PF Securitization Bond Interest Rates Rise Again... Caution Ahead of Lenders' Activation

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As the real estate project financing (PF) creditor consortium agreement is scheduled to be activated within this month, the interest rates on PF asset-backed commercial paper (ABCP) are stirring again. It is interpreted that demand is shrinking amid expectations that uncertainties related to PF securitization securities will increase once the selection process for distressed real estate projects intensifies.

According to the financial investment industry on the 17th, the daily average interest rate of 3-month maturity A1-rated PF-ABCP was recorded at 4.4% on the 13th. It had dropped to 4.0~4.1% at the end of February but exceeded 4.5% since the beginning of this month.

The daily average interest rate of the lower credit-rated A2-grade PF-ABCP rose more sharply. The average rate was in the 5% range at the beginning of last month but was recorded at 7.8% as of the 13th, and even rose to 8.9% on the 11th.

The average interest rate of PF-ABCP moved differently from the trend of the 91-day commercial paper (CP) rate, which serves as a barometer of the short-term money market. The 91-day CP rate was 4.02% at the end of February but dropped below 4.0% from the end of last month, buoyed by expectations of global monetary tightening easing, and has remained stable at 3.97%.

The securities industry cited the activation of the creditor consortium agreement as the main reason for the spike in PF-ABCP interest rates. Currently, the authorities plan to activate the PF creditor consortium agreement, involving all financial institutions, within this month to support business restructuring so that projects with concerns about viability can get back on track. In this process, projects with severe distress may be sold or liquidated according to market principles.

Kim Eun-gi, Senior Research Fellow at Samsung Securities, analyzed, "The recent decrease in demand for PF-ABCP is likely because financial institutions have reduced their PF exposure ahead of the creditor consortium agreement scheduled for this month."

He explained, "During the creditor consortium agreement process, the 'sorting of wheat from chaff' between viable and distressed projects begins, and if clauses such as maturity extensions are applied in the agreement, unexpected repayment delays may occur, so institutions may be trying to avoid this."

However, there are also views that even if the consortium’s work intensifies, the actual impact on the market will be limited. Kim Ki-myeong, a researcher at Korea Investment & Securities, said, "If any financial companies fall into credit crunch during the distressed project cleanup, they will be a very small number of small- and medium-sized firms," adding, "However, as seen in the recent Silicon Valley Bank (SVB) incident, if policy authorities respond proactively, the impact will be limited."

Meanwhile, the securities industry has decided to extend the operation period of the purchase program, which has been running since last year after the 'Legoland incident,' from the original end of May to the end of the year to support the resolution of liquidity crunch related to PF-ABCP for small- and medium-sized securities firms.

This content was produced with the assistance of AI translation services.