditors with
unsecured rehabilitation claims, (ii) creditors with secured rehabilitation claims and (iii) creditors with claims
for common benefits. The former two categories of creditors are subject to Chapter 2 Proceedings and
generally may not receive payment or repayment for their respective claims other than as provided in the
rehabilitation plan. Creditors with claims for common benefits are not subject to the rehabilitation plan, and
include, among others, those creditors whose claims either arose after the commencement of the Chapter 2
Proceeding subject to certain exceptions or those creditors whose claims were approved by the court during
the preservation period.
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In order to encourage mergers and/or acquisitions of insolvent companies, the Consolidated Insolvency Act
loosens the requirements for approval of rehabilitation plans contemplating liquidation by requiring the
approval of the creditors representing four-fifths of the outstanding amount of secured claims, whereas the
previous Corporate Reorganisation Act required unanimous consent of all secured creditors. However, in case
of rehabilitation plans contemplating the continuance of the debtor’s business including, without limitation,
merger, spin-off or business transfer, the consent of the creditors representing not less than three-fourths of
the amount of secured rehabilitation claims and of the creditors representing not less than two-thirds of the
unsecured rehabilitation claims is required. For approval of all types of rehabilitation plans, the consent of
the shareholders having not less than half of the voting rights is also required.
If the debtor fails to perform its payment obligations in accordance with the rehabilitation plan, affected
creditors are not permitted to initiate lawsuits or enforce their security interests. Instead, they (or the receiver
of the company) may request the court to amend the rehabilitation plan. However, if such amendment could
have an adverse effect on creditors with rehabilitation claims or shareholders of the company, the court may
amend the rehabilitation plan only by obtaining an affirmative vote at a meeting of interested parties. If it
becomes apparent, either before or after the court approves the rehabilitation plan, that the debtor cannot be
rehabilitated, the court may, at its sole discretion or upon request by the receiver or a creditor with a
rehabilitation claim, issue an order to discontinue the Chapter 2 Proceeding.
Once the Chapter 2 Proceeding is discontinued and if the court determines the debtor is insolvent, the court
must declare the debtor bankrupt and must initiate the bankruptcy proceeding against the debtor. The
compulsory declaration of bankruptcy in Chapter 2 Proceedings will be limited to those cases where a final
decision has been made to terminate the Chapter 2 Proceedings after the approval of the rehabilitation plan.
Declaration of bankruptcy is optional in cases of:
(i)
the dismissal of a petition for the commencement of Chapter 2 Proceedings;
(ii)
the non-approval of a rehabilitation plan; and
(iii) an order to terminate Chapter 2 Proceedings before the approval of the rehabilitation plan.
If the bankruptcy proceedings are initiated, unsecured rehabilitation claims are characterised as general
liquidation claims, and creditors with unsecured rehabilitation claims will be paid pursuant to the bankruptcy
proceedings. Creditors with secured rehabilitation claims, on the other hand, may immediately enforce their
security interest once the rehabilitation proceeding is discontinued, provided however that, if the terms of the
secured claim is amended by the rehabilitation plan, such claim may only be enforced in accordance with
such amendment and the original terms shall not be revived.
Bankruptcy Proceedings
The bankruptcy proceeding is a court administered process designed to liquidate an insolvent debtor’s assets
and formally begins upon an adjudication by the court that the debtor is indeed “bankrupt”. The court will
make its determination as to whether grounds for bankruptcy exist based on the written pleadings and oral
argument of the petitioner. The adjudication of bankruptcy also has the effect of automatically staying all
unsecured creditors from executing their claims against the bankruptcy estate.
The receiver appointed by the court will be vested with the exclusive right to manage and dispose of the
bankruptcy estate, and to conduct an investigation and assessment of the bankruptcy estate. The Consolidated
Insolvency Act, unlike the Bankruptcy Act, permits a legal entity to be appointed the receiver of the
bankruptcy proceeding. If a legal entity is appointed the receiver, it shall designate one of its directors to
exercise the right and power conferred to it as receiver and shall report such designation to the court. After
reviewing the reports prepared by the receiver, the creditors will have a meeting and vote on a resolution
deciding whether to continue or discontinue the debtor business and the manner of safeguarding the
bankruptcy estate.
Subject to certain statutory limitations and approval by the inspection commissioners, the receiver has the
power to liquidate the bankruptcy estate, and to determine the manner and timing of such liquidation. The
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receiver distributes the proceeds from the liquidation of the bankruptcy estate to the creditors in proportion
to their claims. The distribution proceeds in several stages. Claims entitled to distribution are differentiated
according to the priority of claims. Bankruptcy creditors are classified as follows, in accordance with their
priorities: (i) secured creditors, who have the right to proceed against their securities on the same terms as
would be available if the debtor were not in bankruptcy; (ii) creditors with estate claims, which include costs
of judicial proceeding, tax claims, wages and payment of severance, management expenses incurred in
connection with management, liquidation and distribution of the bankruptcy estate, and other claims arising
from administration of the bankruptcy estate; (iii) creditors with other statutorily preferred claims (including
policyholders’ claims against an insurance company to the extent of the amount equal to the relevant
reserves); (iv) general claims; and (v) less preferred claims.
The Consolidated Insolvency Act ensures that the priority rights of tenants under the Residential Tenant
Protection Act and the Commercial Building Tenant Protection Act are also protected under bankruptcy
proceedings.
Chapter 4 Proceedings
The Chapter 4 Proceeding (i.e., the individual rehabilitation proceeding) is available to persons (i) who are
unable, or are likely to become unable, to repay debts when they become due, (ii) who are considered to have
the ability to earn consistent wage income or business income in the future and (iii) whose debt amount is
no more than (x) KRW one billion in case of debts secured by mortgage, pledge, chonsei-kwon and certain
other preferential rights, and (y) KRW five hundred million in case of any other debts. Only debtors, and not
creditors, are able to apply for Chapter 4 Proceedings. When a debtor files a petition for a Chapter 4
Proceeding, the court may suspend or prohibit bankruptcy proceedings, compulsory execution, provisional
attachment, establishment or enforcement of security or the repayment of claims until the court decides
whether to commence the Chapter 4 Proceeding. The court must make such decision within a month after the
filing of the petition.
After the commencement order is issued by the court, any bankruptcy proceedings, Chapter 2 Proceeding or
actions mentioned above are automatically suspended or prohibited. In addition, after the commencement
order is issued by the court, the establishment or enforcement of security interests is automatically suspended
or prohibited until the earlier of the date (i) when the repayment plan is approved or (ii) when the approved
Chapter 4 Proceeding is later finally determined to be discontinued. Subject to the automatic suspension or
prohibition as described above, secured creditors have the right to enforce their security interest on the same
terms as would be available if the debtor was not in Chapter 4 Proceedings.
In principle, the debtor retains management and disposal rights over his/her assets even after the issuance of
a commencement order for the Chapter 4 Proceedings. The debtor must submit a creditor list at the time of
application, and any claim that is not disputed by the relevant creditor will be settled as indicated on the
creditor list. Claims that are disputed by creditors will be settled through a court decision. The debtor must,
in principle, submit a repayment plan within 14 days of the application, and the rehabilitation period must
not exceed 5 years from the commencement of repayment. The Consolidated Insolvency Act shortens such
repayment period to a maximum of 5 years as the maximum repayment period of 8 years under the Act on
Individual Debtor Rehabilitation was considered too severe.
The repayment plan must be approved by the court and the court may order its amendment. One important
requirement for approval is that the total amount of repayment must not be less than the amount that creditors
would have received in a bankruptcy proceeding, unless creditors consent to the court’s approval despite the
failure of the individual debtor’s repayment plan to meet such requirement. The Consolidated Insolvency Act
sets out a list of claims that have priority in payment to the claims listed in the creditor list (e.g. expenses
for the Chapter 4 Proceedings, certain taxes, salaries for the debtor’s employees, etc) in the same manner as
set out in the Act on Individual Debtor Rehabilitation. Once the debtor completes repayment in accordance
with the repayment plan, the court will issue an acquittal order for the debtor.
International Insolvency Proceedings
The representative in a foreign insolvency proceeding (i.e. a person or entity recognised by the applicable
court as the receiver or representative in the foreign insolvency proceeding) may file with the Korean court
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for approval of such foreign insolvency proceeding. Once the foreign insolvency proceeding is approved by
the Korean court, the representative in such proceeding may apply for insolvency proceedings in Korea or
participate in the insolvency proceeding that is already in progress in Korea. On the other hand, the receiver
or bankruptcy trustee in the insolvency proceeding in Korea may, for purposes of such proceeding, take
actions in foreign jurisdictions to the extent permitted by the applicable laws.
Individual Work-out Plans
Citibank Korea Inc. together with other Korean consumer finance lenders, is subject to the Korean financial
industry’s Agreement among Financial Institutions for assisting the Credit Recovery Support Plan (the
“Individual Work-out Plan Agreement”) which took effect on 25 September 2002 (and has subsequently
been amended) to assist qualifying individuals who are in financial difficulty to avoid personal bankruptcy.
The Individual Work-out Plan Agreement applies to sole practitioners and to individuals who have a bad
credit history, who owe KRW 500 million or less to financial institutions and (i) whose income exceeds a
specified minimum or (ii) who are determined by the Review Committee (defined below) to be able to repay
their debts.
Under the Individual Work-out Plan Agreement, eligible individuals could apply for protection to the Credit
Counselling and Recovery Service. On receipt of such an application, the Credit Counselling and Recovery
Service notifies each of the debtor’s creditor financial institutions and requests them to certify the amount
owed to them and for their opinion on the application. From the time that the financial institutions receive
such a notice, they are subject to a moratorium on their ability, among other things, to enforce any security,
including residential mortgage security that they hold for the relevant debt.
The application is then considered by a review committee (the “Review Committee”) established under the
Individual Work-out Plan Agreement. The Review Committee can recommend a plan (an “Individual
Work-out Plan”) for the rehabilitation of the debtor, including extending the repayment period up to eight
years, adjusting interest rates, setting up an instalment repayment plan for a period not exceeding eight years
and writing-off the principal amount of the outstanding debt up to an amount equal to one third thereof (while
the interest on such debts may be written off in excess of one third of the principal amount of the outstanding
debt). The final Individual Work-out Plan of the Review Committee is put to a vote of the creditors of the
relevant debtor and, to be adopted, must be approved by creditor financial institutions representing more than
50% of the debtor’s outstanding unsecured debt and 662⁄3% or more of the debtor’s outstanding secured debt.
If the first Individual Work-out Plan is rejected, the Review Committee may submit a revised Individual
Work-out Plan to the creditor financial institutions, which must be approved by the creditors representing the
same amount of unsecured debt and secured debt. This process may be repeated if the revised Individual
Work-out Plan is rejected.
If the Individual Work-out Plan is adopted, the creditor financial institutions are bound by its terms. Any
creditor financial institution which violates the Individual Work-out Plan, for example by seeking to enforce
its security, could be fined by the Credit Counselling and Recovery Service in an amount between 5% and
50% of the principal amount outstanding of such creditor financial institution’s debt to the relevant debtor.
Such fine is currently fixed by the Credit Counselling and Recovery Service at 20% of the principal amount
outstanding of such creditor financial institution’s debt to the relevant borrower.
Corporate Restructuring Promotion Act
The Old CRPA which was enacted on 14 August 2001 in order to facilitate the out-of court restructuring of
insolvent companies. expired on 31 December 2005. However, on 3 August 2007, the CRPA was enacted and
will remain in effect until 31 December 2010.
The following is a summary of the CRPA. The CRPA applies to creditor financial institutions which are
specified in the CRPA and in the presidential decree thereunder (“Creditor Financial Institutions”),
including, among others, special purpose companies established under the ABS Law (“SPVs”), which
provide credit to a company which:
1.
has not less than KRW fifty billion of credit provided by Creditor Financial Institutions; and
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2.
is determined, on the basis of a credit evaluation carried out in the manner set out in the CRPA by its
main Creditor Financial Institution or a committee of Creditor Financial Institutions (a “Creditor
Committee”), to be a company which may not be able to repay its borrowings without external
financial support or additional borrowings (other than borrowings in the ordinary course of business)
(a “Failing Company”).
Under the CRPA, the main Creditor Financial Institution of a Failing Company is required to take or arrange
one of the following actions if it determines there is a possibility that the financial condition of the Failing
Company may be rehabilitated or brought back to normal in accordance with its business plan:
•
assumption of management of the Failing Company by the Creditor Committee;
•
assumption of management of the Failing Company by the Committee of the Creditor Banks (the
“Bank Committee”);
•
assumption of management of the Failing Company by the main Creditor Financial Institution
•
corporate rehabilitation proceedings under the Consolidated Insolvency Act.
If the main Creditor Financial Institution determines that the Failing Company is beyond rehabilitation or
does not take any of the steps set out above, the main Creditor Financial Institution must require the Failing
Company to dissolve or liquidate or must itself commence insolvency proceedings against the Failing
Company if the main Creditor Financial Institution determines that there are grounds to do so. If the Creditor
Committee assumes the management of the Failing Company, the Creditor Committee may appoint an
administrator for the management of funds and other important businesses of the Failing Company from the
date of commencement of such management by the Creditor Committee. Management by the Bank
Committee or by the main Creditor Financial Institution will be conducted in a manner acceptable to the
Creditor Committee.
“Provision of Credit” is defined in the CRPA as any transaction determined by the Financial Services
Commission to fall under any of the following:
•
loans;
•
purchase of promissory notes, debentures or bonds;
•
equipment leasing;
•
payment guarantees;
•
any transaction which may cause a loss to a Creditor Financial Institution as a consequence of payment
failure by its counterparty; or
•
any transaction which may, in substance, have the same effect to a Creditor Financial Institution as the
transactions set out above even though it may not have provided credit.
Under the Supervisory Regulations promulgated by the Financial Services Commission pursuant to the
CRPA, the Provision of Credit to a company is further defined as all claims for repayment against the
company, including loan receivables, payment guarantees, securities and other receivables. In this regard, the
Financial Supervisory Service issued a ruling on 2 November 2001 providing that sale warranties given by
an originator to an SPV in respect of securitised assets will be deemed to be a provision of credit under the
Old CRPA and the Supervisory Regulations under the Old CRPA have the same definition of the Provision
of Credit as the Supervisory Regulations under the CRPA. Although the ruling discusses only the point of sale
warranties, the SPV’s claims for payment against the originator in connection with the securitisation would
be considered a Provision of Credit by the SPV to the originator in light of such definition.
— 137 —
Under the CRPA, in the event that the main Creditor Financial Institution of the Failing Company decides
to assume the management of the Failing Company and accordingly calls for a meeting of the Creditor
Committee, the main Creditor Financial Institution is required to notify the Governor of the Financial
Services Commission. Upon receipt of such notice, the Governor of the Financial Services Commission may
require the Creditor Financial Institutions to grant a moratorium on the enforcement of claims (including the
enforcement of security interest) until the first meeting of the Creditor Committee (which should be held
within seven days of the notice of the meeting). In addition, during the first meeting of the Creditor
Committee, Creditor Financial Institutions representing at least 75% of the outstanding credit to the Failing
Company may declare a moratorium up to three months if an investigation of the Failing Company’s financial
status is necessary or up to one month if such investigation is not necessary (which may be extended by an
additional month).
If the Creditor Committee cannot agree on the moratorium period or if the corporate repayment plan is not
approved by the date the moratorium period ends, the Creditor Committee’s management of the Failing
Company shall be deemed to have terminated. The Creditor Committee can approve the rescheduling of the
debt owed by the Failing Company or provide new credit to it with the approval of Creditor Financial
Institutions representing not less than 75% of the outstanding secured claims, as well as the approval of
Creditor Financial Institutions representing not less than 75% of all outstanding credit. A Creditor Financial
Institution whose outstanding credit to the Failing Company is less than 5% of the total outstanding credit
may be excluded from the Creditor Committee.
A Creditor Financial Institution which has not participated in the relevant Creditor Committee meeting or has
opposed to the resolutions of the Creditor Committee in respect of the commencement of the management
of the Failing Company by the Creditor Committee or the rescheduling of claims or provision of new credit
may, within seven days of such resolution, request the Creditor Committee to purchase its claims against the
Failing Company. The Creditor Committee is required to either notify the opposing Creditor Financial
Institutions of the purchase price and terms of purchase within one month of such request and the Creditor
Financial Institutions that have approved the relevant resolutions shall purchase such claims within the
rehabilitation period or the Creditor Committee may request Korea Asset Management Corporation, Korea
Deposit Insurance Corporation or other financial institutions under the Depositor Protection Act or any other
institution designated by the Creditor Committee to purchase such claims or request the Failing Company to
repay such claims. The purchase price and terms of the purchase shall be determined by negotiation of the
Creditor Committee and the opposing Creditor Financial Institutions. Pending the agreement of such matters,
the payments shall be made at a provisional price, and balancing payments made once an agreement has been
reached. If no such agreement is reached, then such matters shall be determined by the coordination
committee established under the CRPA.
ENFORCEMENT OF ENGLISH OR NEW YORK JUDGMENTS IN KOREA
A judgment duly obtained in the courts of England will be recognised by Korean courts without a
re-examination of the merits of the case if:
(1)
such judgment was finally and conclusively given by a court having valid jurisdiction;
(2)
the Seller, the Purchaser or the Issuer, as the case may be, received service of process, other than by
publication or similar means, in sufficient time to enable such party to prepare its defence in conformity
with the laws of England (or in conformance with the laws of Korea if it were made to the Seller, the
Purchaser or the Issuer in Korea) or responded to the action without being served with process;
(3)
such judgment is not contrary to the public policy of Korea; and
(4)
judgments of the courts of Korea are accorded reciprocal treatment under the laws of England.
— 138 —
TAX CONSIDERATIONS
The following summary of certain taxation provisions is based on current law and practice and is subject to
any subsequent changes in law or practice (which could be made on a retroactive basis). It does not purport
to be comprehensive and does not constitute legal or tax advice. Investors (particularly those subject to
special tax rules, such as banks, dealers, insurance companies and tax-exempt entities) should consult their
own tax advisers regarding the tax consequences of an investment in the Notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE
HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS SUMMARY
IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY
HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS
UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE
ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF
CIRCULAR 230) BY THE ISSUER OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN;
AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES
FROM AN INDEPENDENT TAX ADVISOR.
The following is a summary of certain material U.S. federal income tax consequences of the acquisition,
ownership and disposition of Notes by a U.S. Holder (as defined below). This summary deals only with initial
purchasers of Notes at the issue price that are U.S. Holders and that will hold the Notes as capital assets. This
summary assumes that none of the Mortgage Loan Assets are located in the United States and neither the
Issuer nor the Purchaser are located in the United States. The discussion does not cover all aspects of U.S.
federal income taxation that may be relevant to, or the actual tax effect that any of the matters described
herein will have on, the acquisition, ownership or disposition of Notes by particular investors, and does not
address state, local, foreign or other tax laws. This summary also does not discuss all of the tax considerations
that may be relevant to certain types of investors subject to special treatment under the U.S. federal income
tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax,
individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in
securities or currencies, investors that will hold the Notes as part of straddles, hedging transactions or
conversion transactions for U.S. federal income tax purposes or investors whose functional currency is not
the U.S. dollar).
As used herein, the term “U.S. Holder” means a beneficial owner of Notes that is, for U.S. federal income
tax purposes, (i) a citizen or resident of the United States, (ii) a corporation created or organised under the
laws of the United States or any State thereof, (iii) an estate the income of which is subject to U.S. federal
income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for U.S.
federal income tax purposes.
The U.S. federal income tax treatment of a partner in a partnership that holds Notes will depend on the status
of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult
their tax advisers concerning the U.S. federal income tax consequences to their partners of the acquisition,
ownership and disposition of Notes by the partnership.
The summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986,
as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court
decisions, all as currently in effect and all subject to change at any time, possibly with retroactive effect.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR
GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR
TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.
— 139 —
US Federal Income Taxation of US Holders of the Notes
Characterisation of the Notes as Indebtedness
The determination whether an instrument represents debt, equity, or some other form of interest is based on
all the relevant facts and circumstances, and courts at times have held that obligations purporting to be debt
constituted equity or some other ownership interest for U.S. federal income tax purposes. There are no
regulations, published rulings or judicial decisions addressing the characterisation for U.S. federal income tax
purposes of securities with terms, and under circumstances, substantially the same as the Notes, including in
particular the contingencies that might affect repayment of the principal of the Notes in full (without
reduction).
The Issuer intends to treat the Notes as indebtedness for U.S. federal income tax purposes, and will prepare
all reports to the Internal Revenue Service (the “IRS”) and holders on a basis that is consistent with that
treatment. In making an investment in these Notes, holders agree to treat these Notes as indebtedness for U.S.
federal income tax purposes. However, there can be no assurance that the IRS will not contend, and that a
court will not ultimately hold, that for U.S. federal income tax purposes these Notes should be characterised,
among other things, as equity in the Issuer.
Prospective purchasers should consult their tax advisers concerning the U.S. federal income tax
characterisation of the Notes.
U.S. Federal Income Tax Consequences of Notes Treated as Debt
The discussion under this sub-heading applies to Notes that are characterised as debt for U.S. federal income
tax purposes.
Payments of Interest
Interest on a Note, whether payable in U.S. dollars or a foreign currency, will be taxable to a U.S. Holder
as ordinary income at the time it is received or accrued, depending on the holder’s method of accounting for
tax purposes. Interest paid by the Issuer on the Notes constitutes income from sources outside the United
States. Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax
credit and source of income rules to income attributable to the Notes.
Foreign Currency Denominated Interest
If an interest payment is denominated in, or determined by reference to, a foreign currency, the amount of
income recognised by a cash basis U.S. Holder will be the U.S. dollar value of the interest payment, based
on the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted
into U.S. dollars.
An accrual basis U.S. Holder may determine the amount of income recognised with respect to an interest
payment denominated in, or determined by reference to, a foreign currency in accordance with either of two
methods. Under the first method, the amount of income accrued will be based on the average exchange rate
in effect during the interest accrual period (or, in the case of an accrual period that spans two taxable years
of a U.S. Holder, the part of the period within the taxable year).
Under the second method, the U.S. Holder may elect to determine the amount of income accrued on the basis
of the exchange rate in effect on the last day of the accrual period (or, in the case of an accrual period that
spans two taxable years, the exchange rate in effect on the last day of the part of the period within the taxable
year). Additionally, if a payment of interest is actually received within five business days of the last day of
the accrual period, an electing accrual basis U.S. Holder may instead translate the accrued interest into U.S.
dollars at the exchange rate in effect on the day of actual receipt. Any such election will apply to all debt
instruments held by the U.S. Holder at the beginning of the first taxable year to which the election applies
or thereafter acquired by the U.S. Holder, and will be irrevocable without the consent of the IRS.
Upon receipt of the interest payment (including a payment attributable to accrued but unpaid interest upon
the sale or retirement of a Note) denominated in, or determined by reference to, a foreign currency, the U.S.
— 140 —
Holder may recognise U.S. source exchange gain or loss (taxable as ordinary income or loss) equal to the
difference between the amount received (translated into U.S. dollars at the spot rate on the date of receipt)
and the amount previously accrued, regardless of whether the payment is in fact converted into U.S. dollars.
Purchase, Sale and Retirement of the Notes
A U.S. Holder’s tax basis in a Note will generally be its U.S. dollar cost (as defined below).
The U.S. dollar cost of a Note purchased with foreign currency will generally be the U.S. dollar value of the
purchase price on the date of purchase, or the settlement date for the purchase, in the case of Notes traded
on an established securities market, as defined in the applicable Treasury Regulations, that are purchased by
a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects). A U.S. Holder will generally
recognise gain or loss on the sale or retirement of a Note equal to the difference between the amount realised
on the sale or retirement and the tax basis of the Note. The amount realised does not include the amount
attributable to accrued but unpaid interest, which will be taxable as interest income to the extent not
previously included in income. The amount realised on a sale or retirement for an amount in foreign currency
will be the U.S. dollar value of this amount on the date of sale or retirement, or the settlement date for the
sale, in the case of Notes traded on an established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects). A U.S. Holder
will recognise U.S. source exchange rate gain or loss (taxable as ordinary income or loss) on the sale or
retirement of a Note equal to the difference, if any, between the U.S. dollar values of the U.S. Holder’s
purchase price for the Note (or, if less, the principal amount of the Note) (i) on the date of sale or retirement
and (ii) the date on which the U.S. Holder acquired the Note. Any such exchange rate gain or loss (including
any exchange gain or loss with respect to the receipt of accrued but unpaid interest) will be realised only to
the extent of total gain or loss realised on the sale or retirement. Except to the extent of changes in exchange
rates, gain or loss recognised by a U.S. Holder on the sale or retirement of a Note will be capital gain or loss
and will be long-term capital gain or loss if the Note was held by the U.S. Holder for more than one year.
Gain or loss realised by a U.S. Holder on the sale or retirement of a Note generally will be U.S. source.
Prospective purchasers should consult their tax advisers as to the foreign tax credit implications of the sale
or retirement of Notes.
Disposition of Foreign Currency
Foreign currency received as interest on a Note or on the sale or retirement of a Note will have a tax basis
equal to its U.S. dollar value at the time the foreign currency is received. Foreign currency that is purchased
will generally have a tax basis equal to the U.S. dollar value of the foreign currency on the date of purchase.
Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase
Notes or upon exchange for U.S. dollars) will be U.S. source ordinary income or loss.
U.S. Federal Income Tax Consequence of Notes as Equity in the Issuer
The discussion under this sub-heading applies to Notes that are characterised as equity in the Issuer for U.S.
federal income tax purposes.
Payments of Interest
Payments of interest on the Notes characterised as equity will generally be treated as distributions with
respect to stock of the Issuer. Subject to the passive foreign investment company (“PFIC”) and controlled
foreign corporation (“CFC”) rules discussed below, a distribution paid by the Issuer out of current or
accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be
taxable to a U.S. Holder as foreign source dividend income, and will not be eligible for the dividends received
deduction allowed to corporations, or for the special reduced rate of tax applicable to certain dividends from
“qualified foreign corporations”. Distributions in excess of current and accumulated earnings and profits will
be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the Notes and thereafter
as capital gain. However, the Issuer does not maintain calculations of its earnings and profits in accordance
with U.S. federal income tax accounting principles. U.S. Holders should therefore assume that any
distribution by the Issuer with respect to the Notes will constitute dividend income. U.S. Holders of Notes
characterised as equity should consult their own tax advisors with respect to the appropriate U.S. federal
income tax treatment of any distribution received from the Issuer.
— 141 —
Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax credit
and source of income rules to dividends on the Notes.
