Workshop at Chewton Glen on

ABS: When the Rating Agencies Get it Wrong
(The Hidden Risks and Rewards of Asset-Backed Securities)

Prof. Ian Giddy
New York University


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

    The Workshop

This workshop provides investors with a forum for exploration of hidden risks and value in the asset-backed securities market. The focus is a re-interpretation of the legal and credit risks of some of the newer techniques, the goal being to identify structures that are weaker than, or stronger than, their ratings. Special attention is given to collateralized debt obligations, although the workshop looks at a number of different asset classes and structures, in Europe, the USA and Asia. 

The workshop will include case studies of actual deals. Group meetings and general discussions will give participants the opportunity to share and clarify their understanding of deals.

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 fooled by brand names and issuer's persuasion? How can this lead to weaknesses in the legal structure?
  • Why do rating agencies sometimes "miss the boat?"
  • Servicers - the weak link or hidden strength?
  • How do waterfall structures allow ABS quality to improve to levels better than the ratings?
  • Why is pricing, not credit, the key issue?
  • Synthetics: no problems so far -- but what is the investor really getting?
  • When is a so-called ABS really a corporate bond -- where the investor is simply taking business risk?

Outline of Workshop
Thursday 17 May
09:40 Coffee and Registration
10:00 Session 1. Can structurers hoodwink the rating agencies?
Situations where, by using the rating agency's methods or formulas, structurers have steered the agency's and investors' attention away from the core risks or issues. Focus: Pool analysis. Examples: franchise loan securitisation, balance sheet and arbitrage CDOs.
11:30 Session 2. Are rating agencies fooled by brand names and issuer's hype?
Situations where the rating agency's focus, issuer's hype or the cachet of a name-brand institution covers up weaknesses in the legal structure. Focus: Legal analysis. Example: Haus, Trains.
12:15 Lunch
14:00 Session 3. Synthetics: what is the investor really getting?
Structures which deserve their ratings when the participant institutions remain solid. Signs of sponsor or servicer weakness may produce severe tiering. Focus: transferability of assets, default swap events. Examples: GHYBT, Promise.
14:00 Session 4. ABS or corporate bond?
Deals that have the ABS legal structure but where the investor may be simply taking business risk of the seller. Examples: Formula 1 revenues, Films, Tobacco settlements, 6 Battery Road.
17:45 Finish
19:00 Drinks and dinner
Friday 18 May
9:00 Session 5. Servicers: hidden strength or weak link?
Structures and countries where diligent, knowledgable servicing and collection can improve assets' value -- or where a dearth of back-up servicers is a weak link. Examples: Island Finance, FIAT, CIC Conso, Haus.
10:30 Coffee
11:30 Session 6. Appreciating waterfalls.
The pay-down structure can break or make a deal -- indeed, can make it far stronger than its rating. Focus: relative changes in collateral ratio, information and pool quality. Examples: Belenus, Ford Motor Credit, DVI, Stratford.
12:30 Lunch
14:00 Session 7: Future-flow ABS and intangibles: financing thin air?
Can future-flow securitizations mitigate sovereign risks? If so, who bears the risks? Does sovereign volatility produce ratings volatility? What ownership rights do intangible securitizations convey? Examples: Ras Laffan, trade payment rights, Bowie Bonds.
15:30 Wrap-up discussion
16:30 Depart

The Market
Background Articles
Case Studies and Deals
  • CIC Conso
  • Atherton 
  • Stratford
  • Haus MBS
  • Trains I PLC 
  • Abbey National
  • Global High Yield Bond Trust 
  • Promise
  • FILMS 
  • Tobacco Settlement ABS

  • Island Finance 
  • FIAT
  • 6 Battery Road
  • Ford
  • Belenus Securities (note: follow links for complete case study)
  • DVI Receivables
  • Ras Laffan
  • Trade Payment Rights
  • Bowie Bonds 


    Useful Websites

    Related websites:

    Go to Giddy's Web Portal • Contact Ian Giddy at
    Last updated 10 Dec 2005 jog