Cars run on credit, not gas!
PRESENTERS Eric Senay Frank Boroch Vice President Director of Capital Markets and Treasurer and Investor Relations Hyundai Capital America Hyundai Capital America
FACILITATOR John Nicholas Editorial & Research Director Treasury Today
For 2015 Adam Smith Awards Use Only 1 For 2015 Adam Smith Awards Use Only Hyundai Capital America
Adam Smith 2015 Top Treasury Team
New Car Loans CPO Loans New Car Leasing Dealer Finance Vehicle Protection
For Informational Purposes Only For 2015 Adam Smith Awards Only Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Hyundai Motor Group Overview
Top 5 global Auto OEM1 Parent
2x U.S. Sales Growth
Local OEMs
'09 '10 '11 '12 '13 '14
Established in 1989 to support U.S. sales
2 Subvention Scale - Top 10 U.S. Auto Finco Support Captive Financing 5x Asset Growth Finance Programs
'09 '10 '11 '12 '13 '14
Sources: Company data as of June 30, 2015 For 2015 Adam Smith 1 OEM global sales releases by units sold for CY ’14 Awards Use Only 3 2 Experian ‘State of the Automotive Finance Market – Q1 2015’ – Top 20 lenders in the NEW retail loan market Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Hyundai Capital America (HCA) Overview
Comprehensive Product Line Strategic Market Positioning
• New car loans Consumer • New car leases Finance • Used car & CPO loans U.S. Vehicle Sales Dealer • Floorplan • Working capital 2nd largest auto Finance • Real estate market for Hyundai/Kia
• GAP Vehicle • VSC Protection • Prepaid maintenance 1.3mn (2014 units) National Coverage
New Car Lending 90% 90% of OEM U.S. sales are financed Irvine
Dallas Atlanta HQ Operation Centers For 2015 Adam Smith Source: Company data December 31, 2014 Awards Use Only 4 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Key Steps of Treasury Transformation
Key Issues & Challenges
Rapid Asset Growth Growing Complexity
$25B IMPACT
COMPLEXITY $15B Short Term Heat Tactical Process Problem Solving Mapping Transformation Improvement ‘11 ‘14 Transformation Milestones
Balance Sheet New Domains Enhanced Stakeholder Liquidity Funding Exposure of Expertise Analytics Management Optimization Diversification Management
For 2015 Adam Smith Source: Company data December 31, 2014 Awards Use Only 5 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Fit for Purpose Organization
Head of Treasury Strategic Planning & Expo. Mgt. Capital Markets & Banking Eric Senay, Mustally Hussain, Charley Yoon, Vice President, Treasurer Senior Director Senior Director • GE Capital, General Motors • National Grid, Citigroup, Analysis Group • Bank of Tokyo, Pac-Life, Hyundai Motor • 20 years of experience • 14 years of experience • 22 years of experience • Business Treasurer in three different • Led NatGrid’s financial strategy group; • Led stand-alone credit ratings for HCA GECC global businesses advised on $5B in transactions (2012), raised over $25B in funding
Tested field Average Manager Finance Experience Expertise: yrs 10+ Bringing breadth of institutional knowledge from… Debt Capital Markets Securitizations Cash Management Graduate Degrees & Risk Management Professional Certifications ` Financial Strategy Advanced Degrees: MBA, MPA, MS, MQF 25+ Hedge Funds 29 Certifications: CTP, CFA, FRM Fortune 500 Corporate Fin. Competitors Consulting Advanced customized training paths 30 Finance and Treasury specialization Investment Banking Best Practices across organization
For 2015 Adam Smith Source: Company data Awards Use Only 6 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Converting Treasury Operational Pillars Into Domains
. Build required depth and expertise through strategic hires and specialized training
Operational Pillars Dedicated Domains
• Investment Management Banking • Liquidity Management • Cash Operations
Exposure • Asset-Liability Risk Mgt Mgt. • Operational Governance
Capital • Funding Markets • Investor Relations