Foreign Currency Dividends
Dividends paid in a foreign currency will be included in income in a U.S. dollar amount calculated by
reference to the exchange rate in effect on the day the dividends are received by the U.S. Holder, regardless
of whether the foreign currency is converted into U.S. dollars at that time. If dividends received in a foreign
currency are converted into U.S. dollars on the day they are received, the U.S. Holder generally will not be
required to recognise foreign currency gain or loss in respect of the dividend income.
Sale or other Disposition
A U.S. Holder’s tax basis in a Note treated as equity will generally be its U.S. dollar cost. The U.S. dollar
cost of a Note purchased with foreign currency will generally be the U.S. dollar value of the purchase price
on the date of purchase, or the settlement date for the purchase, in the case of Notes traded on an established
securities market, as defined in the applicable Treasury Regulations, that are purchased by a cash basis U.S.
Holder (or an accrual basis U.S. Holder that so elects). Such an election by an accrual basis U.S. Holder must
be applied consistently from year to year and cannot be revoked without the consent of the IRS.
Subject to the PFIC rules discussed below, upon a sale or other disposition of Notes, a U.S. Holder generally
will recognise capital gain or loss for U.S. federal income tax purposes equal to the difference, if any,
between the amount realised on the sale or other disposition and the U.S. Holder’s adjusted tax basis in the
Notes. This capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period in
the Notes exceeds one year. Long-term capital gain recognized by a non corporate U.S. Holder is generally
taxed at preferential rates. Any gain or loss will generally be U.S. source.
The amount realised on a sale or other disposition of Notes for an amount in foreign currency will be the U.S.
dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will
recognise U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the
difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect
on the date of sale or other disposition and the settlement date. However, in the case of Notes traded on an
established securities market that are sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that
so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale,
and no exchange gain or loss will be recognised at that time.
Disposition of Foreign Currency
Foreign currency received on the sale or other disposition of a Note will have a tax basis equal to its U.S.
dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal
to the U.S. dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale
or other disposition of a foreign currency (including its use to purchase Notes or upon exchange for U.S.
dollars) will be U.S. source ordinary income or loss.
Equity Interests in a PFIC
With respect to any U.S. Holder that was not treated as a U.S. Shareholder of a CFC (as discussed below),
the rules applicable to interests in a PFIC would apply. Under these rules, a U.S. Holder would be subject
to special rules with respect to (i) any “excess distribution” (generally, any distributions received by the U.S.
Holder on the Notes in a taxable year that are greater than 125 per cent. of the average annual distributions
received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder’s holding
period for the Notes) and (ii) any gain realised on the sale or other disposition of Notes. Under these rules
(a) the excess distribution or gain will be allocated rateably over the U.S. Holder’s holding period, (b) the
amount allocated to the current taxable year and any taxable year prior to the first taxable year in which the
Issuer is a PFIC will be taxed as ordinary income, and (c) the amount allocated to each of the other taxable
years will be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year
and an interest charge for the deemed deferral benefit will be imposed with respect to the resulting tax
attributable to each such other taxable year. A U.S. Holder of Notes will generally be subject to similar rules
with respect to distributions to the Issuer by, and dispositions by the Issuer of the stock of, any direct or
indirect subsidiaries of the Issuer that are also PFICs.
— 142 —
QEF Election
In some cases, a shareholder of a PFIC can avoid the interest charge and the other adverse PFIC consequences
described above by making a “qualified electing fund” (“QEF”) election to be taxed currently on its share
of the PFIC’s undistributed income. The Issuer does not, however, expect to provide to U.S. Holders the
information regarding this income that would be necessary in order for a U.S. Holder to make a QEF election
with respect to its Notes.
Mark to Market Election
U.S. Holders could avoid the adverse consequences discussed above by making a mark to market election
with respect to the Notes, provided that the Notes are “marketable”. Notes will be marketable if they are
regularly traded on certain U.S. stock exchanges, or on a foreign stock exchange that meets certain
requirements. For these purposes, the Notes will be considered regularly traded during any calendar year
during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar
quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded.
A U.S. Holder that makes a mark to market election must include in ordinary income for each year an amount
equal to the excess, if any, of the fair market value of the Notes at the close of the taxable year over the U.S.
Holder’s adjusted basis in the Notes. An electing holder may also claim an ordinary loss deduction for the
excess, if any, of the U.S. Holder’s adjusted basis in the Notes over the fair market value of the Notes at the
close of the taxable year, but this deduction is allowable only to the extent of any net mark to market gains
for prior years. Once made, the election cannot be revoked without the consent of the IRS unless the Notes
cease to be marketable. If the Issuer is a PFIC for any year in which the U.S. Holder owns the Notes but
before a mark to market election is made, the interest charge rules described below will apply to any mark
to market gain recognised in the year the election is made.
Equity Interest in a CFC
A foreign corporation will be treated as a CFC if it is considered to be more than 50% owned (by vote or
value) by U.S. persons that each own (directly, indirectly or constructively as the result of applicable stock
attribution rules) 10% or more of the corporation by vote (each, a “U.S. Shareholder”). The application of
the CFC rules is uncertain, and it is not clear whether a U.S. Holder that owned, or was treated as owning,
10% or more of the Notes would be considered to be a U.S. Shareholder for this purpose.
If the Notes were treated as equity interests in a CFC, a U.S. Holder that was treated as a U.S. Shareholder
with respect to the Issuer or any deemed separate corporation would be required to include in gross income
each year, as a dividend, its share of the Issuer’s income and gains for the year, regardless of whether the
Issuer actually made a payment on the Notes in that year. As a consequence, the U.S. Holder could owe tax
on significant “phantom income”. Any amounts previously subject to tax as income of the U.S. Holder under
the CFC rules would not be subject to tax when payments in respect of those amounts were finally made to
the U.S. Holder. The U.S. Holder’s basis in the Notes would be increased by any amounts included in income
currently as described above and decreased by any amounts not subjected to tax at the time of distribution.
Because of the adverse consequences that could result for a U.S. Holder if the Notes were treated as equity,
U.S. Holders are urged to consult their tax advisers regarding whether a protective mark-to-market election,
if available, should be made with respect to its Notes as of the date of purchase.
Backup Withholding and Information Reporting
Payments by a U.S. paying agent or other U.S. intermediary of principal and interest on Notes, or the
proceeds of sale or other disposal of Notes, will be reported to the IRS and the U.S. Holder as may be
required under applicable regulations. Backup withholding may apply to these payments if the U.S. Holder
fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report
all interest and dividends required to be shown on its U.S. federal income tax returns. Certain U.S. Holders
(including, among others, corporations) are not subject to backup withholding. U.S. Holders should consult
their tax advisers as to their qualification for exemption from backup withholding and the procedure for
obtaining an exemption.
— 143 —
Transfer Reporting Requirements
A U.S. Holder who purchases Notes that are treated as equity for U.S. federal income tax purposes may be
required to file Form 926 (or similar form) with the IRS if the purchase, when aggregated with all transfers
of cash or other property made by the U.S. Holder (or any related person) to the Issuer within the preceding
12 month period, exceeds U.S.$100,000 (or its equivalent). A U.S. Holder who fails to file any such required
form could be required to pay a penalty equal to 10% of the gross amount paid for the Notes (subject to a
maximum penalty of U.S.$100,000, except in cases of intentional disregard). U.S. Holders should consult
their tax advisers with respect to this or any other reporting requirement that may apply to an acquisition of
the Notes.
Reportable Transactions
A U.S. taxpayer that participates in a “reportable transaction” will be required to disclose its participation to
the IRS. The scope and application of these rules is not entirely clear. A U.S. Holder may be required to treat
a foreign currency exchange loss from the Notes as a reportable transaction if the loss exceeds U.S.$50,000
in a single taxable year, if the U.S. Holder is an individual or trust, or higher amounts for other non-individual
U.S. Holders. In the event the acquisition, holding or disposition of Notes constitutes participation in a
reportable transaction for purposes of these rules, a U.S. Holder will be required to disclose its investment
by filing Form 8886 with the IRS. Pursuant to U.S. tax legislation enacted in 2004, a penalty in the amount
of U.S.$10,000 in the case of a natural person and U.S.$50,000 in all other cases is generally imposed on any
taxpayer that fails to timely file an information return with the IRS with respect to a transaction resulting in
a loss that is treated as a reportable transaction. Accordingly, if a U.S. Holder realizes a loss on any Note (or,
possibly, aggregate losses from the Notes) satisfying the monetary thresholds discussed above, the U.S.
Holder could be required to file an information return with the IRS, and failure to do so may subject the U.S.
Holder to the penalties described above. In addition, the Issuer and its advisers may also be required to
disclose the transaction to the IRS, and to maintain a list of U.S. Holders, and to furnish this list and certain
other information to the IRS upon written request. Prospective purchasers are urged to consult their tax
advisers regarding the application of these rules to the acquisition, holding or disposition of Notes.
KOREA
The information provided below does not purport to be a complete summary of Korean tax law and practice
currently applicable.
The taxation of a non-Korean corporation such as the Issuer (a “non-resident”) depends on whether the
non-resident has a “permanent establishment” (as defined under Korean law) in Korea to which the relevant
Korean source income is attributable. Non-residents without a permanent establishment in Korea are taxed
in the manner described below. Non-residents with a permanent establishment in Korea are taxed in
accordance with different rules.
Tax on Interest
In principle, interest paid to a non-resident such as the Issuer by a Korean company is subject to withholding
of Korean income tax at the rate of 14% unless exempted by relevant laws or tax treaties. In addition, a tax
surcharge, called a residence tax, would be imposed at the rate of 10% of the income tax (raising the total
tax rate to 15.4%).
The Special Tax Treatment Control Law of Korea (the “STTCL”) exempts interest on bonds denominated
in a foreign currency (excluding payments to a Korean corporation or resident) from Korean income tax. The
residence tax referred to above is also therefore eliminated. Tax rates may be reduced or exempted by
applicable tax treaties, conventions or agreements between Korea and the jurisdiction of the recipient of the
interest payment. See “— Tax Treaties” below for a discussion on the application of relevant treaties.
Tax is withheld by the payer of the interest. In principle, Korean law does not entitle the person who has
incurred the withholding of Korean tax to recover from the Government any part of the Korean tax withheld,
even if it subsequently produces evidence that it was entitled to have tax withheld at a lower rate, although
in certain limited circumstances it may be possible to recover withheld tax from the payer.
— 144 —
Tax on Capital Gains
Korean tax laws currently exclude from Korean taxation gains made by a non-resident without a permanent
establishment in Korea from the sale of securities other than stock or equity securities to non-residents
(unless the sale is to the non-resident’s permanent establishment in Korea). In addition, capital gains earned
by a non-resident from the transfer of certain securities taking place outside of Korea are currently exempt
from taxation by virtue of the STTCL; provided that the issuance of securities is deemed to be an overseas
issuance under Korean tax law.
If a sale of securities issued by a Korean company between non-residents is not exempted under Korean tax
laws or applicable tax treaties, gains made on such sales are subject to Korean taxation at the lesser of 11%
of the gross realisation proceeds or (subject to the production of satisfactory evidence of the acquisition costs
and certain transaction costs) 27.5% of the gain made. See “— Tax Treaties” below for a discussion on the
application of relevant treaties.
Stamp Tax
No stamp, issue or registration duties will be payable in Korea by the holder of any Purchaser Senior Notes
in connection with the issue of such Purchaser Senior Notes. No securities transaction tax will be imposed
on the transfer of any Purchaser Senior Notes.
Tax Treaties
At the date of this Prospectus, Korea has tax treaties with, inter alia, Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New
Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States of America
under which the rate of withholding tax on interest is reduced, generally to between 10 and 15%, and the tax
on capital gains is often eliminated.
In order to obtain the benefit of a tax exemption on certain Korean source income (e.g., interest income and
capital gains) under an applicable tax treaty, a non-resident should submit an application for tax exemption,
along with a certificate of the non-resident’s tax residency issued by a competent authority of the
non-resident’s country of tax residence, subject to certain exceptions. Such application should be submitted
to the relevant district tax office by the ninth day of the month following the date of the first payment of such
income. However, this requirement does not apply to exemptions under Korean tax law, such as the STTCL
(see “— Tax on Interest” above).
CAYMAN ISLANDS
The following is a discussion on certain Cayman Islands income tax consequences of an investment in the
Notes. The discussion is a general summary of present law, which is subject to prospective and retroactive
change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does
not consider tax consequences other than those arising under Cayman Islands law.
Under Existing Cayman Islands Laws:
•
payments of interest and principal on the Notes will not be subject to taxation in the Cayman Islands
and no withholding will be required on the payment of interest and principal to any holder of the Notes,
nor will gains derived from the disposal of the Notes be subject to Cayman Islands income or
corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no
estate duty, inheritance tax or gift tax;
•
no stamp duty is payable in respect of the issue or transfer of the Notes although duty may be payable
if Notes are executed in or brought into the Cayman Islands; and
•
Certificates evidencing the Notes, in registered form, to which title is not transferable by delivery,
should not attract Cayman Islands stamp duty. However, an instrument transferring title to a Note if
brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty.
— 145 —
The Issuer has been incorporated under the laws of the Cayman Islands as an exempted company and, as
such, has applied for and obtained an undertaking from the Governor in Cabinet of the Cayman Islands in
the following form:
CAYMAN ISLANDS GOVERNMENT
The Tax Concessions Law
(1999 Revision)
Undertaking as to Tax Concessions
In accordance with Section 6 of the Tax Concessions Law (1999 Revision) the Governor in Cabinet
undertakes with:
KOREA ACE MORTGAGE COMPANY (the “Company”)
(a)
that no law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income,
gains or appreciations shall apply to the Company or its operations; and
(b)
in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature
of estate duty or inheritance tax shall be payable:
(i)
on or in respect of the shares, debentures or other obligations of the Company; or
(ii)
by way of the withholding in whole or part of any relevant payment as defined in Section 6(3)
of the Tax Concessions Law (1999 Revision).
These concessions shall be for a period of TWENTY years from the 5th day of June 2007.
European Union Savings Directive
On 1 July 2005, all EU member states, their overseas territories (including the Cayman Islands where the
Issuer is incorporated) and a number of non EU countries (each an “Applicable State”) became subject to
the European Union Savings Directive on the taxation of savings incomes (the “Directive”). The Reporting
of Savings Income Information (European Union) Law 2005 (the “Law”) gives effect to the Directive in the
Cayman Islands and bilateral agreements between the Cayman Islands and each EU member state have been
or are currently being entered into in order to implement the Directive.
The Law applies if interest payments are made by a paying agent established in the Cayman Islands to a
beneficial owner or residual entity resident for tax purposes in an EU member state. A paying agent for such
purposes is any economic operator who pays interest to, or secures the payment of interest for, the immediate
benefit of the beneficial owner, whether the operator is the debtor of the debt claim which produces the
interest or the operator charged by the debtor or the beneficial owner with paying interest or securing the
payment of interest.
Therefore, for the Law to apply in relation to the Notes:
•
the paying agent must be established within the Cayman Islands;
•
the beneficial owner of the notes must be an individual resident in an EU member state; and
•
the interest payment must fall within the definition as set out in the relevant bilateral agreement and
must not be subject to any exclusions.
If any of these three tests fail, the Law will not apply.
As the Issuer has appointed Citibank, N.A., London Branch, as paying agent in respect of the Notes, the Law
will not initially be applicable to interest payments on the Notes. However, if at any time the Issuer is deemed
to be the paying agent (which might occur in the unlikely event that Citibank, N.A., London Branch ceases
to act as the paying agent and no other paying agent is appointed), the Law will apply to interest payments
— 146 —
on the Notes. Similarly, if at any time in the future the Issuer’s paying agent is established in an Applicable
State other than the Cayman Islands, then the Directive is likely to apply to interest payments made on the
Notes and advice should be sought from the relevant jurisdiction regarding any obligations that arise as a
result.
If the Law applies, the paying agent will be required to collect personal information regarding the identity
and residence of any beneficial owner who is an EU resident individual and to report details of the income
earned on the notes to the Financial Secretary of the Cayman Islands. The Financial Secretary will then be
obliged to report such information to the taxing authority in the EU Member State in which the beneficial
owner is tax resident.
Prospective investors resident in member states of the European Union should consult their own legal or tax
advisors regarding the consequences of the directive in their particular circumstances.
UNITED KINGDOM
Stamp Duty
Paperless transfers of Notes within the clearance system or of depositary receipts should not attract United
Kingdom Stamp Duty or Stamp Duty Reserve Tax, but a transfer of Definitive Notes outside the clearance
system may attract United Kingdom Stamp Duty or Stamp Duty Reserve Tax.
— 147 —
CERTAIN ERISA CONSIDERATIONS
The U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) imposes fiduciary
standards and certain other requirements on employee benefit plans subject thereto (collectively, “ERISA
Plans”), including collective investment funds, separate accounts, and other entities or accounts whose
underlying assets are treated as assets of such plans pursuant to the “plan assets” regulation issued by the U.S.
Department of Labor, 29 CFR Section 2510.3-101 (the “Plan Assets Regulation”), and on those persons who
are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general
fiduciary requirements, including the requirement of investment prudence and diversification and the
requirement that an ERISA Plan’s investments be made in accordance with the documents governing the
Plan. The prudence of a particular investment will be determined by the responsible fiduciary of an ERISA
Plan by taking into account the ERISA Plan’s particular circumstances and all of the facts and circumstances
of the investment including, but not limited to, the matters discussed in “Risk Factors” above and the fact
that in the future there may be no market in which the fiduciary will be able to sell or otherwise dispose of
the Notes.
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the
assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section
4975 of the Code (together with ERISA Plans, “Plans”)) and certain persons (referred to as “parties in
interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or
administrative exemption applies to the transaction. In particular, a sale or exchange of property or an
extension of credit between a Plan and a “party in interest” or “disqualified person” may constitute a
prohibited transaction. A party in interest or disqualified person who engages in a prohibited transaction may
be subject to excise taxes or other liabilities under ERISA and the Code.
Under a “look-through rule” set forth in the Plan Assets Regulation, if a Plan invests in an “equity interest”
of an entity and no other exception applies, the Plan’s assets include both the equity interest and an undivided
interest in each of the entity’s underlying assets. An equity interest does not include debt (as determined by
applicable local law) which does not have substantial equity features. Under the Plan Assets Regulation, if
a Plan invests in an “equity interest” of an entity that is neither a “publicly-offered security” nor a security
issued by an investment company registered under the Investment Company Act, the Plan’s assets include
both the equity interest and an undivided interest in each of the entity’s underlying assets, unless it is
established that the entity is an “operating company” or that equity participation in the entity by “benefit plan
investors” is not “significant”. Equity participation in an entity by “benefit plan investors” is “significant”
if 25 per cent. or more of the value of any class of equity interest in the entity is held by “benefit plan
investors”. The term “benefit plan investor” includes (a) an employee benefit plan (as defined in Section 3(3)
of ERISA) that is subject to Title I of ERISA, (b) a plan described in Section 4975 of the Code (other than
a governmental or church plan described in Section 4975(g)(2) or (3) of the Code) that is subject to Section
4975 of the Code, or (c) any entity whose underlying assets include “plan assets” by reason of any such plan’s
investment in the entity. For purposes of making the 25 per cent. determination, the value of any equity
interests held by a person (other than a benefit plan investor) who has discretionary authority or control with
respect to the assets of the entity or any person who provides investment advice for a fee (direct or indirect)
with respect to such assets, or any affiliate of such a person (a “Controlling Person”), shall be disregarded.
Under the Plan Assets Regulation, an “affiliate” of a person includes any person, directly or indirectly
through one or more intermediaries, controlling, controlled by or under common control with the person, and
“control” with respect to a person, other than an individual, means the power to exercise a controlling
influence over the management or policies of such person.
The U.S. Supreme Court, in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510
U.S. 86 (1993), held that those funds allocated to the general account of an insurance company pursuant to
a contract with an employee benefit plan that vary with the investment experience of the insurance company
are “plan assets”. The American Council of Life Insurance requested a prohibited transaction class exemption
to counteract the effects of Harris Trust. In the preamble to the resulting Prohibited Transaction Class
Exemption 95-60, 60 Fed. Reg. 35925 (12 July 1995), the Department of Labour noted that for purposes of
calculating the 25 per cent. threshold under the significant participation test of the Plan Assets Regulation,
only the proportion of an insurance company general account’s equity investment in the entity that represents
— 148 —
plan assets should be taken into account. Furthermore, a change in the level of plan investment in a general
account subsequent to the general account’s purchase of an interest in the entity would not, by itself, trigger
a new determination of whether plan participation was significant. However, it is the Department of Labour’s
view that a purchase by the general account of an additional interest in the entity subsequent to its initial
investment, or an acquisition in the entity by any investor subsequent to the general account’s initial
investment, would require a new determination of significant plan participation. Although the Department of
Labour has not specified how to determine the proportion of an insurance company general account that
represents plan assets for purposes of the 25 per cent. threshold, they have, in the case of PTCE 95-60,
provided a method for determining the percentage of an insurance company’s general account held by the
benefit plans of an employer and its affiliates by comparing the reserves and liabilities for the general account
contracts held by such plans to the total reserves and liabilities of the general account (exclusive of separate
account liabilities) plus surplus. However, there is no assurance that a similar measurement would be used
for purposes of the 25 per cent. threshold.
Any insurance company proposing to invest assets of its general account in the Notes should consider the
extent to which its investment would be subject to the requirements of ERISA in light of the U.S. Supreme
Court’s decision in Harris Trust and under any subsequent guidance that may become available relating to
that decision. In particular, the insurance company should consider the retroactive and prospective exemptive
relief granted by the Department of Labor for transactions involving insurance company general accounts in
Prohibited Transaction Class Exemption 95-60 and the enactment of Section 401(c) of ERISA by the Small
Business Job Protection Act of 1996. There are no assurances that any of the exceptions to the look-through
rule will apply.
The Notes will likely be considered to have substantial equity features under the Plan Assets Regulation.
The Issuer, directly or through its affiliates, may be considered a party in interest or disqualified person with
respect to many Plans. Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975
of the Code may arise if the Notes are acquired by a Plan with respect to which the Issuer or any of its
respective affiliates is a party in interest or a disqualified person, unless the Notes are acquired pursuant to
and in accordance with an applicable exemption. Certain exemptions from the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Code may apply depending in part on the type
of Plan fiduciary making the decision to acquire a Note and the circumstances under which that decision is
made. Included among these exemptions are Prohibited Transaction Class Exemption (“PTCE”) 91-38
(relating to investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected
by a “qualified professional asset manager”), PTCE 90-1 (relating to investments by insurance company
pooled separate accounts), PTCE 95-60 (relating to investments by insurance company general accounts) and
PTCE 96-23 (relating to transactions determined by an in-house asset manager). There can be no assurance
that any of these class exemptions or any other exemption will be available with respect to any particular
transaction involving the Notes.
Governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of
ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to state or other laws that
are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans
should consult with their counsel before purchasing Notes.
Any Plan fiduciary that proposes to cause a Plan to purchase Notes should consult with its counsel regarding
the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section
4975 of the Code to such an investment, and to confirm that such investment will not constitute or result in
a prohibited transaction or any other violation of an applicable requirement of ERISA or the Code.
BY ITS PURCHASE AND HOLDING OF A NOTE, EACH PURCHASER AND EACH TRANSFEREE
WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED EITHER THAT (I) IT IS NOT AND
FOR SO LONG AS IT HOLDS NOTES WILL NOT BE (A) AN “EMPLOYEE BENEFIT PLAN” (AS
DEFINED UNDER SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT SECURITY ACT OF 1974,
AS AMENDED (“ERISA”)) WHICH IS SUBJECT TO TITLE I OF ERISA, (B) A “PLAN” AS DEFINED
IN SECTION 4975(E)(1) OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
— 149 —
“CODE”), AND SUBJECT TO SECTION 4975 OF THE CODE, INCLUDING INDIVIDUAL
RETIREMENT ACCOUNTS OR KEOGH PLANS, (C) AN ENTITY ANY OF WHOSE ASSETS ARE (OR
ARE DEEMED FOR PURPOSES OF ERISA OR SECTION 4975 OF THE CODE, TO BE) ASSETS OF
SUCH AN “EMPLOYEE BENEFIT PLAN” OR “PLAN”, OR (D) A GOVERNMENTAL PLAN OR
CHURCH PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW THAT IS
SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE OR (II) SUCH PURCHASE AND HOLDING OF A NOTE WILL NOT CONSTITUTE A
NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE OR ANY SUBSTANTIALLY SIMILAR PROVISIONS OF ANY FEDERAL, STATE OR
LOCAL LAW.
The sale of Notes to a Plan is in no respect a representation by the Issuer that such an investment meets all
relevant legal requirements with respect to investments by Plans generally or any particular Plan, or that such
an investment is appropriate for Plans generally or any particular Plan.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS LEGAL AND OTHER ADVISORS
CONCERNING THE IMPACT OF ERISA, THE INTERNAL REVENUE CODE AND SIMILAR LAW AND
THE POTENTIAL CONSEQUENCES OF ITS SPECIFIC CIRCUMSTANCES, PRIOR TO MAKING AN
INVESTMENT IN THE NOTES.
— 150 —
SUBSCRIPTION AND SALE
Under the terms and subject to the conditions contained in a Purchase Agreement dated on or about 11 June
2008, Citigroup Global Markets Inc. of 388 Greenwich Street, New York, NY 10013, United States of
America (as Lead Arranger) and Deutsche Bank AG, Singapore Branch of One Raffles Quay, #18-00 South
Tower, Singapore 048583, HSH Nordbank AG, Singapore Branch of #33-00 Centennial Tower, 3 Temasek
Avenue, Singapore 039190 and Merrill Lynch International of Merrill Lynch Finance Centre, 2 King Edward
Street, London EC1A1HQ United Kingdom (as Co-Managers) have agreed to purchase, and the Issuer has
agreed to sell, the Notes.
The Purchase Agreement provides that the obligation of the Lead Arranger and the Co-Managers (collectively
the “Managers”) to pay for and accept delivery of the Notes is subject to approval of certain legal matters
by its counsel and to certain conditions. The Managers are obligated to take and pay for all of the Notes
offered by this Prospectus if any such Notes are taken. The Issuer has also agreed to pay the Lead Arranger
(on behalf of the Managers) an underwriting fee of 0.25% of the aggregate principal amount of the Notes in
connection with the offer and sale of the Notes.
The Purchase Agreement may be terminated by the Lead Arranger (on behalf of the Managers) in certain
circumstances prior to payment for the Notes to the Issuer. The Issuer, the Purchaser and the Seller have
agreed jointly and severally to indemnify the Managers against certain liabilities in connection with the offer
and sale of the Notes.
UNITED STATES
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions
exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the
meanings given to them by Regulation S under the Securities Act (“Regulation S”).
