- resources in finance

Rand Merchant Bank

Securitisation Finance

Prof Ian Giddy
Stern School of Business, New York University

The Workshop

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 securitisation and structured credit risk transfer. In addition to covering new developments in
asset-backed commercial paper conduits and collateralized debt obligations, the course explains whole business securitisation and related topics, and the growing market for commercial as well as residential mortgage-backed securities. It explains risk transfer using synthetic asset securitisation, a versatile and fast-growing technique in the ABS market. It opens new possibilities for the transfer, pricing and management of credit risk. Consumer finance ABS, a growing sector, offer participants the opportunity to explore a variety of legal and cashflow 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 and elsewhere. 

Issues to be Discussed

  • After the credit crunch: where is the global asset-backed securities market headed?
  • 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 does asset-backed commercial paper work?
  • What drives credit ratings on ABS, and how is credit enhancement achieved?
  • What are the key characteristics of consumer finance ABS?
  • How can one calculate the required credit enhancement for different tranches backed by a pool of assets?
  • How can one evaluate different collateralized debt obligations (CDOs)? How are they structured?
  • What is the connection between synthetic asset-backed securities and the markets for credit derivatives?
  • What methods are used in residential and commercial mortgage-backed securities?
Background Reading

Securitisation Workshop: Agenda


Day 1 Asset-Backed Securities
  • The state of the market
  • Getting an ABS 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
  • Cash flow analysis and pricing
  • Key legal prerequisites of ABS today
  • Case study: Ford Motor Credit. What is the legal status of this securitisation? Is it a true sale? Is the SPV independent?
  • Pool analysis, structure analysis, and determinants of credit risk
  • The technique of credit enhancement
  • Getting a rating: sequence and requirements

Asset-Backed Commercial Paper

  • Single-name versus multi-name ABCP
  • ABCP conduits
  • Applications of the flexible conduit structure
  • Case study: Blue Titanium. How is credit enhancement achieved in a conduit like this one?
  • RMBS in commercial paper conduits
  • Case study: Thekwini Financing. How is the funding mismatch handled?

Credit Enhancement: Consumer Finance

  • The consumer finance securitisation market: range of assets
  • Credit enhancement for consumer finance: excess spread considerations
  • Consumer credit scoring and default frequency analysis
  • Revolving pools: cash flow analysis and pricing
  • Structuring a credit card deal
  • Case study: Chase Credit Card ABS. We review the process, structure and cash flows of this deal
  • Key rating agency prerequisites for consumer credit ABS
  • Servicer and master servicer
  • ABS of charged-off loans: role of special servicer
  • Consumer finance securitisation
  • Case study: Red and Black. How do these work? What is the credit exposure? What happens when credit deteriorates?
  • Microfinance ABS

Case studies
Finance Co. Bhd
Ford Motor Credit 2006
FirstRand Nitro
Blue Titanium
Thekwini ABCP
Chase Credit Card ABS
Red & Black

How to Get an ABS Rating
Rating Consumer Credit ABS

Day 2

From ABS to CDOs and Synthetics
  • 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: Atrium. 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
  • Application: LevLoan CDO. An example illustrates the credit enhancement and waterfall paydown of a leveraged loan CDO.
  • Synthetic RMBS
  • Links between synthetic ABS and the market for credit derivatives
  • How credit derivatives work -- and how they are priced
  • Alternative forms of CDS and credit options
  • Credit-linked notes
  • Case study: Chase Secured Loan Trust. Participants discuss how banks use credit-linked notes to transfer credit risk
  • The credit default swap in consumer finance ABS
  • Case study: Magnolia Finance. Analysis of the structure, settlement terms and risks of a synthetic RMBS CDO
  • Credit and regulatory issues relating to synthetics
  • Settlement and counterparty issues
  • Team exercise: Allied Irish Bank. Transferring bank credit risk: using the CDS market versus structuring a synthetic CLO.
Home and Commercial Mortgage Securitisation
  • Residential MBS
  • Example: Ikhaya RMBS
  • Application: Pool paydown analysis
  • Prepayment risk in residential MBS
  • Managing mortgage prepayment risk through multi-tranche RMBS
  • Team exercise: Investec RMBS. How to structure the MBS funding for a pool of residential mortgage loans
  • Revolving pool ABS and the soft bullet repayment structure
  • True sale versus synthetic residential MBS
  • Case study: Memphis Synthetic RMBS. This Dutch mortgage securitisation offers delegates an opportunity to discover some of the key advantages and weaknesses of synthetic MBS
  • Commercial mortgage-backed securities in SA
  • Example: Growthpoint CMBS
  • Credit analysis of commercial property securitisation
  • Case study: Bear Stearns CMBS
New Opportunities
  • Trading of ABS risk and pool credit risk
  • New opportunities, new risks in securitisation


Case studies
Magnolia Finance
Allied Irish Bank
Investec RMBS
Ikhaya RMBS
Memphis Synthetic RMBS
Growthpoint CMBS
Bear Stearns CMBS 2007

Collateralized Loan Obligations
Synthetic Asset-Backed Securities
SA Mortgage Model
Credit Checklist
Fitch CMBS Criteria

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 in 40+ countries worldwide over 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 securitisation 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.