Strategic Foundation Focused Treasury • Advanced Analytics Planning • Financial Planning
For 2015 Adam Smith Source: Company data December 31, 2014 Awards Use Only 7 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Analytical Framework to Navigate Changing Business . Changing asset mix + new funding channels required more dynamic framework to manage interest expense and business constraints
2014 Collateral Business Untapped CoF Flexibility Constraints Capacity
ABS • Asset quality • Rigid SLAs • Monthly disclosure Secured Conduit • Regulatory scrutiny
Commercial • Marginally higher Paper blended funding costs Bank • Additional internal Funding oversight • Lengthy approval Unsecured process
Sources of External Capital Bond
• Internal approval N/A Parent & Affiliates process Internal Internal Funding
For 2015 Adam Smith Awards Use Only 8 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact New Tools Support Robust Funding Analytics and Sensitivities
Asset Characteristics CoF Asset Acquisition Asset Credit Mapping Origination Tenor (by Funding CoF Type Quality (in %) Channel) Mix
Platform Growth Scenario Multi-Platform Scenario
Add’l Prime / $xB Capacity Near- Assets Prime Prime 90/10% Prime
Prime
Near-Prime 40/60% Near-Prime Near-Prime Sub-Prime 100% Sub-Prime Sub-Prime Expanded ABS Existing ABS Super/Near/Sub Balancing Funding Efficiency with Profitability Platform Growth Scenario Multi-Platform Scenario LT Bond Add’l $xB Capacity Term Debt Bonds Bonds MTN Bonds Non-US$
CP CP CP
Liabilities I/C & Bank I/C & Bank I/C & Bank Loans Loans Loans Expanded Bond/CP Existing Bond Diversification Unsecured For 2015 Adam Smith Source: Company data Awards Use Only 9 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Enhancing Executive Communication And Decision-Making Monitoring Internal & External Metric Metric External & Internal ALCO Management & Risk ALCO Stress Testing Stress Scenario Analytics Analytics Scenario & Market Risk Exposure Risk Market
For 2015 Adam Smith Source: Company data Awards Use Only 10 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Funding Diversification Strategy
. Targeting optimal balance between funding diversification and cost of funds Launched new funding platforms: IG bonds & CP >200 investor meetings in ‘13-’14
HCA Debt Balance Stable Diversification Sustainable Liquidity
Commercial Paper > 2x Syndicated RCLs Overnight Bilats Unsecured Initiate IG Bond ABL 45% 1 Establish MTN “Shelf” Conduit
Launch Program for Funding Commercial Paper Diversification : 2 +15% pts. Mix Shift Unsecured Optimize Multiple 30% 3 Bank Facilities Secured Secured Sustain Secured 70% 55% 4 Funding Platform '11 '14 '11 '14
For 2015 Adam Smith Sources: Company data as of December 31, 2014 Awards Use Only 11 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Evolution of HCA’s Funding and Exposure Management
Strategic Planning & ALCO Initiation & Increasing Balance Sheet Optimization Foundation Development Holistic Framework
‘13 ‘14 ‘15 ‘16
• Holistic Framework1 • Liquidity Stress Liquidity • Debt Coverage Ratio • Collateral Scenarios • Target Balance Sheet Risk Management • Contingent Liquidity
• Holistic Framework1 Liability • Unsecured Debt Mix • FTP (Acquisition • Matched Funding • Matched Funding Live Management Cost of Funds) Development • Target Balance Sheet
• Holistic Framework1 • ALM Live Market • Hedging Framework • − • In-House Excel- • Target Balance Sheet Risk • ALM Implementation Based Analytics • Dynamic ALM Strategies
Capital • Leverage Ratio • Capital Planning • Leverage Ratio • Holistic Framework1 Management • Residual Sale • Target Balance Sheet
• Framework Enhanced • Companywide • Optimized Efficiency and Treasury • Holistic Framework1 (ORE, P&P, & RCSA) Policies and Minimal Errors via Operational Risk (P&P and RCSA) • Systems: Treasury Procedures (P&P) Framework and Systems and ALM workstations • Holistic Framework1 • KPI Expansion • Investment Strategy • In-House Excel- Investment Risk • Best-in-class • Investment Strategy Expansion (Cash Based Analytics Analytics Expansion Management)
