Fears of a credit squeeze are spreading across the bond market as JoongAng Group affiliates have filed for corporate rehabilitation proceedings in quick succession, following JR Global REIT. The market expects the crisis to accelerate a three-way split in the corporate bond market that goes beyond the existing polarization by rating.
According to the financial investment industry on the 16th, five core JoongAng Group affiliates—JoongAng Holdings, JTBC, Megabox JoongAng, Contentree JoongAng, and JoongAng P&I—filed for corporate rehabilitation proceedings with the Seoul Bankruptcy Court. Corporate rehabilitation proceedings are a system in which corporations that find it difficult to service debt normally adjust their debt under the court's supervision and pursue a return to normal operations. JoongAng Ilbo, the group's origin, is also pursuing a voluntary workout (corporate restructuring program).
The crisis was triggered on the 12th when JTBC failed to repay 20.6 billion won in maturing securitized debt (electronic short-term bonds). JoongAng Group had been covering maturing short-term borrowings through inter-affiliate lending, payment guarantees, and the provision of collateral. In particular, liquidity within the group tightened as it supported Megabox. According to Hana Securities, JoongAng Group's total borrowing fund will reach 2.8 trillion won by the end of 2025.
Earlier, on Apr. 27, JR Global REIT applied to the Seoul Bankruptcy Court to commence rehabilitation proceedings. As the collateral value (GAV) of its underlying asset, Belgium's Finance Tower, declined, the loan-to-value (LTV) ratio exceeded the covenant threshold, triggering a cash trap that allowed the senior lender group to control rental revenue. With cash flow blocked, it applied for rehabilitation after failing to repay about 40 billion won in bonds maturing intensively in April–May.
This year, as major corporations such as JR Global REIT and JoongAng Media Group failed to redeem corporate bonds and entered rehabilitation, concerns are growing that the corporate bond issuance market will contract. Because corporate bonds are a representative unsecured funding tool issued based on corporate creditworthiness, the issuer's credit quality dictates investor demand.
Experts say the crisis will deepen polarization in the corporate bond market. The top-tier AAA segment will see limited impact, but the high-grade AA segment is expected to shoulder considerable burdens in terms of yields and prices. In contrast, bonds rated A and below could face a deep freeze in investor sentiment, effectively shutting their funding channels during a harsh winter.
Kim Doo-eon, an analyst at Hana Securities, said, "AAA-grade will be limited in its exposure to the fallout from this crisis," but added, "AA-grade will not face large impacts, yet prices are likely to be weighed down for the time being." Kim said lower-quality grades are likely to face significant difficulty issuing at all.
According to the Financial Supervisory Service, as of April last year, high-grade bonds rated AA or above accounted for 79.9% of unsecured general corporate bond issuance. A-rated issues were 16.4%, and BBB and below were 3.7%.
With credit risk rising across the market, corporations may have to offer higher yields or arrange credit enhancements to issue corporate bonds. Some corporations are also seen opting for alternative funding such as bank loans instead of corporate bonds.
Jeong Hwa-young, head of the Bond Research Center at the Korea Capital Market Institute, said, "This year's major defaults, including JR Global REIT and JoongAng Group, have heightened credit risk vigilance in the issuance market," adding, "From the issuer's standpoint, there is a possibility of raising yields to secure investors or switching to bank loans for funding."