Each Manager has agreed that, except as permitted by the Purchase Agreement, it will not offer or sell the
Notes (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the
commencement of the Offering and the Closing Date, within the United States or to, or for the account or
benefit of, U.S. persons, and it will have sent to each dealer to which it sells the Notes (other than a sale
pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth
the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit
of, U.S. persons. Terms used in this paragraph have the meanings given to them by Regulation S.
The Notes are being offered and sold outside of the United States to non-U.S. persons in reliance on
Regulation S. The Purchase Agreement provides that the Lead Arranger may directly or through its U.S.
broker-dealer affiliates arrange for the offer and resale of the Notes within the United States only to qualified
institutional buyers in reliance on Rule 144A.
In addition, until 40 days after the commencement of the Offering of the Notes, an offer or sale of the Notes
within the United States by a dealer that is not participating in the Offering may violate the registration
requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.
EUROPEAN ECONOMIC AREA
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each, a “Relevant Member State”), each Manager has represented and agreed that with effect
from and including the date on which the Prospectus Directive is implemented in that Relevant Member State
(the “Relevant Implementation Date”), it has not made and will not make an offer of Notes which are the
subject of the offering contemplated by this Prospectus to the public in that Relevant Member State prior to
the publication of a prospectus in relation to the Notes which has been approved by the competent authority
in that Relevant Member State or, where appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus
— 151 —
Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer
of Notes to the public in that Relevant Member State:
(i)
in (or in Germany, where the offer starts within) the period beginning on the date of publication of a
prospectus in relation to those Notes which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another Relevant Member State and notified
to the competent authority in that Relevant Member State, all in accordance with the Prospectus
Directive and ending on the date which is 12 months after the date of such publication
(ii)
at any time to legal entities which are authorised or regulated to operate in the financial markets or, if
not so authorised or regulated, whose corporate purpose is solely to invest in securities;
(iii) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during
the last financial year; (2) a total balance sheet of more than =
C 43,000,000 and (3) an annual net
turnover of more than =
C 50,000,000, as shown in its last annual or consolidated accounts; or
(iv) at any time in any other circumstances which do not require the publication by the Issuer of a
prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Notes to the public” in relation to any Notes
in any Relevant Member State means the communication in any form and by any means of sufficient
information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to
purchase or subscribe for the Notes, as the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive”
means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member
State.
UNITED KINGDOM
Each Manager has represented, warranted and undertaken that:
(i)
it has only communicated or caused to be communicated and will only communicate or cause to be
communicated, an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection
with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply
to the Issuer; and
(ii)
it has complied and will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
IRELAND
Each Manager has represented and agreed that:
(i)
it has not and will not underwrite the issue of, or place the Notes, otherwise than in conformity with
the provision of S.I. No. 60 or 2007, European Communities (Markets in Financial Instruments)
Regulations 2007, including, without limitation, Parts 6, 7 and 12 thereof and the provisions of the
Investor Compensation Act 1998.
(ii)
it has not and will not underwrite the issue of, or placed, and will not underwrite the issue of, or place,
the Notes, otherwise than in conformity with the provisions of the Irish Central Bank Acts 1942 to 1998
(as amended) and the Central Bank and Financial Services Authority of Ireland Acts 2003 and 2004 and
any codes of conduct rules made under Section 117(1) thereof.
— 152 —
(iii) it has not and will not underwrite the issue of, or place, and will not underwrite the issue of, place or
otherwise act in Ireland in respect of the Notes, otherwise than in conformity with the provisions of the
Irish Market Abuse (Directive 2003/6/EC) Regulations 2005 and any rules issued under Section 34 of
the Irish Investment Funds, Companies and Miscellaneous Provisions Act, 2005 by the Irish Financial
Regulator.
(iv) it has not and will not underwrite the issue of, or placed, and will not underwrite the issue of, or place,
or do anything in Ireland in respect of the Notes otherwise than in conformity with the provisions of
the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 and any rules issued under Section 51
of the Irish Investment Funds, Companies and Miscellaneous Provisions Act 2005, by the Irish
Financial Regulator.
(v)
No Notes will be offered or sold with a maturity of less than 12 months except in full compliance with
Notice BSD C 01/02 issued by the Irish Financial Services Regulatory Authority.
KOREA
Each Manager has represented and agreed in the Purchase Agreement that the Notes subscribed for by it will
be subscribed for by it as principal and that it will not directly or indirectly offer, sell or deliver any Notes
in Korea or to any resident of Korea or to others for re-offering or re-sale directly or indirectly in Korea, or
to any resident of Korea, except as otherwise permitted by applicable Korean laws and regulations, and,
furthermore, each Manager has undertaken that any securities dealer to whom it sells the Notes will agree
that he is purchasing such Notes as principal and will not re-offer or re-sell any Note directly or indirectly
in Korea or to any resident of Korea except as aforesaid. No person may offer or sell any Notes in Korea or
to any resident of Korea or to others for re-offering or re-sale directly or indirectly in Korea, or to any
resident of Korea, except as otherwise permitted by applicable Korean law and regulations.
CAYMAN ISLANDS
Each Manager has represented, warranted and agreed that no invitation may be made to the public in the
Cayman Islands to subscribe for the Notes otherwise than in accordance with Section 194 of the Companies
Law (2007 Revision) as the same may be amended from time to time.
HONG KONG
Each Manager has represented, warranted and undertaken that:
(i)
it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes
other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571)
of Hong Kong (the “SFO”) and any rules made thereunder; or (ii) in other circumstances which do not
result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong
Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and
(ii)
it has not issued or had in its possession for the purposes of issue, and will not issue or have in its
possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation
or document relating to the Notes, which is directed at, or the contents of which are likely to be
accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws
of Hong Kong), other than with respect to Notes which are or are intended to be disposed of only to
persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules
made thereunder.
SINGAPORE
Each Manager has acknowledged that this Prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, each Manager has represented, warranted and agreed that this
Prospectus and any other document or material in connection with the offer or sale, or invitation for
— 153 —
subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or
sold, or be made the subject of an invitation for subscription or purchase or cause such Notes to be made
subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore
other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289
of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in
accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in
accordance with the conditions of, any other applicable provision of the SFA.
Each Manager has further represented and agreed to notify each of the following relevant persons specified
in Section 275 of the SFA which has subscribed or purchased the Notes from or through the Lead Arranger,
namely a person which is:
(a)
a corporation (which is not an accredited investor) (as defined in Section 4A of the SFA) the sole
business of which is to hold investments and the entire share capital of which is owned by one or more
individuals, each of whom is an accredited investor; or
(b)
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and
each beneficiary of the trust is an individual who is an accredited investor,
that shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and
interest (howsoever described) in that trust shall not be transferred within 6 months after that corporation or
that trust has acquired the Notes pursuant to an offer made under Section 275 except:
(a)
to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person
defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that
such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in
a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange
of securities or other assets, and further for corporations, in accordance with the conditions specified
in Section 275 of the SFA;
(b)
where no consideration is or will be given for the transfer; or
(c)
where the transfer is by operation of law.
Notwithstanding the foregoing, the Notes may not be acquired by (A) any person who is a resident of or a
permanent establishment in Singapore or (B) any person using funds from its Singapore operations.
JAPAN
Each Manager has represented, warranted and agreed that the Notes have not been and will not be registered
under the Securities and Exchange Law of Japan (the “Financial Instruments and Exchange Law”).
Accordingly, each Manager has represented, commented and agreed that it has not, directly or indirectly,
offered or sold and will not, directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit
of, any resident of Japan (which term as used herein means any person resident in Japan, including any
corporation or other entity organised under the laws of Japan) or to others for re-offering or re-sale, directly
or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from
the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange
Law and other applicable laws and regulations of Japan.
FRANCE
Each of the Managers and the Issuer has represented, warranted and agreed that, in connection with their
initial distribution, (i) it has not offered or sold and will not offer or sell, directly or indirectly, any Notes
— 154 —
to the public in the Republic of France and (ii) offers and sales of Notes will be made in the Republic of
France only to qualified investors as defined and in accordance with Articles L.411-1 and L.411-2 of the
French Code monetaire et financier and Decree No. 98-880 dated 1 October 1998 relating to offers to
qualified investors.
GERMANY
Each Manager has confirmed that it is aware of the fact that no German sales prospectus (Verkaufsprospekt)
within the meaning of the Securities Sales Prospectus Act (Wertpapier- Verkaufsprospektgesetz, the “Act”)
of the Federal Republic of Germany has been or will be published with respect to the Notes and that it will
comply with the Act and any other laws and legal and regulatory requirements applicable in the Federal
Republic of Germany with respect to the issue, sale and offering of securities. In particular, each Manager
has represented that it has not engaged and has agreed that it will not engage in a public offering (Îffentliches
Angebot) within the meaning of the Act with respect to any Notes otherwise than in accordance with the Act.
LUXEMBOURG
The Notes are not for public offer in Luxembourg and may not be offered to the public in Luxembourg and
no marketing document or public announcement shall be made or distributed to the public in Luxembourg
unless the applicable legal and regulatory requirements, in particular the rules set forth in the 28 December
1990 Grand Ducal Regulation (on the Requirements for the Drawing-up, Scrutiny and Distribution of the
Prospectus to be Published where Transferable Securities are Offered to the Public or of Listing Particulars
to be Published for the Admission of Transferable Securities to Official Stock Exchange Listing), as
amended, have been complied with.
GENERAL
Each Manager has acknowledged in the Purchase Agreement that no action has been or will be taken in any
jurisdiction that would permit a public offering of the Notes or the possession, circulation or distribution of
the Prospectus or any other material relating to the Issuer or the Notes in any jurisdiction where action for
that purpose is required. Each Manager has acknowledged in the Purchase Agreement that, save for having
obtained the approval of the Prospectus by the Irish Financial Services Regulatory Authority, no action has
been or will be taken in any jurisdiction by the Issuer that would permit a public offering of the Notes, or
possession or distribution of any offering material in relation to a public offering of the Notes, in any country
or jurisdiction where action for that purpose is required.
Each Manager has further undertaken in the Purchase Agreement that it will comply with all applicable laws
and regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Notes or has in
its possession or distributes any offering material in relation to the Notes.
Each of the Issuer and the Seller has represented, warranted and undertaken to the Managers that neither it
nor any of its affiliates (including any person acting on behalf of the Issuer or, as the case may be, the Seller
or any of its affiliates) has offered or sold, or will offer or sell, any Notes in any circumstances which would
cause the exemption afforded by Rule 144A under the Securities Act or the safe harbours of Regulation S
thereunder to cease to be applicable to the offer and sale of the Notes.
The Notes are new securities for which there currently is no market. The Lead Arranger has advised the Issuer
that it may make a market in the Notes as permitted by applicable law. The Lead Arranger is not obligated,
however, to make a market in the Notes and any market making may be discontinued at any time at the sole
discretion of the Lead Arranger. Accordingly, no assurance can be given as to the development or liquidity
of any market for the Notes.
— 155 —
The Lead Arranger may engage in over-allotment, stabilising transactions, covering transactions and penalty
bids.
•
Over-allotment involves sales in excess of the offering size, which creates a short position for the Lead
Arranger.
•
Stabilising transactions permit bids to purchase the underlying security so long as the stabilising bids
do not exceed a specified maximum.
•
Covering transactions involve purchases of the Notes in the open market after the distribution has been
completed in order to cover short positions.
•
Penalty bids permit the Lead Arranger to reclaim a selling concession from a dealer when the Notes
originally sold by such dealer are purchased in a covering transaction to cover short positions.
These stabilising transactions, covering transactions and penalty bids may cause the price of the Notes to be
higher than it would otherwise be in the absence of these transactions.
The Lead Arranger is an affiliate of the Seller. The Lead Arranger has, directly and indirectly, from time to
time, provided investment and banking or financial advisory services to the Seller and its affiliates for which
it has received customary fees and commissions. The Lead Arranger expect to provide those services to the
Seller and its affiliates from time to time in the future, for which they expect to receive customary fees and
commissions.
— 156 —
CLEARANCE AND SETTLEMENT
BOOK-ENTRY, DELIVERY AND FORM
The Notes offered and sold in offshore transactions in reliance on Regulation S will be initially represented
by a permanent global note certificate in registered form (the “Regulation S Global Note Certificate”). The
Regulation S Global Note Certificate will be registered in the name of Cede & Co. as nominee for the
Depository Trust Corporation (“DTC”) and deposited on behalf of the purchasers of the Notes represented
thereby with Citibank, N.A., London Branch as custodian for DTC for credit to the respective accounts of
the purchasers (or to such other accounts as they may direct) at Euroclear or Clearstream, Luxembourg, as
participants in DTC. Up to and including the 40th day after the later of the commencement of the Offering
and the Closing Date, interests in the Regulation S Global Note Certificate may only be held through
Euroclear or Clearstream, Luxembourg, unless delivery is made through the Rule 144A Global Note
Certificate in accordance with the certification requirements described below.
The Notes offered and sold in reliance on Rule 144A to QIBs will be represented by a permanent global note
certificate in registered form (the “Rule 144A Global Note Certificate”). The Rule 144A Global Note
Certificate will be registered in the name of Cede & Co. as nominee for DTC and deposited on behalf of the
respective purchasers of the Notes represented thereby with Citibank, N.A., London Branch as custodian for
DTC for credit to the respective accounts of the purchasers (or to such other accounts as they may direct)
at DTC.
Transfers of interests in each Global Note Certificate will be subject to certain restrictions set forth therein
and described under “Transfer Restrictions”. In certain circumstances, as described below, transfers may be
made as a result of which the transfer restrictions no longer apply. Owners of beneficial interests in the
Global Note Certificates will be entitled to receive physical delivery of Definitive Note Certificates in
registered form under certain circumstances set forth below.
The Notes will be issued only in fully registered form in denominations of U.S.$100,000 and integral
multiples of U.S.$1,000 in excess thereof. No charge will be made for any transfer of Notes, but the Issuer,
the Registrar or the Transfer Agent may require payment of a sum sufficient to cover any tax or other duty
levied or imposed in connection therewith. The Notes are registered instruments, title to which passes upon
registration of the transfer on the books of the Registrar in accordance with the terms of the Trust Deed.
GLOBAL NOTE CERTIFICATES
Upon the issue of each Global Note Certificate, DTC or its custodian will credit, on its internal system, the
respective principal amount of the individual beneficial interests in the relevant Notes represented by such
Global Note Certificate, to the accounts of persons who have accounts with DTC. Such accounts initially will
be designated by or on behalf of the Lead Arranger. Ownership of the beneficial interests in each Global Note
Certificate will be limited to persons who are members of, or participants in, DTC (the “DTC Participants”)
or persons who hold interests through DTC Participants. Ownership of beneficial interests in a Global Note
Certificate will be shown on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of DTC Participants) and the records of DTC
Participants (with respect to interests of persons other than DTC Participants). QIBs may hold their interests
in a Global Note Certificate directly through DTC if they are DTC Participants, or indirectly through
organisations which are DTC Participants.
So long as DTC, or its nominee, is the registered holder of a Global Note Certificate, DTC or its nominee,
as the case may be, will be considered the absolute owner or holder of the Notes represented by such Global
Note Certificate for all purposes under the Trust Deed and such Notes, and DTC Participants, as well as any
other persons on whose behalf DTC Participants may act (including Euroclear and Clearstream, Luxembourg
and account holders and participants therein), will have no rights under the Trust Deed or under such Global
Note Certificate. Owners of beneficial interests in a Global Note Certificate will not be considered to be the
— 157 —
owners or holders of any of the other Notes under the Trust Deed or other Notes. In addition, no beneficial
owner of an interest in a Global Note Certificate will be able to exchange or transfer that interest, except in
accordance with the applicable procedures of DTC, in each case to the extent applicable (the “Applicable
Procedures”).
Investors may hold their interests in the Regulation S Global Note Certificate through Clearstream,
Luxembourg or Euroclear, if they are participants in such system, or indirectly through organisations which
are participants in those systems. Beginning 41 days after the later of the commencement of the Offering and
the Closing Date, investors may also hold such interests through organisations other than Clearstream,
Luxembourg or Euroclear that are participants in the DTC system. Clearstream, Luxembourg and Euroclear
will hold such interests in the Regulation S Global Note Certificate on behalf of their participants through
customers’ securities accounts in their respective names on the books of their respective depositaries, which
in turn will hold such interests in the Regulation S Global Note Certificate in customers’ securities accounts
in the depositaries’ name on the books of DTC.
Payments in respect of any Global Note Certificate registered in the name of DTC’s nominee will be made
to the order of DTC’s nominee as the registered owner of such Global Note Certificate. None of the Issuer,
the Registrar or the Note Trustee will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in either Global Note Certificate or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect
of the Global Note Certificates, will immediately credit the accounts of DTC Participants with payments in
the amounts proportionate to their respective beneficial interests in the principal amount of such Global Note
Certificates, as shown on the records of DTC or its nominee. The Issuer also expects that payments by DTC
Participants to owners of beneficial interests in such Global Note Certificates held through such DTC
Participants will be governed by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the name of nominees for such customers. Such
payments will be the responsibility of such DTC Participants. Transfers between DTC Participants will be
effected in the ordinary way in accordance with the Applicable Procedures and will be settled in same-day
funds.
Transfers between participants in Euroclear and Clearstream, Luxembourg will be effected in the ordinary
way in accordance with their respective rules and operating procedures. DTC has advised the Issuer that it
will take any action permitted to be taken by a Noteholder (including the presentation of Notes for exchange
as described below) only at the direction of one or more DTC Participants to whose account the DTC interest
in a Global Note Certificate is credited and only in respect of such portion of the aggregate principal amount
of Notes represented by such Global Note Certificate, as the case may be, as to which such DTC Participants
has or have given such direction.
Before the 41st day following the later of the commencement of the Offering of the Notes and the Closing
Date, transfers by an owner of a beneficial interest in the Regulation S Global Note Certificate to a transferee
who takes delivery of such interest through the Rule 144A Global Note Certificate will be made only in
accordance with the Applicable Procedures and upon receipt by the Registrar of a written certification from
the transferor of the beneficial interest in the form provided in the Agency Agreement to the effect that such
transfer is being made to a person whom the transferor reasonably believes is a QIB in a transaction meeting
the requirements of Rule 144A and in accordance with the applicable securities laws of the United States or
any other jurisdiction. On or after such 41st day such certification requirement will no longer apply to such
transfers.
Transfers by an owner of a beneficial interest in the Rule 144A Global Note Certificate to a transferee who
takes delivery of such interest through the Regulation S Global Note Certificate, whether before, on or after
the 41st day following the later of the commencement of the Offering and the Closing Date, will be made
only upon receipt by the Registrar of a written certification to the effect that such transfer is being made in
accordance with Regulation S.
— 158 —
The Issuer understands that DTC is a limited purpose trust company organised under the laws of the State
of New York, a “banking organisation” within the meaning of New York Banking Law, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the Uniform Commercial Code and
a “Clearing Agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in accounts of its participants,
thereby eliminating the need for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other organisations. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly or indirectly (“indirect
participants”).
Although DTC, Euroclear and Clearstream, Luxembourg are expected to follow the foregoing procedures in
order to facilitate transfers of interests in the Global Note Certificates among participants of DTC, Euroclear
and Clearstream, Luxembourg, they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the Issuer, the Note Trustee nor
the Registrar will have any responsibility for the performance by DTC, Euroclear or Clearstream,
Luxembourg or their respective participants or indirect participants for respective obligations under the rules
and procedures governing their operations.
DEFINITIVE NOTE CERTIFICATES
Interests in the Global Note Certificates will be exchangeable in whole but not in part for Definitive Note
Certificates if (i) DTC notifies the Issuer that it is unwilling or unable to continue as depositary for such
Global Note Certificates, or DTC ceases to be a “Clearing Agency” registered under the United States
Securities Exchange Act of 1934, as amended, and a successor depositary is not appointed by the Issuer
within 90 days after receiving such notice from DTC or becoming aware that DTC is no longer so registered,
or (ii) the Note Trustee has instituted or been directed to institute judicial proceedings to enforce the rights
of Noteholders and been advised by counsel that in connection with such proceedings it is necessary or
appropriate for the Note Trustee to obtain possession of Definitive Note Certificates (each an “Exchange
Event”).
On and after the 30th day after an Exchange Event, each Global Note Certificate may be exchanged on any
day (other than a Saturday or Sunday) on which banks are open for business in New York City in whole but
not in part at the specified office of the Registrar (or such other place as the Note Trustee may agree) for
Definitive Note Certificates and the Issuer shall procure that the Registrar shall issue and deliver, in full
exchange for such Global Note Certificate, Definitive Note Certificates in an aggregate principal amount
equal to the principal amount of such Global Note Certificate submitted for exchange. In the case of
Definitive Note Certificates issued in exchange for an interest in the Rule 144A Global Note Certificate, such
Definitive Note Certificates shall bear the legend set forth under “Transfer Restrictions”. Upon the transfer,
exchange or replacement of Notes bearing such legend, or upon specific request for removal of such legend,
the Issuer shall deliver only Notes that bear such legend, or shall refuse to remove such legend, as the case
may be, unless there is delivered to the Issuer and the Note Trustee a certificate in the form provided in the
Agency Agreement or such satisfactory evidence as may reasonably be required by the Issuer, which may
include an opinion of United States counsel, that neither the legend nor the restrictions on transfer set forth
therein are required to ensure compliance with the provisions of the Securities Act.
— 159 —
TRANSFER RESTRICTIONS
Because of the following restrictions, purchasers of Notes are advised to consult legal counsel prior to
making any offer, resale, pledge or transfer of such Notes.
The Notes have not been and will not be registered under the Securities Act and, subject to certain exceptions,
may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons (as
defined in Regulation S under the Securities Act). Accordingly, the Notes will only be offered and sold to
(a) QIBs in reliance on the exemption from the registration requirements of the Securities Act provided by
Rule 144A and (b) non-U.S. persons in offshore transactions in reliance on Regulation S.
RULE 144A NOTES
Each purchaser of Notes within the United States pursuant to Rule 144A, by accepting delivery of this
Prospectus, will be deemed to have represented, agreed and acknowledged that:
(1)
It is a qualified institutional buyer within the meaning of Rule 144A (a “QIB”), (b) acquiring such
Notes for its own account or for the account of a QIB and (c) aware, and each beneficial owner of such
Notes has been advised, that the sale of such Notes to it is being made in reliance on Rule 144A.
(2)
It understands that such Notes have not been and will not be registered under the Securities Act and may
not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a
person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own
account or for the account of a QIB, (b) in an offshore transaction in accordance with Rule 903 or Rule
904 of Regulation S or (c) pursuant to an exemption from registration under the Securities Act provided
by Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws
of any State of the United States.
(3)
It understands that such Notes, unless otherwise agreed between the Issuer and the Note Trustee in
accordance with applicable law, will bear a legend to the following effect:
(a)
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED
STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (“RULE
144A”) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF
REASONABLY BELIEVE IS A “QUALIFIED INSTITUTIONAL BUYER” WITHIN THE MEANING
OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE
EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS
NOTE.
BY PURCHASING OR ACCEPTING THIS NOTE, THE HOLDER HEREOF AGREES TO
TREAT THIS NOTE FOR PURPOSES OF UNITED STATES FEDERAL, STATE AND LOCAL
INCOME OR FRANCHISE TAXES AND ANY OTHER TAXES IMPOSED ON OR MEASURED
BY INCOME, AS INDEBTEDNESS OF THE ISSUER AND TO REPORT THIS NOTE ON ALL
APPLICABLE TAX RETURNS IN A MANNER CONSISTENT WITH SUCH TREATMENT.
EACH TRANSFEREE ACQUIRING THE NOTES WILL BE DEEMED TO HAVE
REPRESENTED AND AGREED EITHER THAT (I) IT IS NOT AND FOR SO LONG AS IT
HOLDS NOTES WILL NOT BE (A) AN “EMPLOYEE BENEFIT PLAN” (AS DEFINED
UNDER SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT SECURITY ACT OF 1974,
AS AMENDED (“ERISA”)), WHICH IS SUBJECT TO TITLE I OF ERISA, (B) A “PLAN” AS
— 160 —
DEFINED IN SECTION 4975(E)(1) OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE “CODE”), AND SUBJECT TO SECTION 4975 OF THE CODE, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS OR KEOGH PLANS, (C) AN ENTITY ANY OF
WHOSE ASSETS ARE (OR ARE DEEMED FOR PURPOSES OF ERISA OR SECTION 4975 OF
THE CODE, TO BE) ASSETS OF SUCH AN “EMPLOYEE BENEFIT PLAN” OR “PLAN” , OR
(D) A GOVERNMENTAL PLAN OR CHURCH PLAN WHICH IS SUBJECT TO ANY
FEDERAL, STATE OR LOCAL LAW THAT IS SUBSTANTIALLY SIMILAR TO THE
PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR (II) SUCH
PURCHASE AND HOLDING OF A NOTE WILL NOT CONSTITUTE A NON-EXEMPT
PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE OR ANY SUBSTANTIALLY SIMILAR PROVISIONS OF ANY FEDERAL, STATE OR
LOCAL LAW.
(4)
The Issuer, the Registrar, the Lead Arranger, the Co-Managers and their affiliates, and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations and agreements. If it
is acquiring any Notes for the account of one or more QIBs, it represents that it has sole investment
discretion with respect to each such account and that it has full power to make the foregoing
acknowledgments, representations and agreements on behalf of each such account.
(5)
It understands that the Notes offered in reliance on Rule 144A will be represented by the DTC Global
Note Certificate. Before any interest in the Rule 144A Global Note Certificate may be offered, sold,
pledged or otherwise transferred to a person who takes delivery in the form of an interest in the
Regulation S Global Note Certificate, it will be required to provide a Transfer Agent with a written
certification (in the form provided in the Agency Agreement) as to compliance with applicable
securities laws.
Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption
from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Regulation S Notes
Each purchaser of Notes outside the United States pursuant to Regulation S and each subsequent purchaser
of such Notes in resales prior to the expiration of the distribution compliance period, by accepting delivery
of this Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that:
(1)
It is, or at the time Notes are purchased will be, the beneficial owner of such Notes and (a) it is not a
U.S. person and it is located outside the United States (within the meaning of Regulation S) and (b) it
is not an affiliate of the Issuer or a person acting on behalf of such an affiliate.
(2)
It understands that such Notes have not been and will not be registered under the Securities Act and
that, prior to the expiration of the distribution compliance period, it will not offer, sell, pledge or
otherwise transfer such Notes except (a) in accordance with Rule 144A under the Securities Act to a
person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own
account or the account of a QIB or (b) in an offshore transaction in accordance with Rule 903 or Rule
904 of Regulation S, in each case in accordance with any applicable securities laws of any State of the
United States.
(3)
The Issuer, the Registrar, the Lead Arranger, the Co-Managers and their affiliates, and others will rely
upon the truth and accuracy of the foregoing acknowledgments, representations and agreements.
