European Central Bank workshop on
Asset-Backed Securities
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, offer originators a broader source of funding and investors a superior return. Not only does securitization transform illiquid assets into tradable securities, but it also manages to transfer and transform risk. The assets, once separated from the originator, can be employed as backing for higher-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 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
44 West 4th Street
New York, NY 10024


    The Workshop

This workshop provides professionals at the European Central Bank 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 ECB's viewpoint, and how the rating agencies look at ABS risks. Special attention is given to the European ABS market, although the workshop looks at a number of different asset classes and structures, in North America as well as Europe. 

The workshop will include case studies of actual deals, and will give the workshop participants the opportunity to discuss the quality of different ABS asset categories and the collateral value of synthetic in comparison to true-sale securitization.

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 drives ratings? Are rating agencies influenced by non-credit factors?
  • Sponsors and servicers - weak links or hidden strengths?
  • How is credit enhancement determined in collateralized debt obligations (CDOs)? What is the risk of a downgrade of a triple-A tranche?
  • How do waterfall structures affect ABS quality?
  • Synthetic ABS: What are their strengths and shortcomings?
  • How does spread volatility and ratings migration affect ABS collateral values?

Background Readings

Outline of Workshop

Day 1: 10:00-18:00

  • The ABS Market Today 
  • Legal, Tax, Regulatory and Prepayment Aspects
    • True sale and bankruptcy-remote requirements 
    • Legal structures for asset securitization: classic true sale
    • Case study: Ford Credit Auto Owner Trust
    • Tax aspects
    • Amortizing loans, waterfall paydown, and prepayment
    • True sale aspects: Comparison with Lusitano 3
    • Bank capital aspects
    • Article Impact of Basel II on Banks (Nomura report)
    • True-sale fixed-pool ABS as collateral for central bank lending: liquidity and prepayment considerations
  • Master Trusts and Other SPV Issues
    • Revolving pool ABS and the soft bullet repayment structure
    • Master trusts: how they work
    • Comingling risk and related issues
    • Case study: Mound Financing
    • Article: UK RMBS Master Trusts
  • The Rating Process and Credit Enhancement
    • The rating agencies, rating levels and what they really 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: Atrium
    • Ongoing monitoring, reporting and re-rating
    • Ratings migration

Day 2:
  • Collateralized Debt Obligations
    • Cash flow vs market value structures
    • Participation vs assignment of assets
    • Arbitrage vs capital-saving structures
    • Credit enhancement and loss-given-default calculation
    • Exercise: Designing a CDO
    • Article: Fitch European CDO Criteria
  • Synthetic CDOs  and Credit Derivatives
    • How synthetic CDOs work; pricing and economics, link to credit derivatives
    • Super-senior CLO structures and their effect on funded AAA tranches
    • Case study: Noname Bank Synthetic CLO
    • Article: CDO/CDS Update
    • Strengths and shortcomings of the synthetic model
  • Focus: Residential Mortgage-Backed Securities
    • Alternative RMBS structures: true sale, quasi-synthetic, covered bonds, etc.
    • Prepayment risk-reduction methods: pay-through vs. swaps vs. tranching
    • Analysis of prepayment and duration risk in RMBS
    • Case study: GMAC RFC Nederland
    • Legal issues relating to perfection of liens in residential property
    • Case study: Haus MBS
    • Article: European RMBS Reports Summary
  • Advantages and Disadvantages of Different Structures
    • Comparison of major structures of ABS 
    • Spread and volatility analysis: not all triple-As are equal
    • Application: Spread and Update Reports
  • Recap of the Workshop | | | | contact
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