[딜사이트 김현진 기자] As Taeyoung Construction applied for exercise, it seems that the outcome will also affect guaranteed securities. As credit rating agencies downgrade Taeyoung Construction’s credit rating, the credit ratings of guaranteed securities are also downgraded one after another.
According to the construction industry on the 2nd, Credit Rating Korea downgraded Taeyoung Engineering & Construction’s unsecured bond credit rating from ‘A-‘ to ‘CCC’. The credit rating of the commercial paper (CP) issued by Taeyoung Construction was also downgraded from ‘A2-‘ to ‘CCC’. This is because Taeyoung Construction applied for exercise on December 28, 2023.
As the credit rating of Taeyoung Construction was downgraded, the credit rating of the guaranteed securities provided by the company as collateral was also downgraded. In March 2023, the credit rating of the 3rd electronic short-term bond (ABSTB) worth 60 billion won by a special purpose company (SPC) called Alpiosanjcha was downgraded from ‘A2-‘ to ‘C’ rating.
The ABSTB was announced to promote the apartment complex development project in District 2 Segyo, Osan. As Taeyoung Construction participated as a construction company, it obligated the special purpose company (SPC) to replenish funds and take on debt in case of non-performance.
The credit rating of the 30 billion asset-backed commercial paper (ABCP) acquired by SPC Rotation Third was also downgraded from ‘A2-‘ to ‘C’. This ABCP was issued to proceed with a project to build new urban housing, offices, and living facilities in the neighborhood in Cheonho-dong, Gangdong-gu, Seoul, and Taeyoung Construction signed a letter of commitment to replenish funds and take conditional debt.
In addition, the credit rating of the 44 billion won asset-backed loan (ABL) issued by TYD Jeil Motor to proceed with the project to develop an information industry center in Guro-gu, Seoul also adjusted from ‘A-‘ to ‘CCC’.
The credit rating of these guaranteed securities was downgraded because Taeyoung Construction applied for exercise. As the credit rating of Taeyoung Construction, which provided guarantees for the guaranteed securities, was downgraded, the credit ratings of the related guaranteed securities were also adjusted to the same level.
Generally, if the credit rating of a collateralized security is lowered, the interest rate is also adjusted upward when refinancing. A financial industry official explained, “Ultimately, interest rates move depending on credit rating,” and “If the credit rating of collateralized securities is downgraded, interest rates will rise when renewing or refinancing, and financial costs will inevitably increase.”
However, in the case of Taeyoung Construction, since its credit rating was adjusted due to the exercise, it is anticipated that the interest rate could actually be reduced by consulting creditors. Another official in the financial industry said, “If you look at the score alone, the interest rate is bound to rise, but in the case of Taeyoung Construction, the situation is a little different.” He added, “Creditors also have to think about recovering the principal in the end, and if they take this into account, they will lower the interest rate or extend the maturity rather than raising it.” “It might be possible,” he said.
The market impact associated with Taeyoung Construction’s training is anticipated to be limited. Jeong Hye-jin, a researcher at Shinhan Investment & Securities, predicted, “Given the limited scale of exposure to Taeyoung Construction and the government’s rapid support measures, the market impact will be limited.”
Jo Jeong-hyun, a researcher at IBK Investment & Securities, also said, “Under the current situation, construction companies have difficulty in distributing funds compared to other industries,” but also assessed, “During the period of absorption quick liquidity to pass, the possibility of large-scale refinancing risks like in the past in the short term is low.”
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