(4)
It understands that the Notes offered in reliance on Regulation S will be represented by the Regulation
S Global Note Certificate. Prior to the expiration of the distribution compliance period, before any
interest in the Regulation S Global Note Certificate may be offered, sold, pledged or otherwise
transferred to a person who takes delivery in the form of an interest in the Rule 144A Global Note
Certificate, it will be required to provide a Transfer Agent with a written certification (in the form
provided in the Agency Agreement) as to compliance with applicable securities laws.
— 161 —
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Notes will be advised upon:
(a)
for the Lead Arranger, by Linklaters with respect to English law and by Shin & Kim with respect to
Korean law; and
(b)
for the Seller, by Kim & Chang with respect to Korean law.
Certain matters as to Cayman Islands law will be advised upon for the Issuer by Walkers.
Each of Shin & Kim and Walkers has given and not withdrawn its written consent to the issue of this
Prospectus with the inclusion of statements attributed to it and references to its name in the form and context
in which they are included and has authorised the contents of that part of this Prospectus for the purposes
of Section 45 of the Investment Funds, Companies and Miscellaneous Provisions Act, 2005 of Ireland.
— 162 —
GENERAL INFORMATION
1.
Resolutions authorising the issue of the Notes were passed by the Directors of the Issuer on 5 July 2007,
29 April 2008 and on or about 17 June 2008.
2.
The number of Notes will be the principal amount outstanding on the Closing Date divided by 100,000.
3.
It is expected that the Prospectus will be approved by the Irish Financial Services Regulatory Authority
as competent authority under Directive 2003/71/EC and admission of the Notes to the Official List of
the lrish Stock Exchange and trading on its regulated market will be granted on or about 17 June 2008,
subject only to the issue of the Global Notes. The listing of the Notes will be cancelled if the Global
Notes are not issued. Transactions will normally be effected for settlement in US Dollars and for
delivery on the third working day after the day of the transaction.
4.
So long as the Notes are listed on the Irish Stock Exchange, and the rules of the Irish Stock Exchange
so require, hard copies of the Transaction Documents listed in paragraphs (a) to (i) and (k) to (u) (both
inclusive) of the definition of “Transaction Documents” and the Prospectus and the Memorandum and
Articles of Association of the Issuer and the Purchaser will be available for inspection during normal
business hours on any day (except Saturdays, Sunday and public holidays), at the specified office of
the Irish Paying Agent and at the registered office of the Issuer. So long as the Notes are outstanding,
hard copies of the Transaction Documents listed in paragraphs (a) to (i) and (k) to (u) (both inclusive)
of the definition of “Transaction Documents” will be available for inspection at the Specified Office of
the Principal Paying Agent.
5.
After the issue of the Notes, so long as the Notes are outstanding, the Note Trustee will be provided
with various reports by the Servicer, the Issuer Transaction Administrator and the Purchaser Transaction
Administrator in accordance with the Servicing Agreement and the Transaction Administration
Agreement, respectively. These reports include the Quarterly Servicer Reports and the TA Reports.
These reports, together, will provide information for the relevant period on, among other things,
defaulted Mortgage Loan Transactions and the amount collected under the Mortgage Loan Transactions
during the relevant period. Information will also be provided with respect to payments due on the
Purchaser Note Payment Dates and the Note Payment Dates. Hard copies of the Quarterly Servicer
Reports and the TA Reports will be available during normal business hours on any day (except
Saturdays, Sunday and public holidays) at the registered office of the Issuer, the place of business of
the Note Trustee and the Specified Office of the Irish Paying Agent.
6.
After the issue of the Notes, as long as the Notes are outstanding, hard copies of the most recently
published annual unaudited financial statements of the Issuer and the Purchaser and prior annual
unaudited financial statements of the Issuer and the Purchaser (to the extent any have been prepared),
and copies of the most recently published annual audited financial statements (if audited financial
statements are required to be produced by relevant applicable law or by the Irish Stock Exchange), will
be available at the registered office of the Issuer, the Specified Office of the Principal Paying Agent and
the Specified Office of the Irish Paying Agent.
7.
The Notes have been accepted for clearance through DTC. The Notes have the following security code
numbers:
Notes
ISIN
CUSIP
Notes under Rule 144A ............................................................... US50062QAA04
50062QAA0
Notes under Regulation S ............................................................ USG5314YAA67
G5314YAA6
— 163 —
8.
The Issuer is not, and has not been, involved in any legal, governmental or arbitration proceedings
(including any such proceedings which are pending or threatened of which the Issuer is aware) which
may have, or have had, since the date of its incorporation, a significant effect on the Issuer’s financial
position.
9.
The Purchaser is not, and has not been, involved in any governmental, litigation, arbitration or
administrative proceedings (including any such proceedings which are pending or threatened of which
the Purchaser is aware) which may have, or have had, since the date of its incorporation, a significant
effect on the Purchaser’s financial position.
10.
Save as disclosed herein, since 23 May 2007 (being the date of incorporation of the Issuer), there has
been (a) no material adverse change in the financial position or prospects of the Issuer and (b) no
significant change in the trading or financial position of the Issuer.
11.
Save as disclosed herein, since 29 June 2007 (being the date of incorporation of the Purchaser), there
has been (a) no material adverse change in the financial position or prospects of the Purchaser and (b)
no significant change in the trading or financial position of the Purchaser.
12.
No consents, approvals, authorisations or other orders of any regulatory authorities in Ireland are
required by the Issuer under the laws of Ireland in respect of the offering, issuance and sale of the
Notes.
13.
So long as the Notes are outstanding pursuant to the Trust Deed, the Note Trustee will be provided with
a certificate of compliance from the Issuer on each anniversary of the date of the Trust Deed confirming
that as of such date no Event of Default or Potential Event of Default had occurred.
14.
The amount of expenses related to the admission of trading of the Notes is expected to be approximately
=
C 4,600.
15.
The Issuer is not aware of any conflict of interest material to the issue of the Notes.
— 164 —
MASTER DEFINITIONS SCHEDULE
“ABS Act” means the Act on Asset-Backed Securitisation (Law No. 5555, 16 September 1998) of Korea, as
amended.
“Account Assignment” means the account assignment dated or to be dated on or about the Closing Date, and
made between the Purchaser, the Issuer, the Security Agent, the Servicer, the Back-up Servicer, the Purchaser
Transaction Administrator, the Purchaser Corporate Administrator and the Swap Counterparty.
“Account Bank Mandates” means, collectively, the Won Account Bank Mandate, the Purchaser Collection
Account Bank Mandate, the Offshore Account Bank Mandate and the Issuer Account Bank Mandate, and
each an “Account Bank Mandate”.
“Account Banks” means collectively the Won Account Bank, the Purchaser Collection Account Bank, the
Offshore Account Bank, the Swap Cash Collateral Account Bank, the Swap Securities Collateral Account
Bank and the Issuer Account Bank, and each an “Account Bank”.
“Accounting Firm” has the meaning set out in Clause 5.1 of the Purchaser Corporate Administration
Agreement.
“Accounts” means collectively the General Won Account, the Purchaser Collection Account, the Reserve
Fund Account, the US Dollar Account, the Swap Cash Collateral Account, the Swap Securities Collateral
Account and the Issuer USD Account, and each an “Account”.
“Act on Structural Improvement of the Financial Industry” means the Act on Structural Improvement of
the Financial Industry (No. 5257 of 13 January 1997), as amended.
“Additional Fixed Amount” has the meaning set out in the Swap Agreement.
“Additional Floating Amount” has the meaning set out in the Swap Agreement.
“Additional Interest Amount” in relation to a Purchaser Note Payment Date, means an amount in US
Dollars equal to the Additional Floating Amount in respect of the Swap Payment Date immediately preceding
such Purchaser Note Payment Date.
“Additional Termination Event” has the meaning set out in the Swap Agreement.
“Administrator” means either of the Purchaser Transaction Administrator or the Issuer Transaction
Administrator, as the context may require, and “Administrators” means both of them.
“Administrator Termination Event” has, in respect of the Purchaser Transaction Administrator or the Issuer
Transaction Administrator, the meaning set out in Clause 18.1 of the Transaction Administration Agreement.
“Affected Asset” means, as of any day, any Mortgage Loan Asset in respect of which:
(a)
either the Seller or the Purchaser (including the Servicer on behalf of the Purchaser) has received notice
from the Administration Bureau (as defined in the Individual Work-out Plan Agreement) or is otherwise
aware, that any of the related Borrower(s) has been granted assistance under the Individual Work-out
Plan;
(b)
either the Seller or the Purchaser (including the Servicer on behalf of the Purchaser) has received notice
from the relevant Korean court or is otherwise aware that any related Borrower has applied to any
Korean court to have his debts rescheduled;
— 165 —
(c)
either the Seller or the Purchaser (including the Servicer on behalf of the Purchaser) has received notice
from the relevant Korean court or any person in accordance with the Consolidated Insolvency Act or
is otherwise aware that any petition or filing for an individual rehabilitation proceeding under a Chapter
2 Proceeding or a Chapter 4 Proceeding has been made in relation to any of the related Borrower(s);
or
(d)
either the Seller or the Purchaser (includes the Servicer on behalf of the Purchaser) has received from
any Korean court any notice or is otherwise aware, that any of the related Borrower(s) has been
rendered a judgment or order by any Korean court under the Consolidated Insolvency Act in relation
to a Chapter 2 Proceeding or a Chapter 4 Proceeding,
in each case, which would have the effect of (i) reducing or delaying the payment of any amount payable by
such Borrower(s) in respect of a Mortgage Loan or (ii) restricting the enforcement of any related Collateral
Security provided by such Borrower(s).
“Affected Asset Breach” means, with respect to any day after the Closing Date, that the warranty set out in
Clause 7.2.2 of the Transfer Agreement was incorrect at such day.
“Affected Asset Notice” has the meaning set out in Clause 8.7.1 of the Transfer Agreement.
“Affected Asset Return Amount” means, in relation to any Affected Asset, the return amount calculated by
the Servicer and payable by the Seller in accordance with Clause 8.8 of the Transfer Agreement.
“Affected Asset Return Date” has the meaning set out in Clause 8.7.3 of the Transfer Agreement.
“Affected Asset Return Notice” has the meaning set out in Clause 8.7.2 of the Transfer Agreement.
“Affected Calculation Period” has the meaning set out in the Swap Agreement.
“Affected Party” has the meaning set out in the Swap Agreement.
“Agency Agreement” means the agency agreement dated or to be dated on or about the Closing Date and
made between the Issuer, the Note Trustee, the Reference Agent, the Principal Paying Agent, the Irish Paying
Agent, the Principal Transfer Agent, the Registrar and the Issuer Transaction Administrator.
“Agents” means the Paying Agents, the Transfer Agents, the Registrar, the Reference Agent and the Irish
Paying Agent or any of them (or any successors thereof), as the context may require, and “Agent” shall be
construed accordingly.
“Agents Fees” means the fees described as such in the Issuer Transaction Administrator Fee Letter and
payable to the Principal Paying Agent (for itself or on behalf of the other Agents) pursuant to the Issuer
Transaction Administrator Fee Letter and Clause 11.1 of the Agency Agreement.
“Agreed Servicing Procedures” means the servicing procedures in relation to the servicing and enforcement
of the Mortgage Loan Transactions as outlined in the description of the Mortgage Loan Services set out in
Part 1 of the First Schedule to the Servicing Agreement including any amendments thereto notified by the
Servicer to, and agreed by, the Purchaser, the Security Trustee and the Rating Agencies from time to time.
“Applicable Exchange Rate” has the meaning set out in the Swap Agreement.
“Approved Rating” means:
(a)
in relation to the Issuer Account Bank, in respect of its short-term senior unsecured and unguaranteed
foreign currency debts, a rating of “F1” or higher by Fitch, a rating of “P-1” or higher by Moody’s and
— 166 —
a rating of “A-2” or higher by Standard & Poor’s and in respect of its long-term senior unsecured and
unguaranteed foreign currency debts, a rating of “A” or higher by Fitch, a rating of “A1” or higher by
Moody’s and (if there is no rating by Standard & Poor’s of the short-term senior unsecured and
unguaranteed debt of such person) a rating of “BBB+” or higher by Standard & Poor’s;
(b)
in relation to the Offshore Account Bank, in respect of its short-term senior unsecured and unguaranteed
foreign currency debts, a rating of “F1” or higher by Fitch, a rating of “P-1” or higher by Moody’s and
a rating of “A-2” or higher by Standard & Poor’s and in respect of its long-term senior unsecured and
unguaranteed foreign currency debts, a rating of “A” or higher by Fitch, a rating of “A1” or higher by
Moody’s and (if there is no rating by Standard & Poor’s of the short-term senior unsecured and
unguaranteed debt of such person) a rating of “BBB+” or higher by Standard & Poor’s;
(c)
in relation to the Won Account Bank, in respect of its short-term senior unsecured and unguaranteed
foreign currency debts, a rating of “F1” or higher by Fitch, a rating of “P-1” or higher by Moody’s and
a rating of “A-2” or higher by Standard & Poor’s and in respect of its long-term senior unsecured and
unguaranteed foreign currency debts, a rating of “A” or higher by Fitch, a rating of “A1” or higher by
Moody’s and (if there is no rating by Standard & Poor’s of the short-term senior unsecured and
unguaranteed debt of such person), a rating of “BBB+” or higher by Standard & Poor’s, in each case,
for the Won Account Bank’s head office;
(d)
in relation to any person with whom any General Won Account Eligible Investment or Reserve Fund
Account Eligible Investment is to be placed, in respect of its short-term senior unsecured and
unguaranteed US Dollar debts, a rating of “F1” or higher by Fitch, a rating of “P-1” or higher by
Moody’s and a rating of “A-1” or higher by Standard & Poor’s and in respect of its long-term senior
unsecured and unguaranteed foreign currency debts, a rating of “A” or higher by Fitch, a rating of “A1”
or higher by Moody’s and (if there is no rating by Standard & Poor’s of the short-term senior unsecured
and unguaranteed debt of such person), a rating of “A+” or higher by Standard & Poor’s, in each case,
for such person’s head office;
(e)
in relation to any bank with whom a suspense account is to be opened (as contemplated in Clause 16
of the Account Assignment, Clause 15 of the Pledge Agreement and Clause 14 of the Security
Assignment Deed), in respect of its short-term senior unsecured and unguaranteed foreign currency
debts, a rating of “F1” or higher by Fitch, a rating of “P-1” or higher by Moody’s and a rating of “A-2”
or higher by Standard & Poor’s and in respect of its long-term senior unsecured and unguaranteed
foreign currency debts, a rating of “A” or higher by Fitch, a rating of “A1” or higher by Moody’s and
(if there is no rating by Standard & Poor’s of the short-term senior unsecured and unguaranteed debt
of such person), a rating of “BBB+” or higher by Standard & Poor’s, in each case, for such bank’s head
office;
(f)
in relation to the Designated FX Bank or the Spot Bank, in respect of its short-term senior unsecured
and unguaranteed Korean Won debts, a rating of “F1” or higher by Fitch and a rating of “A-2” or higher
by Standard & Poor’s, in respect of its short-term foreign currency bank deposits, a rating of “P-1” or
higher by Moody’s, in respect of its long-term senior unsecured and unguaranteed Korean Won debts,
a rating of “A” or higher by Fitch and (if there is no rating by Standard & Poor’s of the short-term
senior unsecured and unguaranteed debt of such person), a rating of “BBB+” or higher by Standard &
Poor’s; and in respect of its long-term foreign currency bank deposits, a rating of “A2” or higher by
Moody’s;
(g)
in relation to either Administrator, in respect of its long-term senior unsecured and unguaranteed debt
obligations, a rating of “BBB-” or higher by Fitch for such Administrator’s head office;
(h)
in relation to the Back-up Servicer, in respect of its long-term senior unsecured and unguaranteed debt
obligations, a rating of “BBB-” or higher by Fitch and a rating of “Baa3” or higher by Moody’s, in each
case, for the Back-up Servicer’s head office; and
— 167 —
(i)
in relation to any Swap Cash Collateral Account Bank or Swap Securities Collateral Account Bank, in
respect of its short-term senior unsecured and unguaranteed foreign currency debts, a rating of “F1” or
higher by Fitch, a rating of “P-1” or higher by Moody’s and a rating of “A-1” or higher by Standard
& Poor’s and in respect of its long-term senior unsecured and unguaranteed foreign currency debts, a
rating of “A” or higher by Fitch, a rating of “A1” or higher by Moody’s and (if there is no rating by
Standard & Poor’s of the short-term senior unsecured and unguaranteed debt of such person), a rating
of “A+” or higher by Standard & Poor’s, in each case, for such bank’s head office.
“Asia Business Day” means a day (other than a Saturday or a Sunday) on which commercial banks and
foreign exchange markets settle payments in Seoul and Hong Kong.
“Asset Representation” means any representation or warranty as set out in Part 1 of the Third Schedule to
the Transfer Agreement given by the Seller to the Purchaser pursuant to Clause 7.1 of the Transfer
Agreement.
“Assigned Property” has the meaning set out in Clause 1.2 of the Account Assignment.
“Assumed Loan” has the meaning set out in Part 1 of the First Schedule to the Servicing Agreement.
“Auditors” means such auditors as the Purchaser may from time to time appoint as its auditors as
contemplated in the Servicing Agreement.
“Authorised Holding” has, in relation to the Purchaser Senior Notes, the meaning set out in Purchaser Senior
Note Condition 1(a)(i) and, in relation to the Notes, the meaning set out in Condition 1.
“Authorised Signatory” means, in relation to any party to a Transaction Document, any person who is duly
authorised (in such manner as may be reasonably acceptable to the other parties to such Transaction
Document) to act and in respect of who the other parties to such Transaction Document have received a
certificate signed by a director or another Authorised Signatory of the first-mentioned party setting out the
name and signature of such person and confirming such person’s authority to act.
“Available Credit Enhancement Percentage” means as of any day:
(a)
(b)
for the purposes of paragraph (a) of the definition of “Excess Credit Enhancement Percentage:
(i)
the Principal Amount Outstanding of the Purchaser Junior Note as of such day; divided by
(ii)
the aggregate Principal Amount Outstanding of the Mortgage Loan Assets as of such day; and
for the purposes of paragraph (b) of the definition of “Excess Credit Enhancement Percentage:
(i)
the Principal Amount Outstanding of the Purchaser Junior Note as of such day less the Set-off
Coverage Amount; divided by
(ii)
the aggregate Principal Amount Outstanding of the Mortgage Loan Assets as of such day less the
Set-off Coverage Amount.
“Available Interest Collections” means in respect of any Spot Payment Date or any Purchaser Note Payment
Date:
(a)
the Final Adjusted Interest Collections for such Spot Payment Date or, as the case may be, such
Purchaser Note Payment Date; plus
(b)
the amount deducted from Available Principal Collections pursuant to paragraph (c) of the definition
of “Available Principal Collections” in respect of such Spot Payment Date or, as the case may be, such
Purchaser Note Payment Date.
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“Available Principal Collections” means, in respect of any Spot Payment Date, the sum of:
(a)
the total Principal Collections paid into the General Won Account in the related Collection Period;
minus
(b)
the amount of any such Principal Collections repaid to the Seller pursuant to Clause 8.2.2(a) of the
Transaction Administration Agreement during the related Collection Period; minus
(c)
the amount by which the sum of:
(i)
the amounts which will be set aside for payment of the amounts set out in Clauses 8.5.1(a),
8.5.2(a), 8.5.4(a), 8.5.5 and 8.5.6 of the Transaction Administration Agreement on the related
Purchaser Note Payment Date; and
(ii)
the amounts payable to the Spot Bank, the Swap Counterparty and/or Designated FX Bank (as
may be applicable) on such Spot Payment Date under Clauses 8.3(a) to (g) (both inclusive) of the
Transaction Administration Agreement on such Spot Payment Date,
exceeds an amount equal to the Final Adjusted Interest Collections in respect of such Spot Payment
Date; plus
(d)
any Principal Collections paid into the General Won Account in any Collection Period prior to the
related Collection Period which have not been applied in accordance with Clause 8.5 or, as the case may
be, Clause 8.7 of the Transaction Administration Agreement; plus
(e)
the amount by which the Available Interest Collections in respect of such Spot Payment Date exceeds
the sum of:
(i)
the amounts payable under Clauses 8.5.1(a), 8.5.2(a), 8.5.4(a), 8.5.5, 8.5.6 and 8.5.9 of the
Transaction Administration Agreement on the related Purchaser Note Payment Date; and
(ii)
the amounts payable to the Spot Bank, the Swap Counterparty and/or Designated FX Bank (as
may be applicable) on such Spot Payment Date under Clauses 8.3(a) to (g) (both inclusive),
up to a maximum amount equal to (i) the aggregate of all deductions made under paragraph (c) of this
definition of Available Principal Collections in respect of all previous Spot Payment Dates less (ii) the
aggregate of all additions to Available Principal Collections made under this paragraph (e) in respect
of all previous Spot Payment Dates.
“Back-up Servicer” means The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch acting
in its capacity as back-up servicer as contemplated in the Servicing Agreement.
“Back-up Servicer Fee” means the fee payable to the Back-up Servicer pursuant to the HSBC Fee Letter and
Clause 7.2 of the Servicing Agreement.
“Back-up Services” means, collectively, all of the services to be performed by the Back-up Servicer prior
to its appointment as Servicer pursuant to and as set out in the Servicing Agreement (and in particular but
without limitation, Part 2 of the First Schedule to the Servicing Agreement).
“Basic Terms Modification” has the meaning set out in paragraph 1 of Schedule 3 to the Trust Deed.
“Beneficiaries” means each of (a) the Security Trustee, (b) the Note Trustee on its own behalf and as trustee
for the Noteholders, (c) any Receiver, (d) the Issuer Transaction Administrator, (e) the Agents, (f) the Issuer
Corporate Administrator, and “Beneficiary” means any of them.
— 169 —
“Beneficiaries’ Rights” means, in respect of any Beneficiary, all rights of which such Beneficiary has the
benefit pursuant to any Transaction Document including, without limitation:
(a)
the right, or the right to direct the Security Trustee or another Beneficiary, to consent to any
amendment, waiver, modification and/or extension of any provision of any Transaction Document;
(b)
the right, or the right to direct the Security Trustee or another Beneficiary, to exercise any right, power
and discretion of or under any of the provisions of the Transaction Documents; and
(c)
the right, or the right to direct the Security Trustee or another Beneficiary, to appoint a Receiver or, to
bring any litigation, arbitration, administrative or other proceedings arising from or in connection with
the Transaction Documents.
“Borrower” means, in relation to a Mortgage Loan Transaction included in the Mortgage Loan Assets, the
borrower under the related Mortgage Loan Agreement.
“Calculation Date” means the last day of January, April, July and October in each year after the Closing Date
and, in relation to a Quarterly Servicer Report Date or a TA Report Date, the Calculation Date immediately
preceding such Quarterly Servicer Report Date or, as the case may be, such TA Report Date.
“Capita Fee Letter” means the letter dated or to be dated on or about the Closing Date between the Issuer
and Capita Trust Company Limited in its capacities as the Note Trustee and the Security Trustee in relation
to the Fees and Expenses payable to the same under the Transaction Documents by the Issuer.
“CD Rate” has the meaning set out in the Swap Agreement.
“Chapter 2 Proceeding” means the rehabilitation proceeding under Chapter 2 of the Consolidated
Insolvency Act.
“Chapter 4 Proceeding” means the individual rehabilitation proceeding under Chapter 4 of the Consolidated
Insolvency Act.
“Chonsei Rights” means a security interest registered with the relevant real property registry, granted by a
lessor to a lessee for the repayment of a lessee’s key money deposit and which also allows the lessee to
occupy, use and benefit from the leased premises until the later of (i) the date on which the lease term expires
and (ii) the date the lessor returns such key money deposit to the lessee.
“Civil Code” means the Civil Code (No. 471 of 22 January 1958) of Korea, as amended.
“Clean-up Call Notice” has the meaning set out in Clause 8.1 of the Servicing Agreement.
“Clearing Systems” means DTC, Euroclear and Clearstream, Luxembourg.
“Clearstream, Luxembourg” means Clearstream Banking, société anonyme.
“Clearstream Participant” means any person having an account with Clearstream, Luxembourg.
“Closing Account” means the US Dollar denominated account opened in the name of the Purchaser with the
Designated FX Bank.
“Closing Advance” means the amount advanced or to be advanced to the Purchaser on the Closing Date
pursuant to Clause 12.4 of the Transfer Agreement.
— 170 —
“Closing Advance Repayment Amount” means, on each Purchaser Note Payment Date or, as the case may
be, the Purchaser Liquidation Distribution Date, an amount equal to the lesser of:
(a)
the amounts standing to the credit of the General Won Account on such Purchaser Note Payment Date
or, as the case may be, the Purchaser Liquidation Distribution Date, after payments of all amounts
ranking senior in respect of such Purchaser Note Payment Date as set out in Clauses 8.5.1 to 8.5.16(a)
(both inclusive) of the Transaction Administration Agreement or the Purchaser Liquidation Distribution
Date as set out in Clauses 8.7.1 to 8.7.8(a) (both inclusive) of the Transaction Administration
Agreement; and
(b)
an amount equal to (i) the Closing Advance less (ii) the aggregate of Closing Advance Repayment
Amounts paid on previous Purchaser Note Payment Dates.
“Closing Cashflow Agreement” means the closing cashflow agreement dated the Closing Date and made
between, among others, the Issuer, the Purchaser, the Seller, the Servicer, the Purchaser Transaction
Administrator, the Issuer Transaction Administrator and the Swap Counterparty.
“Closing Date” means 17 June 2008 or such later date as the Lead Arranger may determine and notify to the
Issuer.
“CMS” or “CMS Method” means the method of payment pursuant to which automatic debit payments made
by an Obligor with respect to a Mortgage Loan Asset are paid to the Servicer through the clearing system
of the KFTC.
“Co-Managers” means the persons named as such in the Purchase Agreement.
“Code” means the United States Internal Revenue Code of 1986, as amended.
“Collateral Rights” has the meaning set out in:
(a)
with respect to the Pledge Agreement, Clause 1.2 of the Pledge Agreement;
(b)
with respect to the Equity Pledge Agreement, Clause 1.2 of the Equity Pledge Agreement;
(c)
with respect to the Account Assignment, Clause 1.2 of the Account Assignment; and
(d)
with respect to the Security Assignment Deed, Clause 1.2 of the Security Assignment Deed.
“Collateral Security” means, with respect to any Mortgage Loan Agreement, all Mortgages, guarantees,
insurances, undertakings and other agreements of whatever character from time to time supporting or
securing payment of any and all amounts payable under such Mortgage Loan Agreement.
