Asset
Securitization
Asset-backed
securities constitute a growing segment of the US, 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, ABSresearch.com
Instructor
Ian Giddy has
taught finance at NYU, Columbia, Wharton, Chicago and in some 40 countries
abroad for the past three 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
New York, USA
+1.646.808.0746
Related websites:
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The Seminar
This
two-day Seminar provides CIB professionals 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 innovations in the market, as the techniques gets extended to a wider and wider range of assets.
The
Seminar 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. 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 the US, Europe and elsewhere.
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 their strengths
and shortcomings? How do "unfunded synthetic CDOs" work?
- 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 Seminar
Day
1
Introduction
- The
ABS Market Today
-
Growth and changing character of the ABS market
-
Contrast between North American, European and Asian markets
- Markets in developing countries
- Trends:
new asset classes, synthetics, unfunded CLOs, covered bonds
- The
process: Example of typical structure and cash flows
- Application:
Finance
Company Limited
- Legal,
Tax, Regulatory and Disclosure Aspects
- 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 cost-benefit spreadsheet
- A bank's point of view: capital savings
- Exercise:
Capital
Requirements and the Cost of Capital
- 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
- Application:
Fitch
CDO Criteria
-
Ongoing monitoring, reporting and re-rating
Day
2
- Focus
on CLOs, CBOs and Synthetics
- Cash
flow vs market value structures
-
Participation vs assignment of assets
-
Arbitrage vs capital-saving structures
- Examples: Rabobank Vehicle Management
- Synthetic CDOs: how they work
- Defaults and recoveries and credit enhancement of CDOs
- Hands-on
Application: Credit
Enhancement Calculation for a CDO
- Focus:
Multiseller Asset-Backed Commercial Paper
- The
conduit structure
- Role
of rating agencies and conduit manager
- Case
study: Erasmus
- Project Finance and Future-Flow Securitization
- Future flow securitization: breaking the sovereign risk constraint
- Examples of successful future-flow securitization
- Case
study:
Securitization of Indonesia's Coal. Delegates use this deal to
investigate the legal framework
and bankruptcy-remote issues involved in the securitization of
corporate cash flows.
- Project finance: standalone,
project-payment based
funding
- Sources and structure of project
finance
- Ras Laffan: securitization of project finance revenues
- Case
study: Azito. This power generation project has local
currency revenues. Can it be financed with conventional project finance?
- Applications of Different Structures
-
Comparison of major structures of ABS in different countries
-
Spread analysis
- Application: Spread and Update Reports
-
Comparison of risks and returns on security classes within particular
ABS deals
- Hands-on
Exercises: Evaluating Asset-Backed Securities
- Recap
of the Seminar
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