Will JoongAng Group's Rehabilitation Filing Increase the Burden on KODIT? [fn Market Watch]

[Financial News] As Megabox Joongang, a subsidiary of JoongAng Group, filed for corporate rehabilitation proceedings, the burden is growing on the Korea Credit Guarantee Fund (KODIT), which provided guarantees for the P-CBOs issued by the company.
According to the investment banking industry on the 22nd, Megabox Joongang issued about 59.4 billion won worth of Primary Collateralized Bond Obligations (P-CBOs) between May and November.
A P-CBO is an asset-backed security issued by pooling newly issued bonds from companies that have difficulty issuing corporate bonds directly because of low credit ratings, with guarantees from KODIT. Unlike publicly offered bonds, which must receive ratings from at least two credit rating agencies, a P-CBO can be issued with a rating from just one agency. Investors effectively rely on KODIT's payment guarantee.
Megabox Joongang applied to begin corporate rehabilitation proceedings on the 14th. In response, credit rating agencies including Korea Investors Service (KIS) downgraded the company's short-term bond rating from B to C and said they would maintain a negative watchlist review. Being placed on a downgrade review list means there is a high likelihood of further rating cuts if the company is judged to have weakened debt repayment capacity within six months. In other words, it suggests the company's credit rating could be lowered to D, or default.
KIS said, "When Megabox Joongang later receives a decision from the Seoul Bankruptcy Court to begin rehabilitation proceedings, we plan to rate its commercial paper and short-term bonds as D." In that case, the burden of paying principal and interest to investors could shift to KODIT. KODIT would then have to recover the claims through the rehabilitation process, but the recovery rate remains uncertain.
In the investment banking industry, there are growing concerns that the risk of losses on P-CBOs guaranteed by KODIT could become real as rehabilitation filings by JoongAng Group affiliates continue one after another. Since KODIT is a policy finance institution, the issue could ultimately lead to a burden on public funds, fueling criticism over a possible "taxpayer burden."
Meanwhile, five companies in the JoongAng Group, including the holding company JoongAng Holdings, JTBC, ContentreeJoongAng, Megabox Joongang, and Jungang P&I, have filed for rehabilitation proceedings.
khj91@fnnews.com Kim Hyun-jung Reporter