Deutsche Bank and JPMorgan recently structured a USD650 million bond for Korea Electric Power Corp.--the first bond in Korea on which a credit-default swap was written to reduce the cost of funding. The power company saved about KRW27 billion (USD22.5 million) by writing credit protection on the back of the bond offering, according to a KEPCO official. Credit traders at rival firms said it is likely that there is some degree of cash collateral on the back of the default swap to offset the correlation risk of a Korean company writing protection on its sovereign.
Deutsche Bank and JPMorgan were selected for the transaction through a bidding process. Officials at both banks confirmed the transaction, but declined further comment. The notes were assigned a Baa2 rating by Moody's Investors Service.
The KEPCO official said the firm also converted the dollar-denominated 1.18% fixed-rate 2007 note into yen via a currency swap.
