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Euromoney Training

Advanced Securitization and CDOs Workshop

Prof Ian Giddy
Stern School of Business, New York University

What the Course is About

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

This course provides an in-depth insight into the state of the art in securitization, as well as the broader field known as structured credit risk transfer -- funded asset-backed securities, synthetic securitization, credit derivatives, and more. In addition to covering new developments in collateralized debt obligations, the course explains whole business securitization and related topics, and the growing market for commercial as well as residential mortgage-backed securities. It explains risk transfer using synthetic asset securitization, a versatile and fast-growing technique in the ABS market. It opens new possibilities for the transfer, pricing and management of credit risk. Commercial mortgage-backed securities, a growing sector, offers delegates the opportunity to explore a variety of legal and cash flow structures, and of credit enhancement.

Method and Materials
The workshop 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 interaction and workshop discussions.

Participants will be provided with a package of materials useful to the structuring and analysis of synthetic asset-backed deals, including pertinent articles, rating agency reports and sample documentation from actual deals done in the US, Europe, South Africa and elsewhere. 

Who Should Attend?
This workshop will prove informative to all involved in asset-backed securities and corporate finance. It includes material of relevance to commercial lenders and investment bankers, debt originators and investors in asset-backed securities. Also credit specialists; securities analysts; investment officers and fund managers; legal advisors; and other individuals whose professional future may be enhanced by an understanding of synthetic and other advanced securitization techniques.

Issues to be Discussed

  • Where is the asset-backed securities market headed? What is the impact of the credit crisis?
  • What are the key legal and regulatory issues in the asset-backed market today, and how are they addressed in different forms of ABS?
  • How can one evaluate different synthetic collateralized debt obligations (CDOs)? What drives their ratings?
  • What is the connection between synthetic asset-backed securities and the markets for credit derivatives and leveraged finance?
  • What is the role and pricing of the super-senior tranche of some synthetic ABS?
  • What are the key risks in mortgage securitization? What are covered bonds?
  • What methods are used in commercial mortgage-backed securities? How do they differ from residential MBS?
  • Why is the synthetic approach used in many residential and commercial mortgage-backed financings?
  • How does "whole business" and "future flow" securitization work?
Pre-Course Reading

Advanced Securitization: Agenda


Day 1 Asset-Backed Securities Today
  • The state of asset securitization: surviving a disrupted market
  • The ABS process: getting a deal to market
  • Case study: Finance Company Bhd. We review the process, structure and cash flows of this deal
  • Credit enhancement
  • Tiering the funding structure
  • Key legal prerequisites of ABS; rating and regulatory bodies
  • Team Exercise: Hyundai Auto ABS. What is the legal status of this securitisation? Is it a true sale? Is the SPV independent? How would you assess trhe credit condition of the pool? When are investors repaid? What is the economics of the deal from the point of view of Hyundai?
  • Cash flow analysis and pricing

Risk, Ratings and Credit Enhancement

  • Pool analysis, structure analysis, and determinants of credit risk
  • Counterparties and servicer risk
  • Interest rate and liquidity risk
  • The technique of credit enhancement
  • Rating agency analysis: stress testing approach
  • What ratings mean in the ABS world
  • Getting a rating: sequence and requirements
  • Data requirements and the review process
  • Case study: Citi Credit Card Securitization. How would you assess the credit risk in this deal? What are the other risks? What protections do investors have?
  • The credit crunch: what were the fundamental mistakes made in the rating agency process?
  • Has the process changed? If so, how?
  • Assignment: Moodys Ratings Revisions. Please identify where Moody's is implementing changes to ratings methodologies.
From ABS to CDOs
  • Classic ABS vs Collateralized Debt Obligations
  • Cash flow versus market value CDOs
  • CDO credit enhancement and ratings
  • Tiering the liabilities of a CDO
  • CDO pricing and cash flow analysis
  • Case study: Northwesterly. What are the assets in this CDO deal, and how are they funded?
  • Rating CDOs: factors considered by the rating agencies
  • Using ratings loss tables to structure credit enhancement in ABS
  • Team Exercise: Designing a CDO. Using information in the case study and current market data, participants are set the task of designing an arbitrage CDO. They help evaluate the pool, legal structure and credit enhancement of a live securitization proposal
  • Models rating agencies use
  • Application: Risk analysis and rating of corporate CDOs
  • Credit enhancement with the Fitch Corporate Portfolio Model

Case studies
Finance Co. Bhd
Hyundai Auto ABS
Moodys Ratings Revisions
Northwesterly CLO
Fitch European CDO Criteria
Designing a CDO