“Collateral Security Provider” means, with respect to any Collateral Security, the provider of such
Collateral Security.
“Collection Account” means, with respect to any Servicer which is not a bank, any account in the name of
such Servicer at a bank which such Servicer has designated, and notified to the Security Agent, for the receipt
of any amounts payable from Obligors which are not capable of being paid directly into the Purchaser
Collection Account or the General Won Account.
“Collection Account Bank” means, in relation to any Collection Account, the bank at which such Collection
Account is held.
— 171 —
“Collection Period” means, in relation to the first Calculation Date immediately succeeding the Transfer
Date, the period from (and including) the Seoul Business Day immediately succeeding the Interim Collection
Amount Determination Date and ending on (and including) such first Calculation Date and thereafter:
(a)
in relation to each Calculation Date, means the period from (but excluding) the immediately preceding
Calculation Date to (and including) such Calculation Date; and
(b)
in relation to a Quarterly Servicer Report Date, a TA Report Date, a Purchaser Note Payment Date, a
Spot Payment Date or a Swap Payment Date, means the Collection Period the related Calculation Date
of which immediately precedes such Quarterly Servicer Report Date, Purchaser Note Payment Date, TA
Report Date, Spot Payment Date or, as the case may be, Swap Payment Date.
“Collections” means, in respect of any Collection Period, all sums received or recovered from Obligors or
Collateral Security Providers on, under or in respect of the Mortgage Loan Assets during such Collection
Period (whether interest, principal, fees or any other amounts) and all proceeds of any sale or other disposal
or any return of a Mortgage Loan Asset or any part thereof received during such Collection Period (including
for the avoidance of doubt any Return Amount or Affected Asset Return Amount paid by the Seller in respect
of any Mortgage Loan Assets or Affected Asset returned by the Seller as contemplated in Clause 8 of the
Transfer Agreement).
“Commercial Code” means the Commercial Code (No. 1000 of 20 January 1962) of Korea, as amended.
“Common Depository” means Citibank, N.A., London Branch as common depositary for Euroclear and
Clearstream, Luxembourg.
“Completion” means completion of the matters required to be done in relation to the sale of and transfer of
title to the Mortgage Loan Assets by the Seller to the Purchaser in accordance with Clause 4 of the Transfer
Agreement (excluding, for the avoidance of doubt, payment of the Purchase Price in accordance with Clause
5 of the Transfer Agreement).
“Conditions” means, in relation to the Notes, the terms and conditions endorsed on, or incorporated by
reference in, the Note Certificate or Note Certificates constituting such Notes, being either in the form or
substantially in the form set out in Schedule 2 to the Trust Deed, and any reference to a numbered
“Condition” is to a corresponding numbered provision of the Notes.
“Consolidated Insolvency Act” means the Act on Debtor Rehabilitation and Bankruptcy of Korea (No. 7428
of 31 March 2005), as amended from time to time, and any and all successor legislation thereto.
“Convertibility Event” means the occurrence of any of the following events:
(a)
the adoption of any rule, regulation or statute by any governmental or regulatory authority in Korea
including, without limitation, the Ministry of Strategy and Finance of Korea (“MOSF”) and the FSC,
or the issuance of any order, decree, ruling or directive by any governmental or regulatory authority in
Korea, which has the effect of imposing limitations or restrictions on the convertibility of Korean Won
to US Dollars, or limiting or restricting the transfer of US Dollars in any fashion to or from or out of
Korea;
(b)
the general unavailability of US Dollars at a spot rate of exchange (applicable to the purchase of US
Dollars with Korean Won) in any legal exchange market transfer officially recognised as such by the
government of Korea and in accordance with normal commercial practice;
(c)
any action taken by the Bank of Korea, MOSF or FSC (or any successor to any of them) which has the
effect described in (a) or (b) of this definition; or
(d)
it becomes impossible for whatever reason to enter into a Spot Contract on any Spot Contract Date.
— 172 —
“Convertibility Event Period” means the period from (and including) the day on which a Convertibility
Event occurs to (and including) the Convertibility Event Period End Date in respect of that Convertibility
Event provided that if a Convertibility Event occurs on any day during the period from and including a Spot
Contract Date to and including the related Spot Payment Date, the Convertibility Event Period shall end on
and include the later to occur of the related Purchaser Note Payment Date and the Convertibility Event Period
End Date in respect of such Convertibility Event.
“Convertibility Event Period End Date” means, in respect of a Convertibility Event, the date on which the
Swap Counterparty declares that such Convertibility Event has ceased and notifies the same to the Purchaser,
the Purchaser Transaction Administrator and each Rating Agency.
“Conveyancing and Property Ordinance” means the Conveyancing and Property Ordinance (Cap. 219) of
Hong Kong, as amended from time to time, and any and all successor legislation thereto.
“Corporate Restructuring Agreement” means the Agreement on the management of the Corporate
Restructuring Business of Korea dated 30 March 2007 among certain creditor financial institutions.
“Corporate Restructuring Promotion Act” or “CRPA” means the new Corporate Restructuring Promotion
Act which became effective as of 3 November 2007.
“Corporate Services Agreement” means the corporate services agreement dated on or about the Closing
Date between the Issuer and the Issuer Corporate Administrator.
“Credit Support Annex” means the Credit Support Annex (Bilateral Form-Transfer) published by the
International Swaps and Derivatives Association, Inc. including the Paragraph 11 elections and variables
thereto, entered into by the Swap Counterparty and the Purchaser on or about the Closing Date under, and
forming part of, the Swap Agreement.
“Credit Support Balance” has the meaning set out in the Credit Support Annex.
“Cut-off Date” means 29 February 2008.
“Deed of Charge” means the deed of charge dated or to be dated on or about the Closing Date between the
Issuer, the Principal Paying Agent, the Principal Transfer Agent, the Registrar, the Irish Paying Agent, the
Reference Agent, the Issuer Transaction Administrator, the Note Trustee, the Security Trustee and the Issuer
Corporate Administrator.
“Defaulting Party” has the meaning set out in the Swap Agreement.
“Definitive Note Certificates” means the Regulation S Definitive Note Certificates and the Rule 144A
Definitive Note Certificates and each a “Definitive Note Certificate”.
“Definitive Notes” means the Notes represented by the relevant Definitive Note Certificates.
“Delinquent Mortgage Loan” means, at any time, any Mortgage Loan Transaction in respect of which any
amount remains unpaid for more than 1 day but not more than 180 days after the original date on which such
amount is due and payable.
“Delinquent Mortgage Loan Transaction Ratio” means, in relation to a Calculation Date or a Monthly
Calculation Date:
(a)
the aggregate of the Notional Principal of each Mortgage Loan Transaction in respect of which any
amount thereof remains unpaid for more than 60 days but not more than 89 days after the original date
on which such amount is due and payable, as at the close of business in Seoul on such Calculation Date
or, as the case may be, such Monthly Calculation Date; divided by
— 173 —
(b)
the aggregate of the Notional Principal of each Mortgage Loan Transaction as at the opening of
business in Seoul on the first day of the relevant Collection Period or, as the case may be, Monthly
Period.
“Delivery Amount” has the meaning set out in the Credit Support Annex.
“Designated FX Bank” means Citibank Korea Inc. (in its capacity as the designated foreign exchange bank
of the Purchaser) and any subsequent successors, assigns and replacements as the Designated FX Bank.
“Direct Debit” or “Direct Debit Method” means the method of payment pursuant to which automatic debit
payments made by a Borrower with respect to a Mortgage Loan Asset are paid directly to the Servicer (and
in the case where the Servicer is not a bank, into one of the Collection Accounts of the Servicer) by the
relevant automatic debit bank.
“Distribution” has the meaning set out in the Credit Support Annex.
“Dividend Amount” has the meaning set out in Clause 5.2 of the Equity Pledge Agreement.
“DTC” means The Depositary Trust Company.
“DTC Custodian” means Citibank, N.A., London Branch as custodian for DTC.
“Early Termination Date” has the meaning set out in the Swap Agreement.
“ECA Transfer Date” has the meaning set out in the Credit Support Annex.
“Eligibility Criteria” means the criteria set out in Part 2 of the Third Schedule to the Transfer Agreement.
“Eligible Credit Support” has the meaning set out in the Credit Support Annex.
“Encumbrance” means, as applied to the property or assets (including the income or profits therefrom) of
any person, any mortgage, hypothecation, encumbrance, lien, pledge, yangdo tambo, Kun-mortgage,
attachment, preliminary attachment, charge, assignment by way of security, lease, conditional sale or other
title retention agreement, financing lease or other security interest, encumbrance or preferential arrangement
of any kind or nature (in each case whether the same is consensual or non-consensual or arises by contract,
operation of law, legal process or otherwise).
“English Transaction Documents” means, collectively, the following documents:
(a)
the Transaction Administration Agreement;
(b)
the Purchaser Senior Notes Subscription Deed; and
(c)
the Swap Agreement,
and each an “English Transaction Document”.
“Equal Principal Mortgage Loan” or “Equal P Loan” means a Mortgage Loan, the terms of which provide
for equal instalment payments of principal at such regular repayment intervals as shall have been selected by
the relevant Borrower at the time of origination of the Mortgage Loan and monthly interest payment based
on the then outstanding principal balance until the maturity date of the Mortgage Loan and repayment of the
then outstanding balance on the maturity date of the Mortgage Loan provided that, in the case where the rate
of interest in respect of such Mortgage Loan Transaction has changed pursuant to the terms of such Mortgage
Loan Agreement, the amount of the monthly instalment payment shall be adjusted accordingly while the
maturity date of such Mortgage Loan shall remain the same.
— 174 —
“Equal Principal and Interest Mortgage Loan” or “Equal P & I Loan” means a Mortgage Loan, the terms
of which provide for equal monthly instalment payments of interest and principal until the maturity date of
the Mortgage Loan provided that, in the case where the rate of interest in respect of such Mortgage Loan
Transaction has changed pursuant to the terms of such Mortgage Loan Agreement, the amount of the monthly
instalment payment shall be adjusted accordingly while the maturity date of such Mortgage Loan shall remain
the same.
“Equity Interests” has the meaning set out in Clause 1.2 of the Equity Pledge Agreement.
“Equity Pledge Agreement” means the equity pledge agreement dated or to be dated on or about the Closing
Date between the Equityholders, the Issuer, the Security Agent, the Servicer, the Back-up Servicer, the
Purchaser Transaction Administrator, the Purchaser Corporate Administrator and the Swap Counterparty.
“Equityholders” means the First Equityholder and the Second Equityholder, and “Equityholder” means
either of them.
“Equivalent Credit Support” has the meaning set out in the Credit Support Annex.
“Euroclear” means Euroclear Bank S.A./N.V. as operator of the Euroclear System.
“Euroclear Participant” means a person having an account with Euroclear.
“Event of Default” means:
(a)
in relation to the Notes, any of the events set out in Condition 8 of the Notes; and
(b)
in relation to the Swap Agreement has the meaning set out in Section 14 of the Swap Agreement.
“Excess Collateral Amount” has the meaning set out in the Credit Support Annex.
“Excess Credit Enhancement Percentage” means, as of any day, the lowest of:
(a)
where the Seller does not have the relevant rating required by Fitch in Clause 7.2.1 of the Transfer
Agreement, the greater of:
(i)
an amount equal to:
(A) the Available Credit Enhancement Percentage as of such day; less
(ii)
(b)
(B)
the Initial Credit Enhancement Percentage; less
(C)
the Required Set-off Credit Enhancement Percentage by Fitch as of such day; and
zero; and
where the Seller does not have the relevant rating required by Standard & Poor’s in Clause 7.2.1 of the
Transfer Agreement:
(i)
where the Available Credit Enhancement Percentage as of such day is equal to or greater than
twice the Initial Credit Enhancement Percentage:
(A) such Available Credit Enhancement Percentage as of such day; less
(B)
(ii)
twice such Initial Credit Enhancement Percentage; or
in all other cases, zero.
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“Excluded Rights” means, collectively, the Note Trustee Excluded Rights, the Security Trustee Excluded
Rights, the Security Agent Excluded Rights, the Purchaser Transaction Administrator Excluded Rights and
the Issuer Transaction Administrator Excluded Rights, and “Excluded Right” means any of them.
“Expenses” means, in relation to any Collection Period:
(a)
with respect to the Note Trustee, all costs, expenses, claims, demands, legal fees, liabilities and other
amounts paid, incurred or suffered by the Note Trustee and any liability incurred or suffered by the Note
Trustee in respect of which the Note Trustee is indemnified by the Issuer pursuant to the Transaction
Documents but does not include the Note Trustee Fee;
(b)
with respect to the Issuer Transaction Administrator, all costs, expenses, claims, demands, legal fees,
liabilities and other amounts paid, incurred or suffered by the Issuer Transaction Administrator and any
liability incurred or suffered by the Issuer Transaction Administrator in respect of which the Issuer
Transaction Administrator is indemnified by the Issuer pursuant to the Transaction Documents but does
not include the Issuer Transaction Administrator Fee;
(c)
with respect to the Purchaser Transaction Administrator, all costs, expenses, claims, demands, legal
fees, liabilities and other amounts paid or incurred by the Purchaser Transaction Administrator and any
liability incurred or suffered by the Purchaser Transaction Administrator in respect of which the
Purchaser Transaction Administrator is indemnified by the Purchaser pursuant to the Transaction
Documents but does not include the Purchaser Transaction Administrator Fee;
(d)
with respect to the Servicer, all costs, expenses, claims, demands, legal fees, liabilities and other
amounts paid or incurred by the Servicer and any liability incurred or suffered by the Servicer in respect
of which the Servicer is indemnified by the Purchaser pursuant to the Transaction Documents but does
not include the Servicer Fee;
(e)
with respect to the Security Trustee, all costs, expenses, claims, demands, legal fees, liabilities and
other amounts paid or incurred by the Security Trustee and any liability incurred or suffered by the
Security Trustee in respect of which the Security Trustee is indemnified by the Issuer pursuant to the
Transaction Documents but does not include the Security Trustee Fee;
(f)
with respect to the Back-up Servicer, all costs, expenses, claims, demands, legal fees, liabilities and
other amounts paid or incurred by the Back-up Servicer and any liability incurred or suffered by the
Back-up Servicer in respect of which the Back-up Servicer is indemnified by the Purchaser pursuant
to the Transaction Documents but does not include the Back-up Servicer Fee;
(g)
with respect to the Agents, all costs, expenses, claims, demands, legal fees, liabilities and other amounts
paid or incurred by the Agents or any of them and any liability incurred or suffered by the Agents or
any of them in respect of which the Agents are indemnified by the Issuer pursuant to the Transaction
Documents but does not include the Agents Fees;
(h)
with respect to the Security Agent, all costs, expenses, claims, demands, legal fees, liabilities and other
amounts paid or incurred by the Security Agent and any liability incurred or suffered by the Security
Agent in respect of which the Security Agent is indemnified by the Purchaser pursuant to the
Transaction Documents but does not include the Security Agent Fee;
(i)
with respect to the Purchaser Corporate Administrator, all costs, expenses, claims, demands, legal fees,
liabilities and other amounts paid or incurred by the Purchaser Corporate Administrator in respect of
which the Purchaser Corporate Administrator is indemnified by the Purchaser pursuant to the
Transaction Documents but does not include the Purchaser Corporate Administrator Fee; and
— 176 —
(j)
with respect to the Issuer Corporate Administrator, all costs, expenses, claims, demands, legal fees,
liabilities and other amounts paid or incurred by the Issuer Corporate Administrator in respect of which
Issuer Corporate Administrator is indemnified by the Issuer pursuant to the Transaction Documents but
does not include the Issuer Corporate Administrator Fee.
“Expense Accrued Interest” means, with respect to any Expenses that were not paid or reimbursed by the
Issuer on the Note Payment Date or, as the case may be, by the Purchaser on the Purchaser Note Payment
Date relating to the Collection Period during which such Expenses were paid or incurred and claimed, any
interest payable by the Issuer or, as the case may be, the Purchaser that has accrued on such Expenses at the
rate specified in the relevant Fee Letter (or, in the case of the Issuer Corporate Administrator, the Corporate
Services Agreement) or at the rate agreed between the Issuer or, as the case may be, the Purchaser and,
amongst others, the person to whom the Issuer or, as the case may be, the Purchaser owes such Expenses (as
the case may be).
“Extraordinary Resolution” has the meaning set out in paragraph 1 of Schedule 3 to the Trust Deed.
“FDAAA Rate” means the rate for “AAA” rated financial debentures with a maturity of three (3) months.
“Fee Letters” means the Capita Fee Letter, the HSBC Fee Letter, the Issuer Transaction Administrator Fee
Letter and the Servicer Fee Letter.
“Fees” means the Note Trustee Fee, the Security Trustee Fee, the Purchaser Transaction Administrator Fee,
the Issuer Transaction Administrator Fee, the Servicer Fee, the Back-up Servicer Fee, the Purchaser
Corporate Administrator Fee, the Security Agent Fee, the Agents Fees and the Issuer Corporate Administrator
Fee.
“FETR Application” means forms of application for remittance by the Purchaser and designation therefor
of a designated FX bank in relation to the US Dollar Account and the Purchaser Senior Notes for the purpose
of the Foreign Exchange Transaction Regulations of Korea.
“File” has the meaning set out in paragraph 7.1 of Part 1 of the First Schedule to the Servicing Agreement.
“File Custodian” has the meaning set out in paragraph 7.2(a) of Part 1 of the First Schedule to the Servicing
Agreement.
“Final Collection Amounts” means the aggregate of all principal amounts (whether scheduled or
unscheduled) (and including, for the avoidance of doubt, any enforcement proceeds which are principal in
nature) received by the Seller or any other person on behalf of the Seller, whether from the relevant Obligor
or any other person, under or in connection with each and every Mortgage Loan Transaction included in the
Mortgage Loan Assets, in each case from (and excluding) the Interim Collection Amount Determination Date
to (and including) the Transfer Date.
“Final Exchange Date” has the meaning set out in the Swap Agreement.
“Final Adjusted Interest Collections” means in respect of any Spot Payment Date or any Purchaser Note
Payment Date:
(a)
the Interim Adjusted Interest Collections for such Spot Payment Date or, as the case may be, such
Purchaser Note Payment Date; plus
(b)
all amounts added to the balance of the General Won Account on such Spot Payment Date or, as the
case may be, such Purchaser Note Payment Date in accordance with Clause 8.4.1(a) of the Transaction
Administration Agreement.
“Final TA Report” has the meaning set out in Clause 7.4 of the Transaction Administration Agreement.
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“Financial Services and Markets Act” means the Financial Services and Markets Act 2000 of the United
Kingdom.
“First Equityholder” means Hanmi Holding Company in its capacity as owner of an Equity Interest in the
Purchaser.
“First Mortgage” means, with respect to any Mortgage, that such Mortgage constitutes a first-ranking
registered mortgage over the relevant Mortgaged Property, subject to any Chonsei Rights in respect of such
Mortgaged Property, registered at the relevant Real Estate Registry in Korea.
“Fitch” means Fitch Ratings.
“Fitch Surveillance Ratio” means, in relation to a Calculation Date:
(a)
as at the end of the relevant Collection Period, the sum of:
(i)
the Notional Principal of each Mortgage Loan Transaction in relation to which any amount in
respect thereof remains unpaid for more than 180 days after the original date on which such
amount is due and payable;
(ii)
the Notional Principal of each Mortgage Loan Transaction (net of any recovered amounts) which,
in accordance with the Agreed Servicing Procedures, has been or should have been written-off in
the books of account of the Servicer;
(iii) the Notional Principal of each Mortgage Loan Transaction in relation to which a repurchase notice
has been sent but has not been returned to the Seller in accordance with Clause 8.1 and 8.7 of the
Transfer Agreement; divided by
(b)
the aggregate of the Notional Principal of each Mortgage Loan Transaction as at the Cut-Off Date.
“Fixed Amount” has the meaning set out in the Swap Agreement.
“Fixed Rate Payer Currency Amount” has the meaning set out in the Swap Agreement.
“Fixed Rate Payer Final Exchange Amount” has the meaning set out in the Swap Agreement.
“Fixed Rate Payer Interim Exchange Amount” has the meaning set out in the Swap Agreement.
“Floating Amount” has the meaning set out in the Swap Agreement.
“Floating Rate Payer Final Exchange Amount” has the meaning set out in the Swap Agreement.
“Floating Rate Payer Interim Exchange Amount” has the meaning set out in the Swap Agreement.
“Foreclosure Report” means a report in the form set out in Part 3 of the Second Schedule to the Servicing
Agreement and to be delivered by the Servicer in respect of each Collection Period pursuant to Clause 9.11
of the Servicing Agreement.
“FSC” means the Financial Services Commission of Korea.
“FSS” means the Financial Supervisory Service of Korea.
“Future Property” has the meaning set out in Clause 1.2 of the Pledge Agreement.
“FX Transaction” means any arm’s length transaction entered into by the Purchaser with the Designated FX
Bank pursuant to the terms of which the Purchaser will exchange an amount in US dollars or Won for another
currency required by the Purchaser to make payment of any amount due and payable by the Purchaser as
— 178 —
contemplated in the Transaction Documents provided that each such transaction shall be entered into on a
case-by-case basis and without the Purchaser incurring any liability to any person other than to make a
payment of a pre-arranged amount of US dollars or Won (as the case may be) in order to receive a
pre-arranged amount of a payment in another currency or as may otherwise be customary for transactions of
such nature.
“General Representation” means any representation or warranty as set out in the Fourth Schedule to the
Transfer Agreement given by the Seller to the Purchaser pursuant to Clause 7.1 of the Transfer Agreement.
“General Won Account” means the interest bearing Korean Won denominated account in the name of the
Purchaser (account number 022-864825-083) at the Won Account Bank and/or such other Korean Won
denominated account which is opened and maintained as a replacement for or in addition to the same in
accordance with the Transaction Documents.
“General Won Account Cash” has the meaning set out in Clause 10.1 of the Transaction Administration
Agreement.
“General Won Account Eligible Investments” has the meaning set out in Clause 10.1 of the Transaction
Administration Agreement.
“Global Note Certificates” means, collectively, the Regulation S Global Note Certificate and the Rule 144A
Global Note Certificate, and each a “Global Note Certificate”.
“Global Notes” means the Notes represented by the relevant Global Note Certificates.
“HSBC Fee Letter” means the letter dated or to be dated on or about the Closing Date between the Purchaser
and The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch for and on behalf of the
Purchaser Transaction Administrator, the Security Agent, the Purchaser Corporate Administrator and the
Back-up Servicer in relation to the Fees and Expenses payable to the same under the Transaction Documents
by the Purchaser.
“Individual Work-out Plan” means a plan for rehabilitation of individual debtor under the Individual
Work-Out Plan Agreement.
“Individual Work-out Plan Agreement” means the Korean Agreement among Financial Institutions for
Assisting the Credit Recovery Support Plan, which took effect on 25 September 2002.
“Initial Credit Enhancement Percentage” means, for the purposes of paragraph (a) of the definition of
“Excess Credit Enhancement Percentage”, 12.5% and means, for the purposes of paragraph (b) of the
definition of “Excess Credit Enhancement Percentage”, 11.5%.
“Initial Servicer” has the meaning set out in Clause 15.3.1(a) of the Servicing Agreement.
“Insolvency Event” means, in relation to any person, any of the following:
(a)
its liabilities exceed its assets;
(b)
the appointment of a provisional liquidator or liquidator in respect of it or the dissolution of it for any
reason, including, without limitation, that it is or may be insolvent;
(c)
it enters into an arrangement or compromise with, or assignment for the benefit of, all or any class of
its creditors or members or a moratorium involving any of them;
(d)
it being or stating that it is, or being deemed under any applicable law to be, unable to pay its debts
as they fall due;
— 179 —
(e)
the appointment of a receiver, receiver or manager, supervisor, examiner, administrator or similar
official in respect of it or any part of its property;
(f)
an application being made (which is not withdrawn or dismissed within ten (10) Payment Business
Days) for an order, a resolution being passed or proposed, a meeting being convened, or any other
action being taken for the purpose of causing any of the events described in paragraphs (a) to (e) of this
definition;
(g)
(in the case of a person located in Korea) it becomes a company in financial difficulty under the
Restructuring Law (having an effect similar to becoming a “failing company” under the Corporate
Restructuring Promotion Act) or a “failing financial institution” under the Act on the Structural
Improvement of the Financial Industry (for the purposes of the Transaction Documents, a financial
institution shall be deemed to be a failing financial institution if the FSC or the Governor of the FSS
(acting upon a delegation of authority from the FSC) issues a recommendation, demand or order to
improve the management of such financial institution pursuant to the provisions of the Act on Structural
Improvement of the Financial Industry and the implementing rules and regulations thereof);
(h)
it ceases to carry on its business, or with respect to the Servicer or the Seller its mortgage loan business,
or threatens to do so; or
(i)
any event analogous to or having a similar effect to any of the events described in paragraphs (a) to (h)
of this definition occurs under the laws of any relevant jurisdiction (provided that, for the avoidance
of doubt, the relevant jurisdiction for the Seller and the Servicer shall be Korea).
“Insolvency Proceedings” has the meaning set out in the Conditions of the Notes.
“Interest Amount” has the meaning set out in the Credit Support Annex.
“Interest Collections” means, with respect to any Mortgage Loan Asset, any Collections received in respect
of such Mortgage Loan Asset other than by way of principal repayment (whether scheduled or unscheduled).
“Interest Determination Date” has the meaning set out in Condition 4(b) of the Notes.
“Interest Net Settlement Amount” has the meaning set out in the Swap Agreement.
“Interest Only and Equal Principal Mortgage Loan” or “IO + Equal P Loan” means a Mortgage Loan,
the terms of which provide for monthly payments of interest only during the initial period of up to three
years, thereafter equal instalment payments of principal at such regular repayment intervals as shall have
been selected by the relevant Borrower at the time of origination of the Mortgage Loan and monthly interest
payment based on the then outstanding balance of the Mortgage Loan and repayment of the then outstanding
balance on the maturity date of the Mortgage Loan provided that, in the case where the rate of interest in
respect of such Mortgage Loan Transaction has changed pursuant to the terms of such Mortgage Loan
Agreement, the amount of the monthly instalment payment shall be adjusted accordingly while the maturity
date of such Mortgage Loan shall remain the same.
“Interest Only and Equal Principal and Interest Mortgage Loan” or “IO + Equal P & I Loan” means
a Mortgage Loan, the terms of which provide for monthly payments of interest only during the initial period
of up to three years, thereafter equal monthly instalment payments of interest and principal until the maturity
date of the Mortgage Loan provided that, in the case where the rate of interest in respect of such Mortgage
Loan Transaction has changed pursuant to the terms of such Mortgage Loan Agreement, the amount of the
monthly instalment payment shall be adjusted accordingly while the maturity date of such Mortgage Loan
shall remain the same.
