CONTENTS
- 1. Structured Finance | A Core Financial Technique for Corporate Fund-Raising
- - Asset Securitization Transaction Structure
- - Key Financial Instruments
- 2. Structured Finance | Reasons Companies Use It
- - The Legal Issues Companies Encounter Most Often
- - Penalties for Violating the Asset-Backed Securitization Act
- 3. Structured Finance | Various Underlying Assets and Transaction Types
- - Preliminary Review Checklist for Companies
- 4. Structured Finance | The Core of Corporate Financial Strategy
1. Structured Finance | A Core Financial Technique for Corporate Fund-Raising
Structured finance is one of the financial techniques in which a company uses its assets or future cash flows as underlying assets to issue securities to investors or to obtain loans.
In particular, as structured finance is used in various financial transactions such as asset securitization, project financing, and the sale of non-performing loans, it plays an important role in companies' fund-raising strategies.
Unlike ordinary corporate loans, it is characterized by designing the financial structure based on the profitability and stability of the assets themselves.
In particular, in the global financial market, various forms of structured finance products such as asset-backed securities (ABS), asset-backed commercial paper (ABCP), and mortgage-backed securities (MBS) are used.
In Korea as well, the structured finance market grew rapidly after the enactment of the Asset-Backed Securitization Act following the foreign exchange crisis, and financial institutions, public enterprises, and large corporations actively use it as a means of raising funds.
Asset Securitization Transaction Structure
Structured finance transactions have a more complex structure than ordinary financial transactions, so various legal reviews are required at each stage.
The general procedure for a structured finance transaction is as follows.
2. Transfer of the underlying assets
3. Establishment of a special purpose company (SPC)
4. Conducting the credit rating
5. Issuance of the securitized securities
6. Sale to investors and fund-raising
Key Financial Instruments
Structured finance transactions make use of the following financial instruments.
Category | ABS | ABCP | ABL |
Concept | Long-term securities issued on the basis of assets | Short-term commercial paper issued on the basis of assets | A loan secured by assets |
Maturity | Medium to long term | Short term (usually within one year) | Financial institution loan structure |
Issuing entity | SPC | SPC or financial institution | Financial institution |
Primary uses | Real estate, accounts receivable | Project financing | Raising operating funds |
Characteristics | Investment product form | Short-term funding | Secured loan in nature |
These financial instruments are designed by considering both a company's funding methods and an investor's risk management strategy at the same time.
2. Structured Finance | Reasons Companies Use It
Companies use structured finance for the following reasons.
- Ability to raise large-scale funding
- Management of the debt ratio on financial statements
- Ability to use future cash flows
- Securing funds for project investment
- Reduction of financing costs
In particular, airlines, card companies, construction firms, and infrastructure companies build stable funding structures through structured finance.
The Legal Issues Companies Encounter Most Often
The following legal issues can arise in structured finance transactions.
In structured finance transactions that incorporate derivative financial instruments, a review of international standard contracts is also needed.
Because these transactions are structured in many different ways depending on financial market conditions, a comprehensive review of finance, tax, and regulation is required.
Penalties for Violating the Asset-Backed Securitization Act
Type of Violation | Penalty |
Breach of the obligation to hold asset-backed securities or failure to comply with the required holding ratio | Penalty surcharge of up to 5% of the issued amount of the asset-backed securities (maximum 2 billion won) May be imposed within 5 years after the violation ends |
Falsely preparing an asset transfer registration application or supporting documents | Imprisonment of up to 3 years or a fine of up to 20 million won |
Falsely preparing documents related to asset securitization or refusing inspection | |
Using a debtor's solvency information for purposes other than intended | |
Failing to manage securitization assets separately from proprietary assets | Imprisonment of up to 1 year or a fine of up to 10 million won |
Borrowing or investing funds in a manner inconsistent with the asset securitization plan | |
Failing to comply with a business improvement order from the financial authorities | |
A violation committed by a corporation's employee or others | In addition to punishing the actor, a fine may also be imposed on the corporation |
Failure to prepare or keep securitization asset ledgers | Administrative fine of up to 10 million won |
Improper use of the name of a securitization special purpose company |
3. Structured Finance | Various Underlying Assets and Transaction Types
A wide variety of assets are used as underlying assets in structured finance transactions.
The following assets are representative examples subject to securitization.
- Accounts receivable
- Credit card receivables
- Mortgage loan receivables
- Automobile installment receivables
- Real estate rental income
- Construction payment receivables
Recently, securitization structures based on future cash flows have also been actively used.
Securitization of future claims
Securitization of future claims is a method in which a company designs a financial structure using sales or revenue that will arise in the future as underlying assets.
Various future cash flows, such as airline mileage sales, telecommunication charges, and card receivables, can be subject to securitization.
Non-performing loan (NPL) transactions
Structured finance is also used in the process by which financial institutions sell or securitize non-performing loans (NPLs) they hold.
By selling or securitizing non-performing loans to investors, financial institutions can improve their financial structure and secure new capacity for fund management.
Preliminary Review Checklist for Companies
When reviewing a structured finance transaction, a company should check the following items.
✔ The legal stability of the transaction structure
✔ Tax and accounting treatment issues
✔ Whether financial regulations apply
✔ The feasibility of attracting investors
Reviewing these factors comprehensively to design the transaction structure carries significant weight.
4. Structured Finance | The Core of Corporate Financial Strategy
Structured finance is an important financial technique that allows a company to raise funds by efficiently using the assets it holds.
In particular, when structured finance is used in carrying out large-scale investments or projects, a company can secure the funds it needs while maintaining a stable financial structure.
Because the transaction structure is complex and financial, tax, and regulatory issues may arise at the same time, professional legal review carries considerable importance.
Daeryun Law Firm, ranked ninth among law firms in Korea (based on 2025 National Tax Service value-added tax filings), provides legal advisory covering the full scope of structured finance transactions through a task force in which finance attorneys, corporate legal attorneys, and tax accountants collaborate.
In particular, we provide comprehensive legal services covering asset securitization structure design, issuance of asset-backed securities, contract drafting and negotiation, review of financial regulations, and dispute response, thereby supporting companies' stable financial transactions.
If you need legal assistance with a related matter, we recommend that you book a 🔗legal consultation with a finance attorney.