FI Counterparty • Concentrations and • Enterprisewide • Holistic Framework1 • CVA Stress Testing Risk Credit Ratings Coordination For 2015 Adam Smith 1 Holistic framework is defined as risk area strategy, action plan, and KPIs as reported into ALCO. Awards Use Only 12 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Holistic Analytics of Funding Costs & Funding Risk
Integrated Liability Management
Foundation of balance Best practices
P&L B/S • Advanced Treasury Analytics Costs Risk • Stress Testing • Dynamic Asset Liability Mgt
Counterparty Liquidity Capital Investment Operational Liability Market Risk (Cpty) Risk Risk Management Risk Risk Management Management
Days of Unsecured Duration of Max Bank Leverage Insurance RCSA Funding Mix Equity Credit (D/E) Investment
Liquidity Gap Floating Net Interest Max Swap Capital Libor OIS Risk Events Mix Income Exposure Adequacy Spread (OREs)
6M Liquidity Short-Term Earnings at Exposure Fixed Charge IG Near-Miss Coverage Mix Risk Concentration Coverage Spread Events (NMEs)
24M Maturity ALM Investor ALR Tracking Policies & Coverage Ladder Ratio Concentration Grade Error Procedures
For 2015 Adam Smith Awards Use Only 13 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Risk Control Self Assessment (RCSA) . Implemented operational risk governance testing and assessment platform with regular reporting to executive management
RCSA Areas Overall Weight Category Sub-Weight Individual Manager Leader Marketing Scorecard
▣ Policy / Standard/ SOP / Process Establishment
▣ Adherence to existing Policy / SOP (including P-R-A-Z, segregation of duties) Treasury Scorecard Process, Control ▣ Efficiencies of Processes and Controls (including approvals) and Mitigation Strategy & x ● ● ● ● ● ▣ Operational Issues / Exceptions / Fraud Occurrence Planning
▣ Intra-coordination with Other Departments Exposure y ● ● ● ● ● "Process, Control and Mitigation" Sub Score 0.0 0.0 0.0 Mgt ▣ Key-man Risk Coverage Investor People x ● ● ● ● ● ▣ Staffing Level Relations "People" Sub Score 0.0 0.0 0.0 Secured ● ● ● ● ● ▣ Model Risk and Data Integrity Management Funding y Infrastructure ▣ Automation and Digitalization (System/Tool) Unsecure x ● ● ● ● ● "Infrastructure" Sub Score 0.0 0.0 0.0 d Funding ▣ Staff Readiness New Initiative Liquidity x ● ● ● ● ● Introduction ▣ System / Process Readiness Mgt "New Initiative Introduction" Sub Score 0.0 0.0 0.0 ▣ Treasury ● ● ● ● ● Business Continuity Plan Ops x Business Continuity
Check "Business Continuity" Sub Score 0.0 0.0 0.0
Overall RCSA Score 0.0 0.0 0.0
For 2015 Adam Smith Awards Use Only 14 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Integrating Governance & Target Setting
…Organizational Effective governance body and Buy-In for Balance mechanism is critical, and leads to… Sheet Risk Mgmt.
Strategy Internal business alignment
Target Setting Target setting by comprehensive ALCO analysis of internal and (corporate / country / external factors & business unit level) Mitigation / inputs • Benchmarking Recommendation • Stress Testing • NRSRO’s
Execution
For 2015 Adam Smith Awards Use Only 15 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Strategic Stakeholder Management Framework Overview
. >80% of new vehicle sales are financed . 85% of HCA’s funding comes from external sources . HCA’s larger scale and more frequent funding required dedicated, systematic, and sophisticated stakeholder management platform
Stakeholder Management Platform External Capital Providers & Influencers
Banks Differentiated Dedicated Local Value Resources Proposition
C-Suite Engagement Investors Rating Credible Stakeholder Agencies Communication Segmentation & Platform Servicing