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“Interim Adjusted Interest Collections” means, in respect of any Spot Payment Date or any Purchaser Note
Payment Date:
(a)
the total Interest Collections paid into the General Won Account in the related Collection Period; plus
(b)
all amounts added to the balance of the General Won Account on such Spot Payment Date, the related
Swap Payment Date or, as the case may be, such Purchaser Note Payment Date in accordance with
Clause 8.4.1(b) of the Transaction Administration Agreement; minus
(c)
the aggregate of any amounts paid by the Purchaser (other than the repayment of Principal Collections
during the related Collection Period to the Seller pursuant to Clause 8.2.2(a) of the Transaction
Administration Agreement during the related Collection Period) pursuant to Clause 8.2.2 of the
Transaction Administration Agreement.
“Interim Collection Amount” means the aggregate of all principal amounts (whether scheduled or
unscheduled) (and including, for the avoidance of doubt, any enforcement proceeds which are principal in
nature) received by the Seller or any other person on behalf of the Seller, whether from the relevant Obligor
or any other person, under or in connection with each and every Mortgage Loan Transaction included in the
Mortgage Loan Assets, in each case from (but excluding) the Cut-Off Date to (and including) the Interim
Collection Amount Determination Date.
“Interim Collection Amount Determination Date” means five (5) Payment Business Days before the
Transfer Date.
“Investment Company Act” means the United States Investment Company Act of 1940, as amended.
“Irish Paying Agent” means Citibank International PLC at its Specified Office in its capacity as Irish Paying
Agent under the Agency Agreement or any successor paying agent appointed as Irish Paying Agent pursuant
to the provisions of the Agency Agreement and notice of whose appointment has been given to the
Noteholders pursuant to Condition 16 of the Notes.
“Issue Price” means the price at which the Notes will be issued which is one hundred per cent. (100%) of
their original principal amounts.
“Issuer” means Korea ACE Mortgage Company, an exempted company incorporated with limited liability in
the Cayman Islands and whose registered office is at Walker House, 87 Mary Street, George Town, Grand
Cayman KY1-9002, Cayman Islands.
“Issuer Account Bank” means Citibank, N.A., London Branch at 14th Floor, Citigroup Centre, Canada
Square, Canary Wharf, London E14 5LB, United Kingdom or such other bank as may replace the same in
accordance with the Transaction Administration Agreement.
“Issuer Account Bank Mandate” means the mandate in respect of the Issuer USD Account as such mandate
may be subsequently amended in accordance with its terms.
“Issuer Charged Property” means all of the undertaking, property and assets of the Issuer assigned or
charged to the Security Trustee by or pursuant to Clauses 3.1 to 3.3 (both inclusive) of the Deed of Charge.
“Issuer Corporate Administrator” means Walkers SPV Limited, and includes any successor, permitted
assign or replacement therefor in that capacity pursuant to the terms of the Corporate Services Agreement.
“Issuer Corporate Administrator Fee” means the fee described as such in the Corporate Services
Agreement and payable to the Issuer Corporate Administrator pursuant to the Corporate Services Agreement.
“Issuer Expenses Threshold Condition” means, as of any date on which Maintenance Costs are to be paid
by the Issuer, where the amount of such Maintenance Costs when aggregated with all amounts payable under
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Clauses 9.2.1 and 9.3.2 of the Transaction Administration Agreement during the period commencing on the
day falling twelve (12) months prior to such date or, if twelve (12) months have not elapsed since the Closing
Date, on the Closing Date exceeds eighty-five thousand US dollars (US$85,000), and each Rating Agency
has been notified by the Issuer Transaction Administrator that such payment will be made.
“Issuer Fee” means the fee payable to the Issuer by the Seller on or before the Closing Date in consideration
of the Issuer entering into the Transaction Documents and the transactions contemplated therein pursuant to
a letter dated on or before the Closing Date from the Seller to the Issuer.
“Issuer Security” means the security granted by the Issuer to the Security Trustee pursuant to the Deed of
Charge.
“Issuer Transaction Administrator” means Citibank, N.A., London Branch, acting in its capacity as issuer
transaction administrator, and includes any successor, permitted assign or replacement therefor in that
capacity pursuant to the terms of the Transaction Administration Agreement.
“Issuer Transaction Administrator Excluded Rights” means the following rights, powers, authorities and
discretions of, or exercisable by, the Issuer Transaction Administrator in accordance with the terms of the
Transaction Documents:
(a)
any such right, power, authority and discretion which is provided for the purpose of enabling the Issuer
Transaction Administrator to protect its own interests;
(b)
any such right, power, authority and discretion to determine amounts due in relation to indemnities in
favour of the Issuer Transaction Administrator under the Transaction Documents (subject to the
payment priorities and other limitations set out in the Transaction Documents);
(c)
any right to receive any amounts payable to the Issuer Transaction Administrator in accordance with
the provisions of and in accordance with the order of priorities set out in the Transaction Administration
Agreement and, where applicable, the Deed of Charge;
(d)
any such right, power, authority and discretion to determine the amount of sums due to the Issuer
Transaction Administrator in relation to Expenses (subject to the order of priorities set out in the
Transaction Administration Agreement and, where applicable, the Deed of Charge) and stamp duties
pursuant to the Transaction Documents; and
(e)
any such right, power, authority and discretion to make a claim for Expenses payable to the Issuer
Transaction Administrator under the Transaction Documents (subject to the payment priorities and
other limitations set out in the Transaction Documents).
“Issuer Transaction Administrator Fee” means the fee described as such in the Issuer Transaction
Administrator Fee Letter and payable to the Issuer Transaction Administrator pursuant to the Issuer
Transaction Administrator Fee Letter and Clause 11.2 of the Transaction Administration Agreement.
“Issuer Transaction Administrator Fee Letter” means the letter dated or to be dated on or about the
Closing Date between the Issuer and the Citibank, N.A., London Branch for and on behalf of the Issuer
Transaction Administrator and the Agents in relation to the Fees and Expenses payable to the same under the
Transaction Documents by the Issuer.
“Issuer Transaction Services” means the services to be provided by the Issuer Transaction Administrator to
the Issuer as set out in the Transaction Administration Agreement (including, without limitation, the services
set out in Part 2 of the First Schedule to the Transaction Administration Agreement) and/or such other
services as the Issuer Transaction Administrator and the Note Trustee may from time to time agree.
— 182 —
“Issuer USD Account” means the non-interest bearing USD denominated account, account number
11740156, in the name of the Issuer at the Issuer Account Bank and/or such USD denominated account which
is opened and maintained as a replacement for or in addition to the same in accordance with the Transaction
Documents.
“Junior Expenses” means, in relation to any person and any Collection Period, any Expenses which are not
Senior Expenses.
“Junior Swap Breakage Costs” means Swap Breakage Costs where the Early Termination Date occurred as
a result of:
(a)
an Event of Default where the Swap Counterparty is the Defaulting Party; or
(b)
any Termination Event (other than an Illegality) where the Swap Counterparty is the sole Affected
Party.
“Key-money Rights” means all claims for key money (bojung kum) deposited by a lessee and required to
be returned to or received by such lessee upon termination or expiry of the lease term under residential leases,
excluding any such claims under the Chonsei Rights.
“KFTC” means Korea Financial Telecommunications & Clearings Institute.
“Korea” means the Republic of Korea.
“Korean Privacy Laws” means the Real Name Act (No. 5493 of 31 December 1997) of Korea, as amended,
and the Use and Protection of Credit Information Act (No. 4866 of 5 January 1995) of Korea, as amended.
“Korean Resident” has the meaning given to such term under the Foreign Exchange Transaction Law of
Korea and its Presidential Decree.
“Korean Transaction Documents” means, collectively, the following documents:
(a)
the Transfer Agreement;
(b)
the Servicing Agreement;
(c)
the Purchaser Corporate Administration Agreement;
(d)
the Purchaser Collection Account Bank Mandate; and
(e)
the Won Account Bank Mandate,
and each a “Korean Transaction Document”.
“Korean Won”, “Won” and “KRW” means the lawful currency from time to time of Korea.
“Lead Arranger” means Citigroup Global Markets Inc.
“LIBOR” means the rate per annum calculated in accordance with Condition 4(b) of the Notes.
“LIBOR Determination Date” has the meaning given to it in Condition 4 of the Notes.
“Loan File” has the meaning set out in paragraph (1) of Part 2 of the First Schedule to the Servicing
Agreement.
“London Banking Day” has the meaning given to it in Condition 4 of the Notes.
— 183 —
“LTV” means, in relation to any Mortgage Loan, a fraction:
(a)
the numerator of which shall be:
(i)
the Principal Amount Outstanding of such Mortgage Loan; plus
(ii)
the maximum secured amount of the claim (if any) secured by a prior-ranking security interest
over the relevant Mortgaged Property; plus
(iii) the aggregate amount of any prior-ranking Chonsei Rights in respect of such Mortgaged Property;
and
(b)
the denominator of which will be based on the appraisal of the value of the relevant Mortgaged Property
at the time of origination.
“Maintenance Costs” means:
(a)
in respect of the Purchaser, directors’, legal, accounting, auditing, tax advisors’, administration,
government and other fees, costs and expenses arising in connection with the Purchaser’s
administration payable by the Purchaser and any VAT, stamp duty, income taxes, withholding taxes or
any other taxes properly payable by the Purchaser to any Taxation Authority; and
(b)
in respect of the Issuer, any corporate filing and good standing, directors’, share trustee, rating
maintenance, legal, accounting, auditing, tax advisors’, administration, listing maintenance (including,
without limitation, any fees and expenses payable to the Listing Agent), government and other fees,
cost and expenses, in each case incurred in connection with the Issuer’s good standing and
administration payable by the Issuer and any VAT, stamp duty, income taxes, withholding taxes or any
other taxes properly payable by the Issuer to any Taxation Authority.
“Majority Noteholders” means, at any time, the holders of not less than sixty seven per cent. (67%) of the
Principal Amount Outstanding of the Notes at such time.
“Master Definitions Schedule” means this master definitions schedule signed by or on behalf of, among
others, the Seller, the Purchaser, the Issuer, the Servicer, the Purchaser Transaction Administrator, the
Purchaser Corporate Administrator, the Issuer Transaction Administrator, the Back-up Servicer, the Security
Agent, the Agents, the Issuer Corporate Administrator, the Spot Bank, the Swap Counterparty, the
Equityholders, the Security Trustee and the Note Trustee.
“Material Adverse Change” means, with respect to any party, a material adverse change in the legal status,
financial condition, assets or business prospects of that party which materially and adversely affects that
party’s ability to perform its obligations under the Transaction Documents.
“Maturity Extension Loan” has the meaning set out in Part 1 of the First Schedule to the Servicing
Agreement.
“Monthly Calculation Date” means the last day of each calendar month and, in relation to a Monthly
Servicer Report Date, the Monthly Calculation Date immediately preceding such Monthly Servicer Report
Date.
“Monthly Period” means the period from (and including) the first day in each calendar month to (and
including) the last day in such calendar month, provided that, the first Monthly Period shall start on the
Transfer Date and end on (and include) 30 June 2008.
“Monthly Servicer Report” means a report in the form set out in Part 2 of the Second Schedule to the
Servicing Agreement and to be delivered by the Servicer in respect of each Monthly Period pursuant to
Clause 9.5 of the Servicing Agreement.
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“Monthly Servicer Report Date” means the seventeenth (17th) day following the end of each Monthly
Period, provided that if such day is not a Seoul Business Day, the Monthly Servicer Report Date will be the
immediately preceding Seoul Business Day.
“Moody’s” means Moody’s Investors Service.
“Mortgage” means, with respect to a Mortgage Loan Agreement or a Mortgage Loan Transaction, a
Kun-mortgage (as such term is used under Korean law) securing the obligations of the Borrower or any third
party under or in relation to such Mortgage Loan Agreement or Mortgage Loan Transaction.
“Mortgage Loan” means, with respect to a Mortgage Loan Transaction, the amount advanced by the Seller
(or the original lender from whom the Seller acquired, directly or indirectly, such Mortgage Loan
Transaction) to the Borrower under the terms of the relevant Mortgage Loan Agreement, or, as the context
may require, the outstanding amount owed by the Borrower in respect of such Mortgage Loan Transaction.
“Mortgage Loan Agreement” means, with respect to a Mortgage Loan Transaction, the mortgage loan
agreement between the Seller as lender and the related Borrower, which mortgage loan agreement governs
the terms and conditions on which, among other things, a loan was advanced to, and is to be repaid by, such
Borrower and the payment of interest on such loan, as such mortgage loan agreement may be amended,
modified or otherwise changed from time to time and any other agreements entered into in connection with
such Mortgage Loan Transaction, including but not limited to, the general terms and conditions for credit
transactions, the mortgage creation agreement between the Seller, as mortgagee, and the relevant Mortgagor,
and the mortgage loan application forms.
“Mortgage Loan Assets” means all of the right, title, interest and benefit of the Seller in, to, under and in
respect of certain Mortgage Loan Transactions that are sold, assigned and transferred to the Purchaser by the
Seller pursuant to the Transfer Agreement other than those returned by the Purchaser pursuant to Clause 8.1
or Clause 8.7 of the Transfer Agreement.
“Mortgage Loan Files” means, with respect to each Mortgage Loan Asset, the fully executed original
counterpart of the Mortgage Loan Agreement, and all other documents originally delivered to the Seller by
the relevant Obligors and Collateral Security Providers or held by the Servicer with respect to any such
Mortgage Loan Asset.
“Mortgage Loan Services” means the services to be provided by the Servicer to the Purchaser as set out in
the Servicing Agreement (and in particular but without limitation, Part 1 of the First Schedule to the
Servicing Agreement).
“Mortgage Loan Transaction” means, at any time, a transaction constituted by the Mortgage Loan
Agreement between, prior to the Transfer Date, the Seller as lender and the related Borrower(s), together with
the related Mortgage and any other Related Assets in respect of such Mortgage Loan Agreement.
“Mortgaged Property” means, in relation to any Mortgage, the property which is subject to such Mortgage.
“Mortgagor” means, in relation to a Mortgage Loan Transaction included in the Mortgage Loan Assets, the
mortgagor under the related Mortgage.
“Net Settlement Amount” has the meaning set out in the Swap Agreement.
“Normalisation” has the meaning set out in Part 1 of the First Schedule to the Servicing Agreement.
“Note Certificates” means, collectively, the Definitive Note Certificates and the Global Note Certificates,
and “Note Certificate” means, as the case may be, any of them.
“Note Enforcement Date” means the date upon which the Note Trustee serves a Note Enforcement Notice
on the Issuer or the date upon which an Insolvency Event occurs with respect to the Issuer.
— 185 —
“Note Enforcement Notice” means a notice served by the Note Trustee pursuant to Condition 9(a).
“Note Interest Payment” has the meaning set out in Condition 4(c) of the Notes.
“Note Interest Period” has the meaning set out in Condition 4(a) of the Notes.
“Note Interest Rate” has the meaning set out in Condition 4(b) of the Notes.
“Note Margin” has the meaning set out in Condition 4(b) of the Notes.
“Note Maturity Date” means the Note Payment Date falling in June 2038.
“Note Payment Date” has the meaning set out in Condition 4(a) of the Notes.
“Note Principal Payment” has the meaning set out in Condition 5(b) of the Notes.
“Note Trustee” means Capita Trust Company Limited, in its capacity as trustee under the Trust Deed and,
wherever the context so admits, such expression shall include such entity and all other persons from time to
time acting in that capacity.
“Note Trustee Excluded Rights” means the following rights, powers, authorities and discretions of, or
exercisable by, the Note Trustee in accordance with the terms of the Transaction Documents:
(a)
to make those determinations expressed to be made by the Note Trustee under Clause 15 of the Trust
Deed;
(b)
any such right, power, authority and discretion which is provided for the purpose of enabling the Note
Trustee to protect its own interests;
(c)
to agree to, and to use any of its discretions in connection with seeking Noteholder consent to, any
amendment, waiver or consent which is (in the sole opinion of the Note Trustee) a Basic Terms
Modification;
(d)
any such right, power, authority and discretion to determine amounts due in relation to indemnities in
favour of the Note Trustee under the Trust Deed subject to payment priorities and other limitations set
out in the Transaction Documents;
(e)
any such right to receive any amounts payable to the Note Trustee in accordance with the provisions
of and in the order of priorities set out in the Transaction Administration Agreement and, where
applicable, the Deed of Charge;
(f)
any such right, power, authority and discretion to determine the amount of sums due to the Note Trustee
in relation to Expenses (subject to the order of priorities set out in the Transaction Administration
Agreement and, where applicable, the Deed of Charge) and stamp duties (subject to Clause 12.2 of the
Trust Deed) pursuant to the Trust Deed; and
(g)
any such right, power, authority and discretion to make a claim for Expenses payable to the Note
Trustee under the Trust Deed subject to payment priorities and other limitations set out in the
Transaction Documents.
“Note Trustee Fee” means the remuneration payable to the Note Trustee pursuant to the Capita Fee Letter
and Clause 12 of the Trust Deed.
“Noteholders” means the several persons who are for the time being holders of the Notes, and “Noteholder”
means any of them, and the words “Holder” and “Holders” in respect of the Notes shall be construed
accordingly.
— 186 —
“Notes” means the US$228,000,000 Secured Floating Rate Notes due 2038, and “Note” means any of them.
“Notice of Breach” has the meaning set out in Clause 8.1 of the Transfer Agreement.
“Notification Trigger Event” means any of the following events:
(a)
the occurrence of a Servicer Termination Event with respect to the Servicer;
(b)
the occurrence of an Insolvency Event with respect to the Seller and/or the Purchaser;
(c)
the occurrence of a Purchaser Senior Notes Event of Default;
(d)
any resignation by the Servicer pursuant to Clause 15 of the Servicing Agreement;
(e)
the merger, reorganisation or consolidation of the Seller with any other corporation if such merger,
reorganisation or consolidation would cause a Material Adverse Change to occur in relation to the
financial condition of the Seller or the resulting merged, reorganised or consolidated entity will not
fully and legally assume all of the obligations of the Seller under the Transaction Documents;
(f)
the reduction of the total capital ratio of the Seller, determined in accordance with the procedures
applied for the time being by the FSS, to below eight per cent. (8%);
(g)
the (i) failure by the Seller to perform its obligations under paragraph 20 of the Fifth Schedule of the
Transfer Agreement or (ii) the occurrence of a Set-off Breach; and
(h)
the local currency long-term bank deposits rating of the Seller is rated below “Baa2” by Moody’s.
“Notional Principal” means, at any time in relation to each Mortgage Loan Transaction included in the
Mortgage Loan Assets, the aggregate of the Principal Amount Outstanding under the related Mortgage Loan
Transaction which at the relevant time remains unpaid.
“Obligors” means, collectively, all of the Borrowers and the Mortgagors, and each an “Obligor”.
“Offering” means the offering of the Notes.
“Offshore Account Bank” means The Hongkong and Shanghai Banking Corporation Limited, Hong Kong
Branch at Level 30, HSBC Main Building, 1 Queen’s Road Central, Hong Kong or such other bank as may
replace the same in accordance with the Transaction Administration Agreement.
“Offshore Account Bank Mandate” means the account mandate in respect of the US Dollar Account as such
account mandate may be subsequently amended in accordance with its terms.
“Old Corporate Restructuring Promotion Act” or “Old CRPA” means the Corporate Restructuring
Promotion Act (No. 6504 of 14 August 2001) of Korea, which expired on 31 December 2005.
“Ordinary Resolution” has the meaning set out in paragraph 1 of Schedule 3 to the Trust Deed.
“Participant” means, as the context may require, any Clearstream Participant and/or any Euroclear
Participant.
“Payment Business Day” means a day (other than a Saturday or a Sunday) on which commercial banks and
foreign exchange markets settle payments in Seoul, Hong Kong, New York and London.
— 187 —
“Paying Agents” means:
(a)
the several institutions (including where the context requires, the Principal Paying Agent and the Irish
Paying Agent) at their respective Specified Offices outside or within the United States initially
appointed as Paying Agents by the Issuer pursuant to the Agency Agreement; and/or
(b)
such other or further paying agents in respect of the Notes as may from time to time be appointed by
the Issuer in accordance with the Agency Agreement; and/or
(c)
such other or further specified offices (in the former case, being within the same city as those for which
they are substituted) as may from time to time be nominated, in each case, by the Issuer, and (except
in the case of the initial Paying Agents) notice of whose appointment or of which nomination has been
given to the Noteholders in accordance with Condition 16 of the Notes.
“Pledge Agreement” means the pledge agreement dated or to be dated on or about the Closing Date among
the Issuer, the Purchaser, the Security Agent, the Servicer, the Back-up Servicer, the Purchaser Transaction
Administrator, the Purchaser Corporate Administrator and the Swap Counterparty.
“Pledged Accounts” has the meaning set out in Clause 1.2 of the Pledge Agreement.
“Pledged Portfolio” has the meaning set out in Clause 1.2 of the Equity Pledge Agreement.
“Pledged Property” has the meaning set out in Clause 1.2 of the Pledge Agreement.
“Portfolio Liquidation Date” has the meaning set out in Clause 10.2 of the Purchaser Senior Notes
Subscription Deed.
“Portfolio Liquidation Notice” has the meaning set out in Clause 10.2 of the Purchaser Senior Notes
Subscription Deed.
“Portfolio Sale Date” has the meaning set out in Clause 8.1 of the Servicing Agreement.
“Portfolio Sale Price” has the meaning set out in Clause 8.3 of the Servicing Agreement.
“Potential Event of Default” means any condition, event or act which would become, with the passage of
time, the giving of notice, the making of any determination under the Notes or any combination thereof, an
Event of Default.
“Potential Purchaser Senior Notes Event of Default” means any condition, event or act which would
become, with the passage of time, the giving of notice, the making of any determination under the Purchaser
Senior Notes or any combination thereof, a Purchaser Senior Notes Event of Default.
“Principal Amount Outstanding” of:
(a)
the Purchaser Senior Notes at any time means the principal amount of the Purchaser Senior Notes on
their date of issue (being the aggregate amount specified as such in the Purchaser Senior Notes
Subscription Deed) less the aggregate of all repayments of principal in respect of the Purchaser Senior
Notes made prior to that time;
(b)
the Purchaser Junior Note at any time means the principal amount of the Purchaser Junior Note on its
date of issue (being the amount specified as such in the Purchaser Junior Note Subscription Agreement)
less the aggregate of all repayments of principal in respect of the Purchaser Junior Note made prior to
that time;
(c)
the Notes has the meaning set out in Condition 5(b) of the Notes; and
— 188 —
(d)
a Mortgage Loan Transaction at any time means the original principal amount outstanding of such
Mortgage Loan Transaction as the same may have been reduced by the amount of Principal Collections
received and/or any Realised Loss Amount in respect of such Mortgage Loan Transaction on or prior
to such time in accordance with the Agreed Servicing Procedures.
“Principal Collections” means, in relation to any Mortgage Loan Asset, any Collections received in respect
of such Mortgage Loan Asset by way of principal repayment (whether scheduled or unscheduled) including
enforcement proceeds which are applied as principal by the Servicer.
“Principal Paying Agent” means Citibank, N.A., London Branch at its Specified Office or, if applicable, any
successor paying agent which shall be appointed as principal paying agent pursuant to the provisions of the
Agency Agreement and notice of whose appointment has been given to the Noteholders pursuant to Condition
16 of the Notes.
“Principal Transfer Agent” means Citibank, N.A., London Branch at its Specified Office or, if applicable,
any successor transfer agent which shall be appointed as principal transfer agent pursuant to the provisions
of the Agency Agreement and notice of whose appointment has been given to the Noteholders pursuant to
Condition 16 of the Notes.
“Prospectus” means the prospectus to be published in relation to the Issuer and the Notes and to be dated
on or about the Closing Date.
“Provided Information” means, in relation to the Issuer, any information contained in the Prospectus which
relates to the Issuer and which has been provided to the Lead Arranger by the directors of the Issuer or by
the Issuer Corporate Administrator.
“Purchase Agreement” means the purchase agreement dated or to be dated on or about 11 June 2008
between the Issuer, the Seller, the Purchaser, the Lead Arranger and the Co-Managers.
“Purchase Price” has the meaning set out in Clause 5 of the Transfer Agreement.
“Purchaser” means Hanmi Mortgage Securitization Specialty Company, a company incorporated with
limited liability under the laws of Korea on 29 June 2007 and whose registered office is at HSBC Building,
#25, 1-Ka, Bongrae-Dong, Chung-Ku, Seoul, Korea.
“Purchaser Account Banks” means the Won Account Bank, the Purchaser Collection Account Bank, the
Offshore Account Bank and, if applicable, any Swap Cash Collateral Account Bank and Swap Securities
Collateral Account Bank, and “Purchaser Account Bank” means any of them.
“Purchaser Accounts” means, collectively, the General Won Account, the Purchaser Collection Account, the
Reserve Fund Account, the US Dollar Account and, if applicable, any Swap Cash Collateral Account and
Swap Securities Collateral Account, and each a “Purchaser Account”.
“Purchaser Assets” means all of the Purchaser’s undertakings and property, assets and rights, whatsoever
and wheresoever, present and future.
“Purchaser Charged Property” means the Purchaser Assets and the Pledged Portfolio whatsoever and
wheresoever situated, present and future from time to time comprised in or subject to the Purchaser Security
in favour of the Secured Parties.
“Purchaser Collection Account” means the interest bearing Korean Won denominated account (account
number 881-00220-247-01) in the name of the Purchaser at the Purchaser Collection Account Bank and/or
such other Korean Won denominated account which is opened and maintained as a replacement for or in
addition to the same in accordance with the Transaction Documents.
— 189 —
“Purchaser Collection Account Bank” means Citibank Korea Inc., for so long as Citibank Korea Inc. is the
Servicer, and any subsequent successors, assigns and replacements acting as the Purchaser Collection
Account Bank in accordance with the Transaction Administration Agreement.
“Purchaser Collection Account Bank Mandate” means the account mandate in respect of the Purchaser
Collection Account, as such mandate may be subsequently amended in accordance with its terms.
“Purchaser Corporate Administration Agreement” means the purchaser corporate administration
agreement dated the date hereof and made between the Purchaser, the Purchaser Corporate Administrator, the
Issuer, the Purchaser Transaction Administrator, the Servicer and the Security Agent.
“Purchaser Corporate Administrator” means The Hongkong and Shanghai Banking Corporation Limited,
Seoul Branch, in its capacity as purchaser corporate administrator for the Purchaser under the Purchaser
Corporate Administration Agreement and, wherever the context so admits, such expression shall include such
entity and all other persons from time to time acting in that capacity.
