When the Hong Kong consumer loan company Prime Credit conducted an extensive non-deal road show in July in preparation to launch a consumer loan securitization transaction, it met more than 30 investors in Europe, Japan, Singapore, Taiwan and Hong Kong, who expressed interest in joining the deal.

Some prospective investors even told the deal’s sole arranger and lead manager BNP Paribas that they can offer them very competitive pricing which would even be lower than Prime Credit’s target price. Then, the protests in Hong Kong started to intensify.

Of the over 30 investors which met with Prime Credit to test the market, only one stayed on to join the transaction – that’s how bad the market backdrop was. Many European investors turned their backs on the deal, while some Japanese investors suggested it was not the right time to approach their credit committees about joining a deal out of Hong Kong and asked whether Prime Credit should defer the offering to next year.

Indeed, there were doubts whether the deal could get done at that point in time and there were suggestions that it might be better to launch the transaction next year and wait for the Hong Kong situation to settle down. There was also a suggestion to arrange the transaction in a similar way to how a previous Korean Air (KAL) securitization was structured, which was in two phases.

Confronted then with headline risks, KAL closed a yen-denominated ticket receivables transaction totaling 26.61 billion yen (US$243.24 million), first in December 2016 amounting to 15 billion yen with a further tap issuance of 11.61 billion yen in May 2017.

Another option was to provide a bridge loan to Prime Credit to fund the deal first.

But Prime Credit persevered and with BNP Paribas very familiar with the consumer loan securitization investor base, the deal was pre-placed and priced on November 29 and settled on December 5.

The US$200 million senior secured floating rate notes due 2029, issued through Ocean Funding 2019-1, were priced at par with a coupon of 1.50% per annum over one-month Libor. There was also a HK$948 million (US$121.54 million) subordinated tranche retained by Prime Credit.

The principal repayment was structured as a two-year revolving period plus a one-year controlled amortization, with equal monthly principal repayment for 12 months. There was a call option at the end of the two-year revolving period.

Supported by a portfolio of unsecured Hong Kong dollar-denominated consumer loans originated by Prime Credit, the transaction was the first public term securitization in Hong Kong since early 2000 and the first ever public consumer loan securitization in the territory. It was also the first AAA-rated consumer loan securitization in Asia, outside of Japan.

Despite the challenges, the pricing was not sacrificed at all and met Prime Credit’s target. The 1.50% coupon was within the original range that Prime Credit was expecting – which was an important achievement of the deal.

Altogether, the transaction attracted a mix of banks (87.5% of the investor base) and insurance companies (12.5%) from Japan (45%), EMEA (37.5%), and China (17.5%), including a first-time securitization investor from China.

The deal represents a diversification in Prime Credit’s funding sources. The company usually relies on syndicated loans and warehousing loans with some banks on a bilateral basis. A warehousing loan has a structure quite similar to securitization and the deal is not rated. It is like a loan facility whereby it can be drawn down and can be repaid based on the assets outstanding.

Founded in 1977, Prime Credit is a market leader in the unsecured consumer loans market. It is currently owned by an international consortium comprising China Travel Financial Holdings Company (55%), York Capital Management Global Advisors (33%), and Pepper Group (12%), which acquired the company from Standard Chartered (Hong Kong) in 2015.

At the end of 2018, Prime Credit’s loan portfolio was around US$1.1 billion, composed of local consumer loans (extended to Hong Kong residents), domestic helper loans, and credit card receivables. The company manages over 265,000 customer accounts.