Giddy | Structured Credit: ABS, CDOs, and Synthetics

Amsterdam Institute of Finance

Structured Credit: ABS, CDOs and Synthetics
Prof Ian Giddy
Stern School of Business, New York University

About the Course
This course provides banking and finance professionals with an improved understanding of developments in securitization and structured credit risk transfer, with special structuring transactions in a disrupted credit market. Based on the fundamental techniques of asset securitization, the market now allows players a much wider range of choices in managing credit risk exposure. In addition to covering risk transfer through asset-backed securities and collateralized debt obligations, the course explains risk transfer using credit derivatives and synthetic asset securitization. It also covers whole business securitization and related topics, and the market for commercial as well as residential mortgage-backed securities. The new techniques open up fresh possibilities for the transfer, pricing and management of credit risk. Through hands-on applications, participants have the opportunity to explore a variety of legal and cashflow structures, and of credit enhancement.

Case Studies and Materials
The course will include case studies of actual deals, as well as hands-on exercises illustrating the construction of CDOs and synthetics. Participants will have access to 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 Europe, the US, and elsewhere.

Who Should Attend?
This workshop will prove informative to all involved in credit risk management, 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.

Highlights

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?
What determines credit enhancement and ratings in ABS and CDOs (collateralized debt obligations)?
What are the applications of asset-backed commercial paper conduits, and how can a bank deal with funding mismatches?
How can one evaluate different true-sale and synthetic CDOs?
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 leveraged super-senior tranche of some synthetic ABS?
What methods are used in commercial mortgage-backed securities? How do they differ from residential MBS?
How does "whole business securitization" work?
After the credit crunch, what risks and opportunities lie ahead?

Structured Credit: Agenda

Date	Topics	Resources
Day 1	Asset-Backed Securities Today The state of the market: how to survive in a disrupted credit environment Getting an ABS deal to market: the process Case study: Finance Company Limited. Delegates review the process, structure and cash flows of this deal Key legal prerequisites of ABS today True sale issues, tax status, regulatory capital Legal and economic separability of the sponsor from the issuer Case study: Hyundai. What is the legal structure of this securitization? What is the credit quality of the pool of assets, and how is credit enhancement achieved? Credit enhancement and ratings Tiering the funding structure Cash flow analysis and pricing 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. Asset-Backed Commercial Paper What is ABCP? ABCP conduits: assets, liquidity, credit enhancement Applications of the flexible conduit structure Assignment: Hannover. How does the sponsor of this ABCP conduit deal with the funding/liquidity mismatch? What is Hannover's credit support? Liquidity lost: why the ABCP market collapsed Beyond conduits: structured investment vehicles From ABS to CDOs Classic ABS vs Collateralized Debt Obligations Cash flow versus market value CDOs CDO credit enhancement and ratings Team assignment: Analysis of European CDO ratings criteria 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	Presentations aif-abs-intro.pdf aif-abcp.pdf aif-cdo.pdf Case studies Finance Co. Ltd Hyundai Auto ABS Moodys Ratings Revisions Hannover ABCP Fitch European CDO Criteria Northwesterly CLO Articles Introduction to ABS How to Get an ABS Rating ABCP Collateralized Loan Obligations Spreadsheets ABS Economics CLO Economics
Day 2	Structured Credit Risk Transfer: Credit Derivatives 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.	Presentations aif-cds.pdf aif-synthetic_abs.pdf Case studies Jackfruit CDS ABX and CMBX Latitude Allied Irish Bank Noname Bank Synthetic CLO Orion Synthetic CDO Articles Credit Derivatives 101 and 102 Synthetic Asset-Backed Securities Spreadsheets CDO Monte Carlo
Day 3	Developments in Residential Mortgage Securitization Residential MBS: a variety of techniques Risks and restructuring in the RMBS market Dealing with prepayment: pass-through versus cash flow reallocation The US and European markets Case study: RMBS No. 14. Participants evaluate the pool, the properties and the credit enhancement in this Dutch mortgage securitization. Covered bonds: how they work Case study: Covered Bond 2008. Who owns the mortgage loans? What happens if the issuer defaults? True sale versus synthetic residential MBS Case study: Memphis Synthetic RMBS. This transaction offers participants an opportunity to discover some of the key elements of a synthetic RMBS. Origins and consequences of the subprime collapse Implications for CMBS, ABCP and other forms of securitization Case study: Magnolia Finance. Participants look for key features and weaknesses of this Credit Suisse RMBS securitization. Commercial Mortgage-Backed Securities Commercial MBS: retail, office, multifamily, hotels, etc Legal structures Valuation of rental property, loan-to-value ratios, and coverage ratios Stress testing and credit enhancement: cap rates, default and recovery Senior-subordination credit support; spread and reserve accounts; liquidity facilities Multi-tier and super-senior CMBS Case study: Bear Stearns CMBS 2007. Delegates study this US deal to investigate the funding structure and credit risk issues involved in the securitization of commercial property. Understanding and managing the balloon payment risk in CMBS Single-property CMBS securitization CMBS conduits Alternative techniques of synthetic commercial mortgage-backed securities Case study: Castenea Synthetic CMBS. Delegates learn how to apply the synthetic technique to commercial property financing Restructuring Structured Finance Consequences of the credit collapse for ABS Prospects for oversight and regulation of ratings. Overview of monoline insurance model and ratings leverage Disruption from misconceived insurance at the triple-A level Whole business securitization Case study: Arsenal WBS. List the parties involved in this kind of UK securitization. What are the roles of each? What is the impact of the insurance downgrade? How are investors protected? When things went wrong: counterparty risk and erosion of bank capital Restructuring bank portfolios: mortgage assets, CDOs, and leveraged loan New opportunities, new risks in structured finance and securitization	Presentations aif-rmbs.pdf aif-cmbs.pdf aif-restructuring.pdf Case studies RMBS. No 14 Covered Bond 2008 Memphis RMBS Magnolia Finance Bear Stearns CMBS 2007 Castenea Arsenal Articles Evaluating CMBS Synthetic CMBS Credit Checklist WBS Future Flow Spreadsheets RMBS Paydown Analysis

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-five 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 Cloudbridge, a nature reserve in Costa Rica.