“Purchaser Corporate Administrator Fee” means the fee described as such in the HSBC Fee Letter and
payable to the Purchaser Corporate Administrator pursuant to the HSBC Fee Letter and Clause 6 of the
Purchaser Corporate Administration Agreement.
“Purchaser Default Date” means the date on which the Security Agent serves a Purchaser Default Notice
on the Purchaser.
“Purchaser Default Notice” means a notice served by the Security Agent pursuant to Clause 10.1 of the
Purchaser Senior Notes Subscription Deed.
“Purchaser Expenses Threshold Condition”, as of any date on which Maintenance Costs are to be paid by
the Purchaser, where the amount of such Maintenance Costs when aggregated with all amounts paid under
Clauses 8.5.1 and Clause 8.2.2(b) of the Transaction Administration Agreement during the period
commencing on the day falling twelve (12) months prior to such date or, if twelve (12) months have not
elapsed since the Closing Date, on the Closing Date exceeds fifty million Korean Won (KRW 50,000,000)
(converting US Dollars, if necessary, at the Quoted Rate), and each Rating Agency has been notified by the
Purchaser Transaction Administrator that such payment will be made.
“Purchaser Junior Note” means the KRW 33,561,526,817 Purchaser Junior Note due 2038 issued or to be
issued by the Purchaser in favour of the Seller pursuant to the Purchaser Junior Note Subscription Agreement.
“Purchaser Junior Note Certificate” means the note certificate constituting the Purchaser Junior Note in the
form or substantially in the form set out in Schedule 4 to the Purchaser Junior Note Subscription Agreement.
“Purchaser Junior Note Conditions” has the meaning set out in Clause 4.2 of the Purchaser Junior Note
Subscription Agreement.
“Purchaser Junior Note Event of Default” means any of the events of default set out in Purchaser Junior
Note Condition 6 of the Purchaser Junior Note.
“Purchaser Junior Note Interest Amount” has the meaning set out in Purchaser Junior Note Condition 4(c).
“Purchaser Junior Note Price” has the meaning set out in Clause 2.2 of the Purchaser Junior Note
Subscription Agreement.
“Purchaser Junior Note Rate” has the meaning set out in Purchaser Junior Note Condition 4(b).
“Purchaser Junior Note Subscription Agreement” means the purchaser junior note subscription agreement
dated or to be dated on or about the Closing Date and made between the Purchaser, the Issuer, the Purchaser
Junior Noteholder, the Purchaser Transaction Administrator, the Seller and the Security Agent.
— 190 —
“Purchaser Junior Noteholder” means the beneficial holder of the Purchaser Junior Note Certificate.
“Purchaser Liquidation Distribution Date” means the Payment Business Day falling seven (7) Payment
Business Days after the Portfolio Liquidation Date.
“Purchaser Note Interest Period” means, in relation to any Purchaser Note, the period beginning on (and
including) the Closing Date and ending on (but excluding) the first Note Payment Date and each successive
period beginning on (and including) a Note Payment Date and ending on (but excluding) the next Note
Payment Date.
“Purchaser Note Maturity Date” means, in relation to the Purchaser Senior Notes, the Purchaser Note
Payment Date falling immediately prior to the Note Maturity Date and, in relation to the Purchaser Junior
Note, means the Purchaser Note Payment Date falling immediately prior to the Note Maturity Date.
“Purchaser Note Payment Date” means, in relation to:
(a)
a Note Payment Date, the Payment Business Day falling three (3) Payment Business Days before such
Note Payment Date;
(b)
a Calculation Date, a Servicer Report Date, a TA Report Date, a Spot Payment Date or a Swap Payment
Date, the Purchaser Note Payment Date immediately succeeding such Calculation Date, such Servicer
Report Date, such TA Report Date, a Spot Payment Date or such Swap Payment Date, as the case may
be;
(c)
a Collection Period, the Purchaser Note Payment Date immediately succeeding the end of such
Collection Period; and
(d)
a Purchaser Note Interest Period, the Purchaser Note Payment Date falling immediately prior to the end
of such Purchaser Note Interest Period;
provided that, notwithstanding the foregoing, in the event that, by reason of circumstances beyond the
control of the parties (including by way of example and not of limitation any terrorist attack, general
electrical black-out in a relevant business centre or banks not opening by reason of typhoon or similar
weather conditions in a relevant business centre):
(i)
any Purchaser Note Payment Date unexpectedly is not a Payment Business Day, such Purchaser Note
Payment Date shall be the immediately succeeding Payment Business Day to occur;
(ii)
the Spot Payment Date related to such Purchaser Note Payment Date is not a Payment Business Day,
such Spot Payment Date shall be the immediately succeeding Payment Business Day to occur and the
related Swap Payment Date shall be the Payment Business Day immediately succeeding such Spot
Payment Date and the Purchaser Note Payment Date shall be the Payment Business Day immediately
succeeding such Swap Payment Date but in no event shall such Purchaser Note Payment Date fall on
or after the related Note Payment Date; or
(iii) the Swap Payment Date related to such Purchaser Note Payment Date is not a Payment Business Day,
such Swap Payment Date shall be the immediately succeeding Payment Business Day to occur and the
Purchaser Note Payment Date shall be the Payment Business Day immediately succeeding such Swap
Payment Date but in no event shall such Purchaser Note Payment fall on after the related Note Payment
Date.
“Purchaser Noteholders” means, collectively, the Purchaser Senior Noteholders and the Purchaser Junior
Noteholder, and each a “Purchaser Noteholder”.
“Purchaser Notes” means the Purchaser Senior Notes and the Purchaser Junior Note, and “Purchaser Note”
means any of them.
— 191 —
“Purchaser Notes Subscription Deeds” means the Purchaser Senior Notes Subscription Deed and the
Purchaser Junior Note Subscription Agreement.
“Purchaser Secured Obligations” means all obligations owing to the Secured Parties by the Purchaser
under, pursuant to or in connection with the Transaction Documents (including, without limitation, the
Purchaser Senior Notes, the Purchaser Senior Notes Subscription Deed, each Purchaser Security Agreement,
the Servicing Agreement and the Transaction Administration Agreement), whether present or future, actual
or contingent (whether incurred by the Purchaser alone or jointly with one or more other person, and whether
as principal or surety or in some other capacity).
“Purchaser Security” means the security granted by the Purchaser and the Equityholders to the Secured
Parties pursuant to the Purchaser Security Agreements.
“Purchaser Security Agreements” means, collectively, the Pledge Agreement, the Security Assignment
Deed, the Account Assignment and the Equity Pledge Agreement, and each a “Purchaser Security
Agreement”.
“Purchaser Senior Note Certificate” means the note certificate constituting the Purchaser Senior Notes in
the form or substantially in the form set out in Schedule 1 to the Purchaser Senior Notes Subscription Deed.
“Purchaser Senior Note Conditions” means the terms and conditions incorporated in the Purchaser Senior
Note Certificate constituting the Purchaser Senior Notes, in the form or substantially in the form set out in
Schedule 2 to the Purchaser Senior Notes Subscription Deed.
“Purchaser Senior Note Interest Amount” has the meaning set out in Purchaser Senior Note Condition 4(b)
of the Purchaser Senior Notes.
“Purchaser Senior Note Interest Rate” has the meaning set out in Purchaser Senior Note Condition 4(b)(iii)
of the Purchaser Senior Notes.
“Purchaser Senior Note Margin” has the meaning set out in Purchaser Senior Note Condition 4(b) of the
Purchaser Senior Notes.
“Purchaser Senior Note Yield” means, in relation to any Purchaser Note Payment Date, an amount in US
dollars equal to the aggregate of:
(a)
the Purchaser Senior Note Interest Amount in relation to such Purchaser Note Payment Date;
(b)
the Additional Interest Amount in relation to such Purchaser Note Payment Date; and
(c)
after the Step-up Date, the Step-up Margin Payment payable on the corresponding Note Payment Date,
and, in relation to any Purchaser Note Interest Period and the Purchaser Senior Notes, means the Purchaser
Senior Note Yield payable in respect of the Purchaser Senior Notes on the Purchaser Note Payment Date
falling in such Purchaser Note Interest Period.
“Purchaser Senior Notes” means the US$228,000,000 Purchaser Senior Floating Rate Notes due 2038
issued or to be issued by the Purchaser pursuant to the Purchaser Senior Notes Subscription Deed.
“Purchaser Senior Notes Event of Default” means any of the events of default set out in Purchaser Senior
Note Condition 6 of the Purchaser Senior Notes.
“Purchaser Senior Notes Price” has the meaning set out in Clause 2.2.1 of the Purchaser Senior Notes
Subscription Deed.
“Purchaser Senior Notes Register” has the meaning set out in Clause 1.2 of the Purchaser Senior Notes
Subscription Deed.
— 192 —
“Purchaser Senior Noteholders” means the holders of the Purchaser Senior Notes and a “Purchaser Senior
Noteholder” means any of them.
“Purchaser Senior Notes Subscription Deed” means the purchaser senior notes subscription deed in respect
of the Purchaser Senior Notes, dated or to be dated on or about the Closing Date and made between the
Purchaser, the Issuer, the Seller, the Purchaser Transaction Administrator, the Note Trustee, the Security
Agent and the Security Trustee.
“Purchaser Transaction Administrator” means The Hongkong and Shanghai Banking Corporation Limited,
Seoul Branch, acting in its capacity as purchaser transaction administrator, and includes any successor,
permitted assign or replacement therefor in that capacity pursuant to the terms of the Transaction
Administration Agreement.
“Purchaser Transaction Administrator Excluded Rights” means the following rights, powers, authorities
and discretions of, or exercisable by, the Purchaser Transaction Administrator in accordance with the terms
of the Transaction Documents:
(a)
any such right, power, authority and discretion which is provided for the purpose of enabling the
Purchaser Transaction Administrator to protect its own interests;
(b)
any such right, power, authority and discretion to determine amounts due in relation to indemnities in
favour of the Purchaser Transaction Administrator under the Transaction Documents (subject to the
payment priorities and other limitations set out in the Transaction Documents);
(c)
any right to receive any amounts payable to the Purchaser Transaction Administrator in accordance with
the provisions of and in accordance with the order of priorities set out in the Transaction Administration
Agreement and, where applicable, the Purchaser Security Agreements;
(d)
any such right, power, authority and discretion to determine the amount of sums due to the Purchaser
Transaction Administrator in relation to Expenses (subject to the order of priorities set out in the
Transaction Administration Agreement and, where applicable, the Purchaser Security Agreements) and
stamp duties pursuant to the Transaction Documents; and
(e)
any such right, power, authority and discretion to make a claim for Expenses payable to the Purchaser
Transaction Administrator under the Transaction Administration Agreement (subject to the payment
priorities and other limitations set out in the Transaction Documents).
“Purchaser Transaction Administrator Fee” means the fee described as such in the HSBC Fee Letter and
payable to the Purchaser Transaction Administrator pursuant to the HSBC Fee Letter and Clause 11.1 of the
Transaction Administration Agreement.
“Purchaser Transaction Services” means the services to be provided by the Purchaser Transaction
Administrator to the Purchaser as set out in the Transaction Administration Agreement (including, in
particular but without limitation the services in Part 1 of the First Schedule to the Transaction Administration
Agreement).
“Purchaser USD Indemnity Amounts” means, as at any date, the aggregate of all amounts denominated in
US dollars payable by the Purchaser to the Issuer under the Purchaser Senior Notes Subscription Deed and
the other Transaction Documents as at such date, other than:
(a)
interest (including default interest) due and payable as contemplated in paragraph (a) of the definition
of “Purchaser Senior Note Yield”, applicable to the Purchaser Senior Notes on such date; and
(b)
principal due and payable on the Purchaser Senior Notes on such date.
“Qualified Institutional Buyer” has the meaning given to it in Rule 144A.
— 193 —
“Quarterly Servicer Report” means a report in the form set out in Part 1 of the Second Schedule to the
Servicing Agreement and to be delivered by the Servicer in respect of each Collection Period pursuant to
Clause 9.6 of the Servicing Agreement.
“Quarterly Servicer Report Date” means the earlier of:
(a)
the seventeenth (17th) calendar day after the end of the related Collection Period (or if such day is not
a Seoul Business Day, the immediately preceding Seoul Business Day); and
(b)
the sixth (6th) Asia Business Day preceding the following Spot Contract Date,
and, in relation to any Collection Period, means the Quarterly Servicer Report Date immediately succeeding
the end of such Collection Period and, in relation to any TA Report Date, means the Quarterly Servicer Report
Date immediately preceding such TA Report Date.
“Quoted Rate” means the rate of exchange notified to the Purchaser Transaction Administrator by the
Designated FX Bank on each Spot Contract Date pursuant to Clause 7.3.2 of the Transaction Administration
Agreement and the relevant Quoted Rate is the rate quoted for settlement on the related Spot Payment Date.
“Rating Agencies” means, for so long as each of them is rating the Notes, Fitch, Moody’s and Standard &
Poor’s or such other rating agency as at the time is rating (other than a shadow rating) the Notes, and “Rating
Agency” means each of them.
“Real Estate Registry” means the local land registry or building registry at which each Mortgage Loan is
required to be registered.
“Real Name Act” means the Act concerning Financial Transactions by Real Name and Protection of
Confidentiality (No. 5493 of 31 December 1997) of Korea, as amended.
“Realised Loss Amount” means, in relation to any Calculation Date and each defaulted Mortgage Loan
Transaction which, in accordance with the Agreed Servicing Procedures, either (a) has been or should have
been written-off by the Servicer or (b) is the subject of a determination by the Servicer that no further
amounts will be collected in respect of such defaulted Mortgage Loan Transaction, the Notional Principal of
such defaulted Mortgage Loan Transaction as of the day on which it was or should have been written-off or,
as the case may be, it was determined that no further amounts would be collected less the aggregate amount
(if any) of the proceeds relating to the principal amount of the related Mortgage Loan received by the
Servicer or, as the case may be, the Purchaser on or prior to such Calculation Date upon or following
enforcement of the related Mortgage Loan Agreement and/or the related Collateral Security.
“Receivable Sale Agreement (simple form)” means the form of receivables sale agreement agreed between
the Seller and the Purchaser in the form set out in the Tenth Schedule) of the Transfer Agreement.
“Receivables Data Report” means the report in the form set out in the Third Schedule to the Servicing
Agreement and to be delivered by the Back-up Servicer in respect of each Collection Period pursuant to the
Servicing Agreement.
“Receiver” means a receiver and/or manager, administrative receiver, examiner, trustee or similar officer
appointed by the Security Trustee pursuant to any of the Transaction Documents or by any court for the
purpose of realising, getting in or disposing of any of the assets or revenues which are the subject of any
Issuer Security.
“Record Date” has the meaning given to it in Condition 6 of the Notes.
— 194 —
“Records” means all contracts, other documents, books, records and other information (including
correspondence, computer programmes, files, disks, data processing software and related property and rights)
maintained by the Servicer with respect to the Mortgage Loan Assets, the Obligors and the Collateral Security
Providers.
“Reference Agent” means Citibank, N.A., London Branch at its Specified Office or such other reference
agent for the Notes as may from time to time be appointed by the Issuer pursuant to the Agency Agreement
and notice of whose appointment has been given to the Noteholders in accordance with Condition 16 of the
Notes.
“Register” has the meaning set out in Condition 2(a) of the Notes.
“Registrar” means Citibank, N.A., London Branch at its Specified Office or, if applicable, any successor
registrar for the Notes as may from time to time be appointed by the Issuer pursuant to the Agency Agreement
and notice of whose appointment has been given to the Noteholders in accordance with Condition 16 of the
Notes.
“Regulation S” means Regulation S of the Securities Act.
“Regulation S Definitive Note Certificate” means a note certificate substantially in the form set out in Part
B of Schedule 1 to the Trust Deed representing the Notes in definitive form that are sold in registered form
in offshore transactions in reliance on Regulation S.
“Regulation S Global Note Certificate” means a note certificate substantially in the form set out in Part A
of Schedule 1 to the Trust Deed representing the Notes that are sold in registered form in offshore
transactions in reliance on Regulation S.
“Related Assets” means, with respect to each Mortgage Loan Agreement included in the Mortgage Loan
Assets, all of the following:
(a)
the Records and File relating to such Mortgage Loan Agreement and the Collateral Security relating to
such Mortgage Loan Agreement and all the rights of the Seller thereunder;
(b)
the Collateral Security related to such Mortgage Loan Agreement or arising in connection therewith;
(c)
the records and data maintained by the Seller with respect to such Mortgage Loan Agreement and the
Collateral Security relating to such Mortgage Loan Agreement; and
(d)
all proceeds from any sale or other disposition thereof after the Cut-off Date (including such proceeds
in respect of the Collateral Security relating to such Mortgage Loan Agreement).
“Relevant Screen” means a page of the Reuters Service or of the Bloomberg Service, or of any other medium
for the electronic display of data as may be previously approved by the Note Trustee and as has been notified
to the Noteholders in accordance with Condition 5.
“Remaining Portfolio” has the meaning set out in Clause 8.1 of the Servicing Agreement.
“Replacement Agent” has the meaning set out in Clause 1.1 of the Agency Agreement.
“Reported Set-off Amount” means, in respect of the Transfer Date, the Closing Date and each Calculation
Date, the aggregate amount which Borrowers could potentially set off against the Mortgage Loan Assets on
such date expressed as a percentage of the aggregate principal outstanding balance of the Mortgage Loan
Assets on such date.
“Reports” means the Servicer Reports and the TA Reports, and “Report” means any of them.
“Required Set-off Credit Enhancement Percentage by Fitch” means 6.0%.
— 195 —
“Reserve Fund Account Cash” has the meaning set out in Clause 10.2 of the Transaction Administration
Agreement.
“Reserve Fund Account Eligible Investments” has the meaning set out in Clause 10.2 of the Transaction
Administration Agreement.
“Reserve Fund” means the amount from time to time standing to the credit of the Reserve Fund Account in
respect of the reserve fund, other than the Servicing Transfer Fund and the Set-off Fund, of the Purchaser,
as recorded by the Purchaser Transaction Administrator pursuant to Clause 6.4 of the Transaction
Administration Agreement.
“Reserve Fund Account” means the interest bearing Korean Won denominated account in the name of the
Purchaser at the Won Account Bank (account number 002-864833-083) and/or such other Korean Won
denominated account which is opened and maintained as a replacement for or in addition to the same in
accordance with the Transaction Documents.
“Reserve Fund Initial Required Amount” means an amount to be agreed as such between, amongst others,
the Purchaser and the Seller on or prior to the Transfer Date.
“Reserve Fund Required Amount” means, with respect to any Purchaser Note Payment Date prior to the
Purchaser Liquidation Distribution Date, the sum of (without double counting):
(a)
an amount equal to the sum of the fees payable by the Issuer on the Note Payment Date next following
the Note Payment Date related to such Purchaser Note Payment Date to each of the Issuer Transaction
Administrator, the Note Trustee, the Security Trustee, the Issuer Corporate Administrator and the
Agents; plus
(b)
an amount equal to the sum of the fees payable by the Purchaser on the Purchaser Note Payment Date
next following such Purchaser Note Payment Date to each of the Purchaser Transaction Administrator,
the Security Agent, the Purchaser Corporate Administrator, the Back-up Servicer and the Servicer; plus
(c)
if the Interim Adjusted Interest Collections for such Purchaser Note Payment Date is equal to or greater
than the amounts in Korean Won (in this definition “senior payments”) payable by the Purchaser
pursuant to:
(i)
Clauses 8.3 (a) to (d) (both inclusive) and Clause 8.3(g) of the Transaction Administration
Agreement on the related Spot Payment Date; and
(ii)
Clauses 8.5.1(a), 8.5.2(a), 8.5.4(a), 8.5.5 and 8.5.6 of the Transaction Administration Agreement
on such Purchaser Note Payment Date;
the aggregate of the product of (i) the Principal Amount Outstanding of the Purchaser Senior Notes on
such Purchaser Note Payment Date (after taking into account the principal repayment to be made on
such Purchaser Note Payment Date), (ii) the sum of, during the Swap Agreement Term, the CD Rate
for the related Purchaser Note Interest Period plus the Fixed Rate Spread (as defined in the Swap
Agreement) or, after the Swap Agreement Term, LIBOR for the related Purchaser Note Interest Period
plus the Purchaser Senior Note Margin and (iii) the number of days in the Purchaser Note Interest
Period commencing on the Note Payment Date immediately following the relevant Purchaser Note
Payment Date, divided by 360; plus
(d)
if the Interim Adjusted Interest Collections for such Purchaser Note Payment Date is less than senior
payments, the aggregate of the product of (i) the Principal Amount Outstanding of the Purchaser Senior
Notes on such Purchaser Note Payment Date, (ii) the sum of, during the Swap Agreement Term, the CD
Rate for the related Purchaser Note Interest Period plus the Fixed Rate Spread (as defined in the Swap
— 196 —
Agreement) or, after the Swap Agreement Term, LIBOR for the related Purchaser Note Interest Period
plus the Purchaser Senior Note Margin and (iii) the number of days in the Purchaser Note Interest
Period commencing on the Note Payment Date immediately following the relevant Purchaser Note
Payment Date, divided by 360; plus
(e)
the aggregate Senior Expenses Cap,
provided that in each case where any such amount is denominated in US dollars, such amount shall be
converted into Korean Won at the Applicable Exchange Rate or, after the Swap Agreement Term, at the
relevant Quoted Rate in respect of such Purchaser Note Payment Date.
“Restructuring Law” means the Corporate Restructuring Promotion Act and any law of Korea with an effect
similar to the Corporate Restructuring Promotion Act.
“Return Date” has the meaning set out in Clause 8.1.2 of the Transfer Agreement.
“Return Notice” has the meaning set out in Clause 8.1.2 of the Transfer Agreement.
“Return Amount” means, in relation to any Mortgage Loan Asset, the return amount calculated by the
Servicer and payable by the Seller in accordance with Clause 8.3 of the Transfer Agreement and, in relation
to the Credit Support Annex, has the meaning set out in the Credit Support Annex.
“Returned Asset” means any Mortgage Loan Asset in respect of which the Seller has paid the Return Amount
or, as the case may be, Affected Asset Return Amount in accordance with the provisions of Clause 8 of the
Transfer Agreement.
“Rule 144A Definitive Note Certificate” means a note certificate substantially in the form set out in Part
B of Schedule 1 to the Trust Deed representing the Notes in definitive form that are sold to purchasers which
are Qualified Institutional Buyers in reliance on Rule 144A or another applicable exemption from registration
under the Securities Act.
“Rule 144A Global Note Certificate” means a note certificate substantially in the form set out in Part A of
Schedule 1 to the Trust Deed representing the Notes that are sold to purchasers which are Qualified
Institutional Buyers in reliance on Rule 144A or another applicable exemption from registration under the
Securities Act.
“Second Equityholder” means Citibank Korea Inc. in its capacity as owner of an Equity Interest in the
Purchaser.
“Second Mortgage” means, with respect to any Mortgage, that such Mortgage constitutes a second-ranking
registered mortgage over the relevant Mortgaged Property, second in priority only to (a) any first-ranking
registered mortgage over such Mortgaged Property and (b) any Chonsei Rights in respect of such Mortgaged
Property registered at the relevant Real Estate Registry in Korea.
“Secured Obligations” means all obligations owing to the Beneficiaries by the Issuer under or pursuant to
the Transaction Documents, whether present or future, actual or contingent (whether incurred by the Issuer
alone or jointly, and whether as principal or surety or in some other capacity).
“Secured Parties” means each of (a) the Purchaser Corporate Administrator, (b) the Issuer, (c) the Purchaser
Transaction Administrator, (d) the Back-up Servicer, (e) the Servicer, (f) the Security Agent and (g) the Swap
Counterparty and “Secured Party” means any of them.
“Secured Property” has the meaning set out in Clause 1.2 of the Security Assignment Deed.
“Securities Act” means the United States Securities Act of 1933, as amended.
— 197 —
“Securitisation Plan” means the plan filed with the FSC in accordance with the ABS Act in respect of the
Purchaser Notes.
“Security” has the meaning set out in:
(a)
with respect to the Pledge Agreement, Clause 1.2 of the Pledge Agreement;
(b)
with respect to the Equity Pledge Agreement, Clause 1.2 of the Equity Pledge Agreement;
(c)
with respect to the Account Assignment, Clause 1.2 of the Account Assignment; and
(d)
with respect to the Security Assignment Deed, Clause 1.2 of the Security Assignment Deed.
“Security Agent” means The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch, acting
in its capacity as security agent for and on behalf of the Secured Parties, and includes any successor,
permitted assign or replacement therefor in that capacity pursuant to the terms of the Purchaser Security
Agreements.
“Security Agent Excluded Rights” means the following rights, powers, authorities and discretions of, or
exercisable by, the Security Agent in accordance with the terms of the Purchaser Security Agreements:
(a)
any such right, power, authority and discretion which is provided for the purpose of enabling the
Security Agent to protect its own interests;
(b)
any such right, power, authority and discretion to determine amounts due in relation to indemnities in
favour of the Security Agent under the Transaction Documents (subject to the payment priorities and
other limitations set out in the Transaction Documents);
(c)
any such right to receive any amounts payable to the Security Agent in accordance with the provisions
of and in accordance with the order of priorities set out in the Transaction Administration Agreement
and, where applicable, the Purchaser Security Agreements;
(d)
any such right, power, authority and discretion to determine the amount of sums due to the Security
Agent in relation to Expenses (subject to the order of priorities set out in the Transaction Administration
Agreement and, where applicable, the Purchaser Security Agreements) and stamp duties pursuant to the
Transaction Documents; and
(e)
any such right, power, authority and discretion to make a claim for Expenses payable to the Security
Agent under the Purchaser Security Agreements (subject to the payment priorities and other limitations
set out in the Transaction Documents).
“Security Agent Fee” means the fee described as such in the HSBC Fee Letter and payable to the Security
Agent pursuant to the HSBC Fee Letter and Clause 11.3 of the Transaction Administration Agreement.
“Security Assignment Deed” means the security assignment deed dated or to be dated on or about the
Closing Date between the Purchaser, the Issuer, the Security Agent, the Servicer, the Back-up Servicer, the
Purchaser Transaction Administrator, the Swap Counterparty and the Purchaser Corporate Administrator.
“Security Trustee” means Capita Trust Company Limited in its capacity as security trustee in respect of the
Issuer Security under the Deed of Charge and, wherever the context so admits, such expression shall include
such entity and all other persons from time to time acting in such capacity.
