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Legal Issues in the Loan Securitization Backed by the Public’s Refund Guarantee on Land Payment in PPP (Public-Private Partnership)

  • Korea Real Estate Review
  • 2013, 23(2), pp.7-33
  • Publisher : korea real estate research institute
  • Research Area : Social Science > Law > Law of Special Parts > Law of Real Estate

Jin Kim 1

1서울연구원

Accredited

ABSTRACT

The purpose of this study is to examine the loan securitization structures of PPP (Public- Private Partnership) development projects of which underlying asset credits are backed by the public companies (i.e. government- or municipality-sponsored entities)’s refund guarantee on project companies’ payment for land cost then analyze legal issues concerning the project safety and the public companies’ financial status. It scrutinized two cases of ABSs (Asset Backed Securities) and two cases of ABCPs (Asset Backed Commercial Paper) in PPP: that is, Yongsan International Business District and Byulnae Central Business District for the former and Kwanggyo and Eunpyung Central Business Districts for the latter. The study found some legal risk ambushed in the public’s refund guarantee. First, when the event of default occurs, the public must subrogate the project companies’ obligation: which entails the cancellation of land contract thus leads to the rescission of project agreement between the public and project companies. It questions whether it is rational for the failure of project company’s loan repayment to break down the important PPP projects designed to enhance the public interests. Second, though the usual project agreements include the covenants how to calculate the refund amount in conformity with the subject of imputation, the public’s subrogation amount is fixed in securitization contracts therefore no one is confident about the appropriateness of the public’s subrogation. The public companies take the risk to overpay ABS or ABCP SPCs (Special Purpose Companies). Third, the unconditional payment guarantee by the public firms detected in ABCP agreements may violate the regulation on the issuance of corporate bond. Fourth and the last, the legal obligation of unconditional payment guarantee in ABCP can be compatible with that of the refund guarantee: which causes the jeopardy of double payment.

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