CIFT/Rabobank Seminar on
Asset-Backed Securities
and Structured Credit

Prof. Ian Giddy
New York University

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,


Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 35+ 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

Related websites:  

    The Seminar

This Seminar provides Rabobank 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

  • The ABS Market Today 
    • Growth and changing character of the ABS market 
    • Contrast between North American, European and Asian markets
    • Trends: new asset classes, synthetics, unfunded CLOs, covered bonds
    • Potential impact of new Basel capital guidelines 
    • 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
    • Defaults and recoveries and credit enhancement of CDOs 
    • Hands-on Application: Credit Enhancement Calculation for a CDO
    • Readings: 
  • Synthetic CDOs  and Credit Derivatives
  • Focus: Multiseller Asset-Backed Commercial Paper 
    • The conduit structure 
    • Role of rating agencies and conduit manager
    • Case study: Erasmus, Diner's Club
  • Evaluation of Different Structures
    • Comparison of major structures of ABS
    • Mortgage-backed securities
    • Commercial MBS
    • Case study: Wachovia CMBS
    • "Whole Business" and "Future Flow" securitization
    • Spread analysis
    • Application: Spread and Update Reports
    • Comparison of risks and returns on security classes within particular ABS deals
  • Recap of the Seminar  

Day 1
The Market and Process
ABS Ratings and Credit Enhancement

Day 2
CLOs and Synthetics
MBS and Other Structures

Other resources on asset-backed securities: 
Seminars conducted by Ian Giddy Powerpoint presentation documents
Articles Case studies
Spreadsheets Internet links | | | | contact
Copyright ©2005 Ian Giddy. All rights reserved.