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.
details see the instructor's website, ABSresearch.com
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
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
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.
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.
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.
the issues to be discussed include:
are the key legal issues, and why are they sometimes circumvented?
drives ratings? Are rating agencies influenced by non-credit factors?
- Sponsors and servicers - weak links or hidden strengths?
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
- How does spread volatility and ratings migration affect ABS collateral values?
Introduction to ABS An excellent little introduction for those
requiring a review of European ABS techniques.
Introduction to CDOs Collateralized Bond Obligations and
Collateralized Loan Obligations.
Outline of Workshop
ABS Market Today
Tax, Regulatory and Prepayment Aspects
sale and bankruptcy-remote requirements
Legal structures for asset securitization: classic true sale
- Case study: Ford
Credit Auto Owner Trust
- 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
Rating Process and Credit Enhancement
rating agencies, rating levels and what they really mean
analysis; Seller/originator risk; Servicer performance risk; Swap
counterparty risk; Legal risks; Sovereign risk
Originator, servicer, counterparty and manager analysis
Franchise Loan Deal
Legal structure analysis
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
- Collateralized Debt Obligations
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
CDOs and Credit Derivatives
- How synthetic CDOs work; pricing and economics, link to credit derivatives
CLO structures and their effect on funded AAA tranches
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
- Article: European RMBS Reports Summary
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