“Security Trustee Excluded Rights” means the following rights, powers, authorities and discretions of, or
exercisable by, the Security Trustee in accordance with the terms of the Deed of Charge and the Trust Deed:
(a)
any such right, power, authority and discretion which is provided for the purpose of enabling the
Security Trustee to protect its own interests;
— 198 —
(b)
any such right, power, authority and discretion to determine amounts due in relation to indemnities in
favour of the Security Trustee under the Transaction Documents (subject to the payment priorities and
other limitations set out in the Transaction Documents);
(c)
any such right to receive any amounts payable to the Security Trustee in accordance with the provisions
of and in accordance with the order of priorities set out in the Transaction Administration Agreement
and, where applicable, the Deed of Charge;
(d)
any such right, power, authority and discretion to determine the amount of sums due to the Security
Trustee in relation to Expenses (subject to the order of priorities set out in the Transaction
Administration Agreement and, where applicable, the Deed of Charge) and stamp duties pursuant to the
Deed of Charge; and
(e)
any such right, power, authority and discretion to make a claim for Expenses payable to the Security
Trustee under the Deed of Charge (subject to the payment priorities and other limitations set out in the
Transaction Documents).
“Security Trustee Fee” means the remuneration payable to the Security Trustee pursuant to Clause 21 of the
Deed of Charge.
“Seller” means Citibank Korea Inc. in its capacity as seller pursuant to the Transfer Agreement.
“Seller Power of Attorney” means the power of attorney given by the Seller in favour of the Security Agent
on or about the date hereof in substantially the form set out in the Ninth Schedule to the Transfer Agreement.
“Senior Expenses” means, in relation to any person and any Collection Period, any Expenses paid or
incurred by such person or indemnified to such person by the Purchaser or, as the case may be, the Issuer
which in any such case do not exceed the Senior Expenses Cap provided that notwithstanding the foregoing
in respect of the Purchaser Transaction Administrator, the Issuer Transaction Administrator, the Purchaser
Corporate Administrator, the Security Agent, the Security Trustee, the Back-up Servicer, the Note Trustee or
any Agent only, any Expenses incurred by such person in connection with any actual or threatened litigation,
arbitration, legal or administrative proceedings, claim or enforcement action against the Purchaser
Transaction Administrator, the Issuer Transaction Administrator, the Purchaser Corporate Administrator, the
Security Agent, the Security Trustee, the Note Trustee, the Back-up Servicer or any Agent arising in
connection with or as a result of:
(a)
it being party to any of the Transaction Documents;
(b)
the taking or the omission of any action pursuant to or as contemplated in any of the Transaction
Documents; or
(c)
the exercise of any right, power, authority and/or discretion provided for in any of the Transaction
Documents,
shall also be Senior Expenses to the extent that such Expenses are indemnifiable to the Purchaser Transaction
Administrator, the Issuer Transaction Administrator, the Purchaser Corporate Administrator, the Security
Agent, the Security Trustee, the Back-up Servicer, the Note Trustee or any Agent under the Transaction
Documents.
“Senior Expenses Cap” means the quarterly maximum amount in Korean Won (in the case of the Servicer,
the Back-up Servicer and the Purchaser Corporate Administrator) or US Dollars (in any other case) specified
for “Senior Expenses” in the relevant Fee Letter (or, in the case of the Issuer Corporate Administrator, the
Corporate Services Agreement) between the Issuer or, as the case may be, the Purchaser and such person, and
“aggregate Senior Expenses Cap” means the sum of all such maximum amounts.
“Senior Obligations” has the meaning set out in Clause 5.2 of the Equity Pledge Agreement.
— 199 —
“Senior Servicer Fee” means the fee described as such in the Servicer Fee Letter and payable to the Servicer
pursuant to the Servicer Fee Letter and Clause 7.1 of the Servicing Agreement.
“Senior Swap Breakage Costs” means any Swap Breakage Costs which are not Junior Swap Breakage
Costs.
“Seoul Business Day” means a day (other than a Saturday or a Sunday) on which commercial banks and
foreign exchange markets settle payments in Seoul.
“Servicer” means Citibank Korea Inc. in its capacity as servicer pursuant to the Servicing Agreement, and
includes any successor, permitted assign or replacement therefor in that capacity pursuant to the terms of the
Servicing Agreement.
“Servicer Downgrade Event” means:
(i)
the rating of the long term senior unsecured and unguaranteed US Dollar debts of the Servicer being
downgraded to below “A” by Fitch or below “A-“ by Standard & Poor’s;
(ii)
the rating of the long term domestic currency bank deposits of the Servicer being downgraded to below
“Baa3” by Moody’s; or
(iii) any of the above ratings being withdrawn by the relevant Rating Agency.
“Servicer Fee” means the Senior Servicer Fee and/or, as the case may be, the Subordinated Servicer Fee.
“Servicer Fee Letter” means the letter dated or to be dated on or about the Closing Date between the
Purchaser and the Servicer in relation to the Fees and Expenses payable to the Servicer under the Transaction
Documents by the Purchaser.
“Servicer Report” means a Quarterly Servicer Report or a Monthly Servicer Report, as the context may
require.
“Servicer Report Date” means a Quarterly Servicer Report Date or a Monthly Servicer Report Date, as the
context may require.
“Servicer Termination Event” has the meaning set out in Clause 15.1 of the Servicing Agreement.
“Servicing Agreement” means the servicing agreement dated the date hereof and made between the
Purchaser, the Seller, the Servicer, the Back-up Servicer, the Purchaser Transaction Administrator, the Issuer
Transaction Administrator, the Security Agent, the Security Trustee, the Note Trustee and the Swap
Counterparty.
“Servicing Standard” has the meaning set out in paragraph 1.3 of Part 1 of the First Schedule of the
Servicing Agreement.
“Servicing Transfer Fund” means the amount from time to time standing to the credit of the Reserve Fund
Account in respect of the reserve maintained by the Purchaser to fund the transfer of the Mortgage Loan
Services from the Initial Servicer to the Back-up Servicer, as recorded by the Purchaser Transaction
Administrator pursuant to Clause 6.4 of the Transaction Administration Agreement.
“Servicing Transfer Fund Initial Required Amount” means KRW 438,912,500.
— 200 —
“Servicing Transfer Fund Required Amount” means, with respect to any Purchaser Note Payment Date
falling on or prior to the date of assumption by the Back-up Servicer of the obligations of the Servicer, the
amount in Korean Won equal to the aggregate of:
(a)
KRW 400 million; and
(b)
the product of:
(i)
the number of Mortgage Loans owned by the Purchaser as of the Calculation Date immediately
preceding such Purchaser Note Payment Date; and
(ii)
KRW 12,500,
and means, with respect to any Purchaser Note Payment Date falling after the date of assumption by the
Back-up Servicer of the obligations of the Servicer, zero.
“Set-off Advance” means the amount transferred or to be transferred to the Purchaser by the Seller pursuant
to Clause 12.5 of the Transfer Agreement.
“Set-off Breach” means, with respect to any day, that the warranty set out in Clause 7.2.1 of the Transfer
Agreement was incorrect as at such day.
“Set-off Claim Amount” has the meaning set out in paragraph 20 of the Fifth Schedule of the Transfer
Agreement.
“Set-off Coverage Amount” means, as of any day, the lower of:
(a)
where the rating of the Seller falls below the ratings by Standard & Poor’s specified in Clause 7.2.1 of
the Transfer Agreement, KRW2,753,035,233; and
(b)
where the rating of the Seller falls below the ratings by Fitch specified in Clause 7.2.1 of the Transfer
Agreement, KRW6,289,314,267.
“Set-off Fund” means the amount from time to time standing to the credit of the Reserve Fund Account in
respect of the set-off reserve fund as a collateralisation of the Seller’s obligation to pay amounts equal to
Set-off Claim Amounts to the Purchaser pursuant to paragraph 20 of the Fifth Schedule to the Transfer
Agreement, as recorded by the Purchaser Transaction Administrator pursuant to Clause 6.4 of the Transaction
Administration Agreement.
“Set-off Fund Initial Amount” means the amount equal to (i) the aggregate amount which Borrowers could
potentially set-off against the Mortgage Loan Assets as at the day which is the tenth (10th) Seoul Business
Day following the date of the first Set-off Breach less (ii) that amount which is equal to the Excess Credit
Enhancement Percentage of the aggregate principal outstanding balance of the Mortgage Loan Assets as at
the day which is the tenth (10th) Seoul Business Day following the date of the first Set-off Breach less (iii)
the Set-off Coverage Amount.
“Set-off Fund Required Amount” means, with respect to any Purchaser Note Payment Date after the deposit
by the Seller of the Set-off Advance in accordance with Clause 12.5 of the Transfer Agreement, the Set-off
Fund Initial Amount less the sum of (a) any reductions by the Borrowers in the amount of their deposits with
the Seller after the tenth (10th) Seoul Business Day following the date of the first Set-off Breach and (b) the
amount of any transfers from the Set-off Fund within the Reserve Fund Account to the General Won Account
in accordance with Clause 6.4.10 of the Transaction Administration Agreement after the tenth (10th) Seoul
Business Day following the date of the first Set-off Breach and (c) the amount by which that amount which
is equal to the Excess Credit Enhancement Percentage of the aggregate principal outstanding of the Mortgage
Loan Assets as at such day exceeds that amount equal to the Excess Credit Enhancement Percentage of the
— 201 —
aggregate principal outstanding balance of the Mortgage Loan Assets as at the day which is the tenth (10th)
Seoul Business Day following the date of the first Set-off Breach or, as the case may be, the previous
Purchaser Note Payment Date provided that the Set-off Fund Required Amount shall not be less than zero.
“Set-off Mortgage Loan” has the meaning set out in paragraph 20 of the Fifth Schedule of the Transfer
Agreement.
“Signing Date” means 17 June 2008.
“Specified Office” means, in relation to any Agent:
(a)
the office specified against its name in the First Schedule to the Agency Agreement; or
(b)
such other office as such Agent may specify in accordance with Clause 13.8 of the Agency Agreement.
“Spot Bank” means Citibank Korea Inc. (in its capacity as the Purchaser’s counterparty to each Spot
Contract) and any subsequent successors, assigns and replacements as the Spot Bank.
“Spot Contract” means:
(a)
each foreign exchange currency transaction entered into by the Purchaser (acting through the Purchaser
Transaction Administrator) with the Spot Bank pursuant to Clause 7.3.6 of the Transaction
Administration Agreement; and
(b)
in relation to a Spot Contract Date, the Spot Contract entered into on such date.
“Spot Contract Date” means:
(a)
in relation to a TA Report Date, the Payment Business Day falling one (1) Payment Business Day prior
to such TA Report Date;
(b)
in relation to a Spot Payment Date, a Swap Payment Date, a Purchaser Note Payment Date or a Note
Payment Date, the Spot Contract Date immediately preceding such Spot Payment Date, such Swap
Payment Date, such Purchaser Note Payment Date or such Note Payment Date (as the case may be);
(c)
in relation to a Calculation Date or a Quarterly Servicer Report Date, the Spot Contract Date
immediately succeeding such Calculation Date or such Quarterly Servicer Report Date (as the case may
be); and
(d)
in relation to the Final Exchange Date, the Payment Date falling five (5) Payment Business Days prior
to the Final Exchange Date.
“Spot Payment Date” means:
(a)
in relation to a Swap Payment Date, the Payment Business Day falling one (1) Payment Business Day
prior to such Swap Payment Date;
(b)
in relation to a Purchaser Note Payment Date or a Note Payment Date, the Spot Payment Date
immediately preceding such Purchaser Note Payment Date or such Note Payment Date (as the case may
be); and
(c)
in relation to a Calculation Date, a Quarterly Servicer Report Date, a Spot Contract Date or a TA Report
Date, the Spot Payment Date immediately succeeding such Calculation Date, such Quarterly Servicer
Report Date, such Spot Contract Date or such TA Report Date (as the case may be).
and, for the avoidance of doubt, the Spot Payment Date shall be the same day as the Fixed Rate Payer
Payment Date (as defined in the Swap Transaction Confirmation).
— 202 —
“Spot Rate” means, in relation to a Spot Contract Date, the spot rate as of such Spot Contract Date being
the Korean Won/US Dollar market average rate, expressed as the amount of Korean Won per one US Dollar,
for settlement on the immediately succeeding Spot Payment Date, reported by the Korea Financial
Telecommunications and Clearings Institute which appears on the Reuters Screen KFTC18 Page to the right
of the caption “USD Today” that is available at approximately 9:00 a.m. (Seoul time) on such Spot Contract
Date or if such rate is not available on the relevant Reuters Screen, the Korean Won/US Dollar rate (the
“Alternative Rate”), expressed as the amount of Korean Won per one US Dollar, determined by the Spot
Bank on the basis of quotations from the Reference Banks. The Alternative Rate will be:
(a)
the quotation remaining after disregarding the highest and the lowest quotation; and
(b)
if more than one quotation has the same highest value or lowest value, the arithmetic mean of the
quotations from such Reference Banks; and
(c)
if fewer than three quotations are provided, it will be deemed that no Korean Won/US Dollar rate is
available on such Spot Contract Date.
Each quotation from a Reference Bank will be for an amount in Korean Won required to be exchanged into
US Dollars under the Spot Contract and for settlement on the immediately succeeding Spot Payment Date.
The Spot Bank will request each Reference Bank to provide its quotation as of 9:00 a.m. (or such other time
as determined by the Spot Bank in good faith) on the relevant Spot Contract Date.
For the purpose of this definition, “Reference Banks” means three leading dealers in the Korean Won and
US Dollar foreign currency exchange market selected by the Spot Bank in good faith.
“Stamp Duty” shall be construed as a reference to any stamp, registration or other transaction or
documentary tax and including any penalty or interest payable in connection with any failure to pay, or any
delay in paying the same.
“Standard & Poor’s” or “S&P” means Standard & Poor’s Rating Services, a division of the McGraw-Hill
Companies Inc.
“Statement of Condition” means each of the statements of fact, condition and circumstance set out in
Clauses 5.1 to 5.32 of the Trust Deed.
“Step-up Date” means the Note Payment Date falling in June 2014.
“Step-up Margin” has the meaning set out in Condition 4(b) of the Notes.
“Step-up Margin Payment” means, on any Note Payment Date following the Step-up Date, an amount equal
to the product of (a) the Principal Amount Outstanding of the Notes at the beginning of the related Note
Interest Period; (b) the Step-up Margin; and (c) the actual number of days in such Note Interest Period
divided by 360.
“Stock Exchange” means the Irish Stock Exchange, or any other or further stock exchange(s) on which any
Notes may from time to time be listed, and references to the “relevant Stock Exchange(s)” shall, in relation
to any Notes, be references to the Stock Exchange(s) on which such Notes are from time to time, or are
intended to be, listed.
“Subordinated Servicer Fee” means the fee described as such in the Servicer Fee Letter and payable to the
Servicer pursuant to the Servicer Fee Letter and Clause 7.1 of the Servicing Agreement.
— 203 —
“Substitute Administrator” means a substitute purchaser transaction administrator or a substitute issuer
transaction administrator, as the case may be, appointed under the terms of Clause 18.4 of the Transaction
Administration Agreement.
“Substitute Back-up Servicer” means a substitute back-up servicer appointed under the terms of Clause
15.3 of the Servicing Agreement.
“Substitute Bank” has the meaning set out in Clause 5.10.3 of the Transaction Administration Agreement.
“Substitute Purchaser Corporate Administrator” means a substitute purchaser corporate administrator
appointed under the terms of Clause 12.4 of the Purchaser Corporate Administration Agreement.
“Substitute Servicer” means a substitute servicer appointed under the terms of Clause 15.3 of the Servicing
Agreement.
“Substitute Spot Bank” has the meaning given to it in Clause 5.12.3 of the Transaction Administration
Agreement.
“Swap Agreement” means the agreement entered into or to be entered into on or about the Closing Date
between the Swap Counterparty and the Purchaser, the terms and conditions of which are set forth in,
amongst other things, a 1992 ISDA Master Agreement (Multicurrency-Cross Border) and schedule thereto
(the “Swap Schedule”) together with the Swap Transaction Confirmation and the Credit Support Annex.
“Swap Agreement Term” means the Term (as defined in the Swap Agreement) as the same may be
terminated early pursuant to the terms of the Swap Agreement provided that if, following the occurrence or
designation of an Early Termination Date, the Purchaser enters into a replacement swap agreement with a
replacement swap provider, the “Swap Agreement Term” shall be the Term as defined in such replacement
swap agreement as the same may be terminated early pursuant to its term.
“Swap Breakage Costs” means the amount payable under Section 6 of the ISDA Master Agreement
constituting part of the Swap Agreement.
“Swap Cash Collateral Account” means the bank account in the name of the Purchaser opened by the
Purchaser Transaction Administrator with the Swap Cash Collateral Account Bank in accordance with Clause
5.4.1 of the Transaction Administration Agreement.
“Swap Cash Collateral Account Bank” means the account bank with whom any Swap Cash Collateral
Account is opened in accordance with Clause 5.4.1 of the Transaction Administration Agreement and any
successors, assigns and replacements acting as the Swap Cash Collateral Account Bank.
“Swap Collateral Account Bank Mandate” means the account mandate in respect of the Swap Cash
Collateral Account or, as the case may be, the Swap Securities Collateral Account, in each case, as such
mandate may be subsequently amended in accordance with its terms.
“Swap Collateral Accounts” means, collectively, the Swap Cash Collateral Account (if any) and the Swap
Securities Collateral Account (if any), and each a “Swap Collateral Account”.
“Swap Counterparty” means Citibank, N.A., Singapore Branch and includes its successors and permitted
assigns under the Swap Agreement.
“Swap Payment Date” means, in relation to a Purchaser Note Payment Date or the Purchaser Liquidation
Distribution Date, the Payment Business Day falling one (1) Payment Business Day before such Purchaser
Note Payment Date (as the same may be adjusted in accordance with the proviso in the definition of
“Purchaser Note Payment Date”) or the Purchaser Liquidation Distribution Date and, in relation to a
Calculation Date, a Servicer Report Date, a TA Report Date or a Spot Payment Date, means the Swap
Payment Date falling immediately after such Calculation Date, Servicer Report Date, Spot Payment Date or,
— 204 —
as the case may be, TA Report Date and, in relation to any Collection Period, means the Swap Payment Date
immediately succeeding the end of such Collection Period and, in relation to a Purchaser Note Interest
Period, means the Swap Payment Date falling in such Purchaser Note Interest Period and, for the avoidance
of doubt, the Swap Payment Date shall be the same day as the Floating Rate Payer Payment Date (as defined
in the Swap Transaction Confirmation).
“Swap Securities Collateral Account” means the custodian account in the name of the Purchaser opened by
the Purchaser Transaction Administrator with the Swap Securities Collateral Account Bank in accordance
with Clause 5.4.1 of the Transaction Administration Agreement.
“Swap Securities Collateral Account Bank” means the custodian with whom any Swap Securities Collateral
Account is opened in accordance with Clause 5.4.1 of the Transaction Administration Agreement and any
successors, assigns and replacements acting as the Swap Securities Collateral Account Bank.
“Swap Transaction” means the interest rate and cross currency swap transaction in respect of the Purchaser
Senior Notes entered into pursuant to the Swap Agreement.
“Swap Transaction Confirmation” means the confirmation entered into between the Purchaser and the
Swap Counterparty on or about the Closing Date under the Swap Agreement and documenting the terms of
the Swap Transaction.
“TA Report” means a report in the form set out in the Second Schedule to the Transaction Administration
Agreement and to be delivered by the Purchaser Transaction Administrator pursuant to Clause 7.4 of the
Transaction Administration Agreement.
“TA Report Date” means, in relation to a Spot Payment Date, the Payment Business Day falling one (1)
Payment Business Day before such Spot Payment Date and, in relation to a Purchaser Note Payment Date
or a Note Payment Date, means the TA Report Date falling immediately prior to such Purchaser Note
Payment Date or, as the case may be, such Note Payment Date and, in relation to any Collection Period,
means the TA Report Date immediately succeeding the end of such Collection Period.
“Taxation Authority” means in relation to any party to any of the Transaction Documents any authority
having the power to levy any tax on any party.
“Termination Event” in relation to the Swap Agreement has the meaning set out in Section 14 of the Swap
Agreement.
“Transaction Administration Agreement” means the transaction administration agreement dated the date
hereof and made between the Issuer, the Purchaser, the Seller, the Servicer, the Back-up Servicer, the
Purchaser Corporate Administrator, the Purchaser Transaction Administrator, the Issuer Transaction
Administrator, the Security Trustee, the Note Trustee, the Security Agent, the Swap Counterparty, the Spot
Bank, the Designated FX Bank, the Principal Paying Agent, the Irish Paying Agent, the Principal Transfer
Agent, the Registrar and the Reference Agent.
“Transaction Documents” means:
(a)
the Account Assignment;
(b)
the Agency Agreement;
(c)
the Corporate Services Agreement;
(d)
the Deed of Charge;
(e)
the Equity Pledge Agreement;
(f)
the Master Definitions Schedule;
— 205 —
(g)
the Notes;
(h)
the Prospectus;
(i)
the Pledge Agreement;
(j)
the Purchase Agreement;
(k)
the Purchaser Corporate Administration Agreement;
(l)
the Purchaser Junior Note;
(m) the Purchaser Senior Notes;
(n)
the Purchaser Senior Notes Subscription Deed;
(o)
the Purchaser Junior Note Subscription Agreement;
(p)
the Security Assignment Deed;
(q)
the Servicing Agreement;
(r)
the Swap Agreement (including, for the avoidance of doubt, the Credit Support Annex);
(s)
the Transaction Administration Agreement;
(t)
the Transfer Agreement; and
(u)
the Trust Deed,
and all other agreements and documents referred to therein or necessary or ancillary thereto, and in relation
to any person, “the Transaction Documents to which it is a party” means only those Transaction
Documents executed or signed by such person.
“Transfer Agents” means:
(a)
the Principal Transfer Agent at its Specified Office initially appointed as the Transfer Agent by the
Issuer pursuant to the Agency Agreement;
(b)
such other or further transfer agents in respect of the Notes as may from time to time be appointed by
the Issuer in accordance with the Agency Agreement; and/or
(c)
such other or further Specified Offices (in the former case, being within the same city as those for which
they are substituted) as may from time to time be nominated, in each case, by the Issuer, and (except
in the case of the initial Transfer Agent) notice of whose appointment or nomination has been given to
the Noteholders in accordance with Condition 16.
“Transfer Agreement” means the transfer agreement dated the date hereof and made between the Seller, the
Purchaser and the Servicer.
“Transfer Date” means 17 June 2008 or, if the application for asset transfer registration is not filed with the
FSC on such date, such other date on which such application is filed with the FSC.
“Transfer Plan” has the meaning set out in Part 3 of the First Schedule to the Servicing Agreement.
“Treaty” means the Treaty establishing the European Community, as amended.
— 206 —
“Trust Deed” means the trust deed dated or to be dated on or about the Signing Date entered into by the
Issuer and the Note Trustee.
“Trustee Acts” means both the Trustee Act 1925 and the Trustee Act 2000 of England and Wales.
“Trustee Ordinance” means the Trustee Ordinance (Cap. 29) of Hong Kong.
“Trustees” means the Security Trustee and the Note Trustee, and “Trustee” means either of them.
“US Dollar Account” means the interest bearing US Dollar denominated account in the name of the
Purchaser (account number 808-411706-274) at the Offshore Account Bank and/or such other US Dollar
denominated account which is opened and maintained as a replacement for or in addition to the same in
accordance with the Transaction Documents.
“US Dollars”, “US dollars”, “dollars”, “US$” and “$” means the lawful currency from time to time of the
United States of America.
“US GAAP” means generally accepted accounting principles adopted in the United States.
“US Person” has the meaning set out in Regulation S of the Securities Act except where the context
otherwise requires.
“Use and Protection of Credit Information Act” means the Use and Protection of Credit Information Act
(No. 4866 of 5 January 1995) of Korea, as amended.
“VAT” and “Value Added Tax” means value added or any similar tax imposed under the laws of any relevant
jurisdiction.
“Valuation Amount” has the meaning set out in Clause 8.2.3 of the Servicing Agreement.
“Website” has the meaning set out in Clause 7.7.1 of the Transaction Administration Agreement.
“Weighted Average Mortgage Rate” means:
(a)
in respect of the first Collection Period, the weighted average of the annual interest rate in respect of
each Mortgage Loan Transaction as of the Transfer Date; and
(b)
in respect of any other Collection Period, the weighted average of the annual interest rate in respect of
each Mortgage Loan Transaction as of the first day of such Collection Period.
“Won Account Bank” means The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch and
any subsequent successors, assigns and replacements acting as the Won Account Bank.
“Won Account Bank Mandate” means the account mandate in respect of the General Won Account and the
Reserve Fund Account, as such account mandate may be subsequently amended in accordance with its terms.
“Won Bank Accounts” means the General Won Account and the Reserve Fund Account.
— 207 —
LEGAL ADVISERS
To the Lead Arranger
As to English law
As to Korean law
Linklaters
10th Floor, Alexandra House
18 Chater Road
Central
Hong Kong
Shin & Kim
Ace Tower 4/F
1-170 Soonhwa-dong
Chung-ku, Seoul
Korea 100-712
To the Note Trustee and Security Trustee
As to English law
O’Melveny & Myers
31/F AIG Tower
1 Connaught Road
Central
Hong Kong
To the Issuer
As to Cayman Islands law
Walkers
Suite 1609-1610, Chater House
8 Connaught Road
Central
Hong Kong
To the Seller
As to Korean law
Kim & Chang
Seyang Building
223 Naeja-Dong
Chongro-ku
Seoul 110-720
To the Security Agent, Purchaser Transaction Administrator,
Back-up Servicer and Purchaser Corporate Administrator
As to English law
Orrick, Herrington & Sutcliffe LLP
39FL Gloucester Tower
The Landmark
15 Queen’s Road
Central
Hong Kong
ISSUER
Korea ACE Mortgage Company
Walker House
87 Mary Street
George Town
Grand Cayman KY1-9002
Cayman Islands
PRINCIPAL TRANSFER AGENT, PRINCIPAL PAYING AGENT,
REFERENCE AGENT, REGISTRAR and ISSUER TRANSACTION ADMINISTRATOR
Citibank, N.A., London Branch
21st Floor, Citigroup Centre
Canada Square
Canary Wharf
London E14 5LB
United Kingdom
NOTE TRUSTEE and SECURITY TRUSTEE
Capita Trust Company Limited
7th Floor, Phoenix House
18 King William Street
London EC4N 7HE
United Kingdom
IRISH PAYING AGENT
Citibank International plc
1 North Wall Quay
Dublin 1
Ireland
PURCHASER TRANSACTION ADMINISTRATOR, SECURITY AGENT,
PURCHASER CORPORATE ADMINISTRATOR and BACK-UP SERVICER
The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch
1-Ka Bongrae-Dong
Chung-Ku, Seoul
Korea, 100-161
LISTING AGENT
A&L Listing Limited
25-28 North Wall Quay
International Financial Services Centre
Dublin 1
Ireland
Printed by IFN Financial Press Limited
28317