Ratings Revised

Day 2

Structured Credit Risk Transfer
  • How credit derivatives work -- and how they are priced
  • Alternative forms of Credit Default Swaps and credit options
  • Application: Jackfruit Records. A credit default swap
  • What are the ABX and CMBX?
  • Credit-linked notes
  • Case study: Chase Secured Loan Trust. Delegates learn how banks use credit-linked notes to transfer credit risk
  • The credit default swap in synthetic ABS
  • Links between synthetic ABS and the market for credit derivatives
Synthetic Securitization
  • Rationale for synthetic asset-backed securities
  • How it works: more detail
  • Case study: Latitude. Analysis of the structure, settlement terms and risks of a synthetic CDO
  • Credit and regulatory issues relating to synthetics
  • Settlement and counterparty issues
  • Team exercise: Transferring bank credit risk: using the CDS market versus structuring a synthetic CLO.
Leveraged Risk Transfer and Super Senior ABS
  • Funded versus unfunded synthetic CDO tranches
  • Structure and pricing of super-senior tranches
  • Application to the leveraged loan market
  • Case study: Noname Bank Synthetic CLO.  Delegates work on the details of a synthetic collateralized loan obligation with an unfunded super-senior tranche.
  • Counterparty risk of funded versus unfunded risk transfer
  • Group work: Orion Synthetic CDO.  In this hands-on exercise, delegates assemble the elements of a synthetic securitization with an unfunded super-senior tranche.


Case studies
Jackfruit CDS
Noname Bank Synthetic CLO
Orion Synthetic CDO

Credit Derivatives 101 and 102
Synthetic Asset-Backed Securities

Day 3

Asset-Backed Commercial Paper

  • What is ABCP? Why has the market imploded?
  • Single-seller vs multiseller ABCP
  • ABCP arbitrage conduits
  • Applications of the flexible conduit structure, and SIVs
  • Synthetic asset-backed commercial paper
  • Case study: Blue Titanium. List the parties involved in this securitization. What are the roles of each? How are investors protected?
  • Liquidity -- what is it, and where did it go?
  • Measuring the liquidity risk premium
  • Exercise: What is Hannover's credit enhancement?
Mortgage Securitization: Residential and Commercial
  • Residential MBS
  • Application: Pool paydown analysis
  • Prepayment risk in residential MBS
  • Revolving pool ABS and the soft bullet repayment structure
  • Master RMBS trusts: how they work
  • Comingling risk and related issues
  • ABCP for residential mortgages: Thekwini
  • Covered bonds
  • True sale versus synthetic residential MBS
  • Case study: Memphis RMBS. This Dutch mortgage securitization offers delegates an opportunity to discover some of the key advantages and weaknesses of synthetic MBS
Commercial MBS: Special Applications
  • Commercial MBS: retail, office, multifamily, hotels, etc
  • Legal structures
  • Methods of credit enhancement
  • Concepts of LTV in CMBS
  • Senior-subordination credit support
  • Spread and reserve accounts; liquidity facilities
  • Funding the residual
  • Understanding and managing the balloon payment risk in CMBS
  • CMBS conduits
  • High-leverage CMBS
  • Multi-tier and super-senior CMBS
  • True sale versus synthetic: the choice
  • Special features of CMBS securitization
  • Case study: Bear 2007 CMBS. What are the assets in this CMBS deal, and how is pool analysis done? How do you think the credit enhancement was determined?
  • Evaluating the current market and valuation issues in CMBS
Future-Flow and Other Special Applications
  • Whole business securitization
  • Future-flow securitization
  • Overview of monoline insurance model and ratings leverage
  • When things went wrong: counterparty risk and erosion of capital
  • Case study: Arsenal. List the parties involved in this kind of securitization. What are the roles of each? How are investors protected?
New Risks, New Opportunities
  • Special Session: Subprime Loans and the Credit Market Crisis. What are the causes and implications of the securitization losses?
  • Case study: Magnolia Finance. As a potential investor, evaluate this RMBS.
  • New opportunities, new risks in securitization


Case studies
Blue Titanium
Hannover ABCP
Thekwini ABCP
Memphis RMBS
Bear Stearns CMBS 2007
Magnolia Finance

SA Mortgage Model
Evaluating CMBS
Synthetic CMBS
Credit Checklist
Future Flow
Future of Securitization

Workshop 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 thirty 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, North America, the Middle East and Asia. He has lectured in more than forty countries, and has been involved in the asset-backed securities market for over 15 years. 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. He and his wife are the founders of Wildcliff, a nature reserve in the Western Cape. | | | | | contact
Copyright ©2008 Ian Giddy. All rights reserved.