Amsterdam Institute of Finance

Course on
Asset-Backed Securities
New Techniques, New Risks
Prof. Ian Giddy
New York University

Asset Securitization

Asset-backed securities constitute a growing segment of the European and global capital markets. The asset securitization technique, while complex, has won a secure place in corporate financing and investment portfolios because it can, paradoxically, offer originators a cheaper source of funding and investors a superior return. Not only does securitization transform illiquid assets into tradable securities, but it also manages to transform risk by means of the separation of good financial assets from a company or financial institution with little loss of revenue. The assets, once separated from the originator, are employed as backing for high-quality securities designed to appeal to investors.

For more details see the instructor's website,


Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 30+ countries abroad for the past two decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in the U.S. and abroad. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide.

Prof Ian Giddy
Stern School of Business
New York University
44 West 4th Street
New York, NY 10024

+1 646 808 0746
Amsterdam Institute of Finance

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    The Course

This course provides investors, issuers and bankers with an evaluation of trends in the asset-backed securities market, with an focus on the legal and credit structures of some of the newer techniques.  The emphasis is on understanding the benefits, costs and risks from the issuer's and the investor's viewpoints, and how the rating agencies look at ABS risks. Special attention is given to the European ABS market, although the Seminar looks at a number of different asset classes and structures, in the USA and Asia as well as Europe. 

The course will include case studies of actual deals, as well as hands-on exercises, and will give participants the opportunity to demonstrate their understanding of deals through group meetings and general discussions.

One goal for participants is to develop a check list or rapid overview of the key criteria in an ABS deal, to consider when analysing an ABS structure, so as to grasp the main strengths and risks of each deal after an initial rapid analysis.

Some of the issues to be discussed include:

  • What are the key legal issues, and why are they sometimes circumvented?
  • What are bank regulators' concerns, and what are the flaws in the new Basel 2 guidelines?
  • What drives ratings? Are rating agencies influenced by non-credit factors? How can this lead to weaknesses in the legal structure?
  • Servicers - the weak link or hidden strength?
  • How can one evaluate different collateralized debt obligations (CDOs)?
  • How do waterfall structures allow ABS quality to improve to levels better than the ratings?
  • Synthetic ABS: How do they really work, and what are theri strengths and shortcomings?
  • When is a so-called ABS really a corporate bond -- where the investor is simply taking business risk? What is "whole business securitization?"
  • Future flows, project finance and intangibles - can the securitization technique really finance these?

Background Readings

Outline of Course

Day 1

  • The ABS Market Today 
    • Growth and changing character of the ABS market 
    • Contrast between North American, European and Asian markets
    • Trends: new asset classes, synthetics, unfunded CLOs, covered bonds
    • Potential impact of new Basel capital guidelines 
    • The process: Example of typical structure and cash flows 
    • Application: Finance Company Limited 
  • Legal, Tax, Regulatory and Disclosure Aspects
    • True sale and bankruptcy-remote requirements 
    • Legal structures for asset securitization
    • Application: Ford Credit Auto Owner Trust
    • Accounting aspects
    • Regulatory aspects
    • Tax aspects
    • Fixed-pool versus revolving structures
    • Credit cards: soft bullet paydown
    • Focus: The impact of Basel II on ABS
    • Exercise: Capital Requirements and the Cost of Capital
  • The Issuer's Viewpoint: Cost-Benefit Analysis 
    • Securitization in the context of corporate financing choices 
    • The economics of off-balance-sheet financing: does ABS really free up the balance sheet? 
    • How to perform a financial cost-benefit analysis for an originator: does ABS really reduce financing costs? 
    • Illustration: Ford Credit Auto Owner Trust
  • The Rating Process and Credit Enhancement
    • The rating agencies, rating levels and what they mean 
    • Pool analysis;Seller/originator risk; Servicer performance risk; Swap counterparty risk; Legal risks; Sovereign risk 
    • Originator, servicer, counterparty and manager analysis
    • Case study: Atherton Franchise Loan Deal
    • Legal structure analysis 
    • Deal analysis and negotiating credit enhancement
    • Techniques of credit enhancement: Credit risk management; Overcollateralization; Senior-subordinated structures; Excess servicing and liquidity accounts; Financial guarantees 
    • Ongoing monitoring, reporting and re-rating
    • Application: Fitch CDO Criteria and Atrium
Day 2
  • Synthetic CDOs  and Credit Derivatives
    • Cash flow vs market value structures
    • Participation vs assignment of assets
    • Arbitrage vs capital-saving structures
    • Default rates, recovery rates, and credit anhancement in CDOs
    • Hands-on Application: Credit Enhancement Calculation for a CDO
    • Synthetic CDOs
    • Pricing models
    • Credit-linked notes
    • Case study: Chase Credit-Linked Note
    • Super-senior CLO structures
    • Case study: Noname Bank Synthetic CLO. This deal illustrates the role of credit default swaps in synthetic asset-backed securities and credit-linked notes
    • Credit default swaps and credit options
    • New developments in CDOs
  • Advantages and Disadvantages of Different Structures (and the Hidden Benefits of Waterfalls) 
    • Comparison of major structures of ABS 
    • Spread analysis (using JP Morgan Chase data)
    • Application:  Spread and Update Reports
    • Comparison of risks and returns on security classes within particular ABS deals 
    • Liquidity considerations 
    • Case Study: Atrium Waterfalls
  • Group Work and General Discussion: Belenus Securities (note: follow links for complete case study)
Day 3
  • Focus: Mortgage-backed Securities
    • Home mortgages
    • Commercial mortgages
    • Covered bonds
    • Case study: Haus MBS
  • Focus: Multiseller Asset-Backed Commercial Paper 
    • The conduit structure 
    • Role of rating agencies and conduit manager
    • Illustration: Diners Club
    • Case study: Bavaria ECP 
  • Focus: Whole Business Securitization and Intangibles
    • How it works 
    • Criteria for business revenues suited to securitization
    • Covered bonds as a securitization technique
    • Case study: Trains I PLC
    • Future-flow securitization
    • Case study: Indocoal. Delegates use this Indonesian deal to investigate the legal framework and sovereign risk issues involved in the securitization of future cash flows.
  • When Things Go Wrong
  • Guidelines for Evaluating Asset-Backed Securities 
  • Recap of the Seminar

The course is of relevance to both potential originators and investors in asset-backed securities: corporate treasurers and CFOs; investment officers; investment fund managers; bank officers; securities analysts; legal and accounting advisors; and other individuals whose professional future may be enhanced by an understanding of the asset securitization technique. 

Participants will be provided with a package of materials useful to the structuring and analysis of asset-backed deals, including pertinent articles, rating agency reports and sample documentation from actual deals done in Europe and elsewhere. 

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