Homeplus's bankruptcy proceedings have exposed significant financial risks for Lotte Engineering & Construction and DL E&C, which provided credit enhancements for subordinated project financing loans totaling 871.9 billion won as of the 3rd, according to Korea Ratings. The construction companies face potential capital outflows if senior lenders declare an Event of Default, as they guaranteed subordinated debt for projects involving Homeplus store acquisitions and development. Korea Ratings warned that if the rehabilitation procedure termination leads to full-scale store closures and halts rental income, financial support costs could expand significantly under the current project financing structure.
Construction Companies Face 871.9 Billion Won PF Guarantee Exposure
According to Korea Ratings, the construction companies' project financing guarantee exposure as of the 3rd totals 729.4 billion won for Lotte Engineering & Construction and 142.5 billion won for DL E&C. If senior creditors declare an Event of Default, the construction companies providing subordinated guarantees must immediately fulfill subrogation obligations amounting to hundreds of billions of won. Korea Ratings stated that the rehabilitation procedure termination could lead to full-scale store closures and rental income suspension, potentially requiring significantly expanded financial support.
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Homeplus store [Source: Yonhap News file photo]
NICE Credit Rating noted that if Homeplus's final liquidation is determined, financial burdens will emerge from suspended rental income from operating stores and increased financial costs due to development project delays. The structure requires construction companies that provided guarantees to absorb costs when special purpose companies (SPCs) cannot repay loan interest after Homeplus store closures halt rental income.
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[Source: Korea Ratings]
Senior Debt Matures in Second Half with 900 Billion Won Due
Approximately 900 billion won of Homeplus's senior debt matures in the second half of this year, with remaining debt concentrated in the first half of 2027. Korea Investors Service assessed that if senior debt cannot be refinanced normally, construction companies may provide additional credit enhancements for senior PF loans or acquire related debt to proceed with development projects. NICE Credit Rating diagnosed that Lotte Engineering & Construction faces a maximum annual interest burden of approximately 50 billion won to prevent Event of Default in situations where rental income ceases from all previously operating stores.
Korea Ratings noted that the actual timing of capital outflows will vary depending on creditor responses and contract structures. Even without an EOD declaration, failure to refinance at maturity could burden the construction companies.
Lotte Engineering & Construction and DL E&C Plan Asset-Based Response
Credit rating agencies assessed that the construction companies can respond through cash holdings and asset sales. Lotte Engineering & Construction plans to utilize termination of time deposits provided as collateral. DL E&C intends to repay loans with proceeds from the sale of Homeplus Ulsan Namgu store.
FAQ
What financial exposure do Lotte Engineering & Construction and DL E&C have to Homeplus?
As of the 3rd, Lotte Engineering & Construction has 729.4 billion won in project financing guarantees related to Homeplus, while DL E&C has 142.5 billion won, totaling 871.9 billion won according to Korea Ratings.
When does Homeplus's senior debt mature?
Approximately 900 billion won of Homeplus's senior debt matures in the second half of this year, with remaining debt concentrated in the first half of 2027.
