Lenders need unanimous consent to recoup funds from Homeplus leased stores

Financial institutions will be required to obtain unanimous consent from all lenders before recouping funds extended to Homeplus leased stores. Stores where loan interest cannot be serviced due to Homeplus's rent arrears, or where loan maturities are approaching, will receive financial support including maturity extensions. With the financial sector's exposure to leased stores estimated at around 3 trillion won ($1.99 billion), the measure is a last-resort effort by regulators and the industry to minimize market disruption from Homeplus's bankruptcy and engineer a soft landing for individual store sites.

Financial authorities and lenders are preparing a voluntary creditor agreement — a lender consortium accord — covering Homeplus leased stores, according to financial industry sources. The Financial Supervisory Service held meetings over three days beginning Tuesday with banks, specialized credit finance companies and savings banks, proposing the formation of a lender consultative body to restructure individual store sites.

Under the draft agreement, individual financial institutions would be barred from recovering funds on their own. Exercising collateral rights would require the unanimous consent of all lenders in the consortium, as would selling or transferring loan claims to third parties.

The draft also includes financial support provisions. Loan maturities can be extended if at least two-thirds of lenders agree, and a plan is being pursued to waive overdue interest charges for stores unable to make interest payments. Final details are to be confirmed after further discussions between regulators and the industry.

Homeplus had earlier sold its store properties to landlords through sale-and-leaseback arrangements to raise liquidity. Banks, insurers, specialized credit finance companies and savings banks subsequently extended loans — through funds and real estate investment trusts — to help those landlords finance the purchases. Total exposure from these arrangements is estimated at around 3 trillion won.

The concern is that if Homeplus, as the tenant, fails to pay rent on time, the landlords' cash flows deteriorate, raising the risk of bad debt at the financial institutions that provided the loans. With Homeplus now heading toward bankruptcy, the likelihood of lenders moving to exercise collateral rights and recover funds has grown. Banks have already written off 100 billion won in direct loans to Homeplus, booking the losses as final.

If the voluntary agreement takes effect, senior creditors such as banks would find it difficult to recover funds independently until individual store sites are stabilized. Typically, when senior creditors exercise collateral rights, junior creditors such as savings banks stand to incur losses during the asset disposal process. Even so, the chances of reaching a unanimous vote within the lender consortium on whether to allow banks to exercise collateral rights are considered slim.

The authorities' push for a lender consultative body is widely interpreted as an attempt to buy as much time as possible until the Homeplus situation stabilizes. If financial institutions begin recovering assets, currently operating Homeplus stores could be destabilized, compounding harm to suppliers and workers. There were also concerns that losses materializing for junior creditors could spread into a broader financial sector risk.

"If the banks, as senior creditors, start pulling money out of the store sites, the sites could collapse like dominoes," one financial industry official said. "The intent seems to be to use the lender agreement to buy time, then tackle the issues around supplier-related claims and unpaid wages first."

Another official said the aim was "to use financial support through the lender agreement to prevent closures as much as possible for stores that are still operating," adding that "even for stores that have already closed, a table will be set where creditors can put their heads together to work on restructuring those sites."

The financial sector has prior experience with lender consultative bodies, having formed one in 2023 to manage risks from real estate project financing. Under that arrangement, a two-thirds majority of lenders in the consortium could approve loan maturity extensions even over the objections of the remaining members. The Homeplus leased-store lender agreement is said to be modeled on that earlier accord.

Reactions to the authorities' proposal have been mixed across industry segments. Banks appear somewhat reluctant. "Collateral rights are a creditor's right — I worry that failing to exercise them in a timely manner could expose us to breach-of-fiduciary-duty claims," an official at one bank said, before adding: "That said, the authorities have made the request, so we'll review it — what choice do we have?" Non-bank lenders, including capital companies and savings banks, have been more receptive. "If members can walk away from the consortium at any time, it has no real teeth," an official at one savings bank said. "The fact that voting requirements for third-party transfers have been tightened is meaningful."

hyuk@heraldcorp.com