S&P Asgns Prelm AAA Rtg to HMC's Exchangeable Notes

    HONG KONG--May 31, 2001-- Standard & Poor's CreditWire--Standard & Poor's today assigned its preliminary triple-'A' rating to HMC Cayman Finance Co.'s approximately US$500 million secured exchangeable notes.
    The preliminary rating is based on information as of May 31, 2001. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings.
    The notes are backed by "stripped" U.S. Treasuries, and are exchangeable, at the sole discretion of noteholders, for shares in Kia Motors Co. This exchange is subject to terms and conditions set out in the offering circular. At closing, the initial exchange property consists of 51 million shares of Kia.
    The preliminary triple-'A' rating addresses the ability of the issuer to pay timely interest and principal on the notes by the final maturity of the transaction, assuming that noteholders do not exercise their rights of exchange. Standard & Poor's preliminary rating does not address the likelihood or the timing of the exchange or conversion of the notes. In addition, it does not address the risk that investors might receive an exchange or conversion amount that is less than the outstanding principal on the note as a result of capital gains tax, withholding tax, foreign exchange fluctuations, or other events. Moreover, the preliminary rating does not address the likelihood that noteholders will be able to meet requirements under Korean law governing the ownership of shares in Kia.
    The issuer, HMC Cayman Finance, is a bankruptcy-remote limited-liability company based in the Cayman Islands. The company was established to issue the exchangeable notes to investors domiciled outside of Korea. Proceeds from the notes will be used to purchase U.S. Treasuries. The U.S. Treasuries will serve as collateral in this transaction and will secure the exchangeable notes. The collateral will be purchased in the name of HMC Cayman Finance and will be held by Bankers Trust Co., the collateral agent, in a segregated trust account. Ongoing expenses for the Cayman special-purpose vehicle will be funded through an Escrow account, established by Bankers Trust Co.
    Funds collected from the maturity of the collateral will be passed through to settle amounts due to noteholders on a timely basis. The collateral will mature at least two days prior to the interest and principal due date on the exchangeable notes.
    Hyundai Motor Co.'s 51 million shares in Kia are entrusted to Hanvit-Kia Securities Trust (Korean trust), a special-purpose trust established in Korea under Korean law for the purposes of this transaction. Under a trust agreement, the Korean trust will issue both senior and subordinated certificates. The senior certificates will be held by HMC Cayman Finance and the subordinated certificates will be held by Hyundai. Through the senior certificates, the noteholders will exercise their right to exchange their notes for the relevant number of Kia shares. Once the shares are delivered, the collateral will be delivered to the Korean trust and ultimately released to Hyundai, as the subordinate certificate holder. At closing, the Korean trust will contain sufficient funds to meet ongoing expenses and Korean securities transaction taxes associated with the transfer of shares.
    The preliminary rating on the notes is based on:
    -- The U.S. Treasuries that serve as collateral for the
    noteholders;
    -- The hedging of HMC Cayman Finance's assets and liabilities to
    ensure timely payment of its liabilities, including the
    redemption of notes for those noteholders who do not elect to
    make an exchange;
    -- The holding of collateral in custody outside of Korea and/or
    in trust by trustees, and the requirement that all bank
    accounts maintain an 'A-1'-plus short-term rating;
    -- The status of HMC Cayman Finance and the Korean trust as
    bankruptcy-remote entities; and
    -- The soundness of the legal and tax structure of the
    transaction, backed by satisfactory legal opinions. These
    include Korean true sale opinions and relevant regulatory
    approvals from the Korean government, Standard & Poor's said.

    ---CreditWire

    Copyright 2001, Standard & Poor's Ratings Services