For 2015 Adam Smith Awards Use Only 16 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Strategic Stakeholder Management Framework: Investors
Six specific selection criteria: Focused Translate targets and 1. Minimal platform participation 4. Significant time since last meeting into new or Targeted 2. Investor skipping recent trades 5. Anchor orders recurring Approach 3. Underrepresented given size 6. RAD Framework status* investors
# investor interactions Communication Life-Cycle Familiarity Targeting Deep Dive
Situational attendance at high-value Strategic time conferences allocation with KOL Website Marketing and tier 1 investors 24,000 page views Materials Tradeshow distinct Key Opinion collateral offerings Conference One-on- (e.g. Auto Show) Leaders (e.g Agencies and Sell- One side) 200+ meetings since 2012 Degree of Reach of Degree
C-suite Participation SMEs & Treasury Degree of Engagement Initial contact / Relationship Management: Complete cycle / High-level fact Targeted fact sharing / Investor dialogue Investor retention sharing For 2015 Adam Smith *RAD Investor Targeting Framework: Retention, Acquisition, Development Awards Use Only 17 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Strategic Stakeholder Management Framework: Banks
Enhanced Analytics to Better Measure Banks Full Lifecycle Relationship Management Platform
. In-depth one-on-ones: ~100 bank meetings annually Management Comprehensive Bank Wallet Wallet Bank Comprehensive
TEXAS LOAN RISK AS LEVERAGE CAP TO MKT TO MODEL BASEL Composite Counter Party IDC DRSK . Global Hyundai Perspective: Unique Bankers RATIO % OF TIER I CAP RATIO RWA CDS RATIO TEST Score Bank A 200 IG6 d 1 2.1 1.6 1.30 PASS a Conference with participation from >20 banks Bank B 150 IG8 c 0 (1.6) 1.2 1.00 PASS b Bank C 375 IG9 z (6) (1.8) 5.3 0.80 PASS c from Asia, Europe, and U.S. in 2014 Bank D N/A IG10 x (8) (2.0) 0.5 1.70 PASS d Bank E 210 IG7 a 2 3.5 2.6 0.95 PASS e Bank F N/A HY1 f 2 (1.6) 3.4 1.15 PASS f Bank G 150 IG8 g 4 0.0 2.2 1.25 PASS g Bank H 285 IG5 r 0 1.8 1.8 1.00 PASS h Bank I N/A IG7 t 5 1.0 5.6 0.80 PASS i Bank J 225 IG10 w 6 (1.4) 1.8 1.75 FAIL j Bank K 230 IG10 q 6 (1.0) 2.9 1.55 PASS k Bank L 165 IG5 y 1 4.0 2.3 1.00 PASS l Bank M N/A HY1 u (11) (1.0) 3.2 1.25 PASS m Bank N 195 IG10 k 10 (1.0) 3.8 2.00 PASS n Bank O 310 IG5 j 2 0.5 4.1 1.10 PASS o Bank P 320 IG4 h 4 4.5 2.6 1.10 PASS p Bank Q 305 IG4 v 0 3.6 3.5 0.90 PASS q Bank R 200 IG10 n/a 10 1.0 1.8 0.70 PASS r Exposure Monitoring Rigorous Counterparty Rigorous Counterparty Healthy > 165 > IG8 < 50 > 0 + + > 1.00 PASS Acceptable > 125 IG8 < 100 0 + + > 0.75 PASS Dangerous > 75 IG9 < 150 > -10 0 0 > 0.50 FAIL For 2015 Adam Smith Unacceptable < 75 < IG9 > 150 < -10 -- < 0.50 FAIL Awards Use Only 18 Transformation Domains Analytics Funding Exposure Mgt. Stakeholders Impact Measurable Success Significantly Impacts the Bottom Line
Historical Scorecard Principal Mandates Broad Success
Commercial . Paper Finance annual debt maturity and growth Interco. ABS Loan . Maintain adequate liquidity to sustain Funding 44 $38B business growth Bank Loan . Obtain the lowest sustainable borrowing costs $22B Transactions Issued in . (‘93-’14) Manage funding platform guided by safety capital markets and soundness Bond (‘93-’14) Conduit/ Asset- Backed Loans
600 20 300 Investor Base 15 Banks 85% of Debt Funding 15% of Debt Funding ‘11 ‘14 ‘11 ‘14
200+ bps $11B <70 bps Bond Spread $6B Liquidity Credit Differential 5x Increase ‘11 ‘14 ‘11 ‘14 For 2015 Adam Smith Awards Use Only 19 For 2015 Adam Smith Awards Use Only Thank You PRESENTERS Eric Senay Frank Boroch Vice President Director of Capital Markets and Treasurer and Investor Relations Hyundai Capital America Hyundai Capital America
FACILITATOR John Nicholas Editorial & Research Director Treasury Today
Next webinar… Wednesday 21st April with Hindustan Unilever Limited For 2015 Adam Smith Fast moving treasury Awards Use Only 21