This article was published on April 8, 2025 at 10:56 a.m. on the ChosunBiz MoneyMove site.
It has been confirmed that the interest rate applied by Meritz Financial Group for the refinancing of its acquisition financing for Homeplus last year was 14%. The rate that was known in the market was around 8%, but the actual rate was nearly double that.
As Homeplus has entered corporate rehabilitation procedures, the industry is watching how many percentage points the Meritz acquisition financing interest rate will be adjusted. Recent analyses suggest that Meritz will attempt to lower the interest rate to half, similar to how Homeplus proposed to cut rents in half to real estate asset management companies. However, even if an agreement to cut it in half is reached, it still means facing a high interest rate of 7%.
A senior official from a Homeplus bond corporation remarked, "I'm stunned by the notice from Homeplus that they would cut the rent in half," adding, "It seems likely that Homeplus will make a similar proposal to Meritz, and I will be watching closely to see how Meritz responds."
According to investment banking (IB) industry sources on the 8th, Meritz acted as the sole arranger for the refinancing of the acquisition financing for Homeplus last May, providing a loan of 1.2 trillion won. Among the entire Meritz Financial Group, MERITZ Securities has the largest exposure at 655.12 billion won, while Capital and Fire Insurance each took on 280.77 billion won.
The market was informed that the interest rate at that time was set at 8%, which was the coupon rate, but the yield to maturity (YTM) was confirmed to reach as high as 14%. In other words, it was agreed that while bearing an annual interest of 8% until the principal repayment, an additional interest rate of 3.5% to 6% would be added upon repayment.
If Homeplus repays 250 billion won in the first year, the interest rate becomes 11.5%, which is the sum of 8% and an additional 3.5%. If 350 billion won is repaid in the second year, the interest rate applied would be 13.5%, which is the sum of 8% and an additional 5.5%. If no early repayment is made, the YTM will be structured to be 14%, which is the sum of 8% and an additional 6%.
Setting a low coupon rate while pegging a high YTM is something that often occurs in subordinated tranches. However, in this case, it is mostly when it is subordinated and serves as a mechanism to lower the interest burden before maturity. The idea is that 'if one earns a lot of money from future operations, investment attraction, or asset sales, they will pay more.'
It is unusual to set the YTM close to double the coupon rate, as was done in this Homeplus acquisition financing. In the case of Meritz, they are a senior creditor rather than a subordinated one. Without syndication (group lending), the entire burden was borne solely by the Meritz Financial Group.
An IB industry official said, "At that time, Homeplus was in urgent circumstances waiting for a decision from a major bank and hastily partnered with Meritz," adding, "They likely had no choice but to accept Meritz's demands, and they probably never imagined it would lead to rehabilitation."
It is presumed that the reason MBK Partners, the major shareholder of Homeplus at the time, accepted a YTM approaching 14% was due to the belief that they could achieve an exit (recover their investment) through the sale of real estate or control before maturity. In fact, it is expected that they likely conveyed such a repayment plan to Meritz.
Homeplus is scheduled to submit a rehabilitation plan to the court by June 3, and the plan must be approved at a meeting of stakeholders prior to that. For secured creditors, at least three-quarters must agree, while for unsecured general rehabilitation creditors, at least two-thirds must consent to meet the approval conditions. Of the total secured debt (including commercial paper) of 2.1 trillion won, 1.2 trillion won is owed to the first-priority secured creditor, Meritz, meaning that if Meritz does not agree, the rehabilitation plan will inevitably be rejected.
MBK and Meritz are likely to enter into discussions regarding lowering the acquisition financing interest rates. Once the rehabilitation process begins, a comprehensive prohibition order will be issued, indefinitely postponing the repayment of borrowing funds and interest. Homeplus only needs to repay employee wages and transaction debts classified as public interest debts among its rehabilitation debts first. The money borrowed from Meritz is not prioritized for repayment.
An IB industry source stated, "From Homeplus's perspective, cash flow is crucial at this time, so lowering the coupon rate is important," adding, "However, since the YTM itself is exceptionally high, even if it is halved, there is a high possibility it will hover around the 6% to 7% range."
However, Meritz reportedly has sufficient collateral rights and would be able to execute rights immediately in the form of a collateral trust, but is waiting to see MBK Partners' best self-rescue efforts before making a decision.