New York University-IDC-Keren Caesarea

Asset-Backed Securities

May, 2005

Prof Ian Giddy
Stern School of Business, New York University

Module Description

Asset-backed securities constitute a growing segment of the global capital markets and have become widely employed in developing as well as developed countries. 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 tradeable 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.

This module asks why and when corporations and financial institutions should issue asset-backed securities, and which kind of such instruments make sense to investors. In two sessions, we offer an economic cost-benefit analysis of the technique, an insight into the legal, accounting, tax and regulatory principles, the risks and how they can be managed, and a roadmap for choosing this technique over others in today's capital market.

Questions to be addressed include:

  • What are the key structural and legal issues, and what are the gray areas?
  • What are issuers' concerns, and what are the strengtrhs and weaknesses of ABS relative to alternative funding sources?
  • What drives ABS ratings? Why does ABS credit quality differ fundamentally from that of corporate bonds?
  • Servicing contracts -- how do they work? What are the rewards and risks?
  • How can one evaluate different collateralized debt obligations (CDOs)?
  • Synthetic ABS: How do they really work, and what are their strengths and shortcomings?
  • What is whole business securitization? How do banks implement this and other forms of "corporate cash flow financing?"
Instructor Ian Giddy is on the faculty of finance at New York University, USA. He has taught finance at NYU, Columbia, Wharton, Chicago and abroad for the past twenty-two years. 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, Dr Giddy has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous financial institutions and corporations in Europe, the U.S. and Asia. 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.

Date Topics
May 20
May 20
Afternoon | | | | contact