- resources in finance

Euromoney Training
Structured Finance School
Prof. Ian Giddy
New York University

What is Structured Finance?
Structured Finance is the design of debt, equity and hybrid financing techniques in order to resolve particular issuer or investor needs that cannot readily be met by conventional financing techniques. The focus will be on identifying situations that call for nonstandard corporate finance solutions, and the design and pricing of the situation-specific financing instruments. A major part of today's structured finance is the use of asset securitization. Asset-backed securities are securities which are linked to identified pools of underlying assets. The key lies in segregation of the risk of the asset pool from the risk of the originator. Other examples of such situations include stress-induced financial restructuring, recapitalizations, private equity and leveraged buyouts, and arbitrage-driven hybrid notes

For more resources see the instructor's websites, and
Who Should Attend?
The seminar is of relevance to both potential originators and investors in structured securities: corporate finance officers, commercial and investment bankers, securities analysts; investment officers; corporate treasurers and other individuals whose professional future may be enhanced by an understanding of structured finance techniques.

Participants will be provided with a package of materials useful to the structuring and analysis of specially tailored financing techniques, including pertinent articles, rating agency reports and sample documentation from actual deals done in Europe and elsewhere.

Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 30+ countries abroad for the past two 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. As a banker and consultant he has been involved in the growth of the ABS market in the USA, Europe 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. - resources in finance

Structured Finance is the design of debt or equity financing techniques in order to solve particular issuer or investor problems that cannot be solved by conventional methods.

The Workshop

This workshop will be taught around five major topics employing in-depth group work on case studies, financial analysis and deal documentation. The focus will be on identifying situations that call for nonstandard corporate finance solutions, and the design and pricing of the situation-specific financing instruments. Examples of such situations include stress-induced financial restructuring, recapitalizations, private equity and leveraged buyouts, and arbitrage-driven hybrid notes

Equity-linked securities, including warrant bonds, convertible notes, preferred stock, index-linked securities and others now offer corporations and banks a means of financing during circumstances when ordinary techniques fall short. There is no longer a clear division between debt and equity. Companies seek the best of each, while lenders and investors often demand the security and priority of claims offered by debt, while expecting some participation on the upside in exchange for the risks they take.

Asset securitization, one of the core techniques of structured finance, constitutes a growing segment of the European and global capital markets. In recent years the ABS market has enabled companies and banks to finance a wide range of assets and claims, and has attracted a variety of fixed-income investors. Not only does securitization transform illiquid assets into tradeable securities, but it also manages to transform risk by means of the separation of specific 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.

Leveraged financing methods are often employed in M&A, management buyouts and other forms of ownership transition. recently many companies are looking at using leveraged finance as a broader tool, including the use of "whole business securitization" which falls somewhere between asset-backed financing and leveraged lending. A catalyst for leveraged buyouts is so-called mezzanine finance that falles between senior debt and pure equity.

This "bootcamp" workshop explains why and when corporations and financial institutions should issue equity-linked funding, asset-backed securities, levereraged finance or other forms of structured finance. In four information-packed days of instruction and application, we offer an economic cost-benefit analysis of the techniques, an insight into the legal, accounting, tax and regulatory principles, the risks and how they can be managed, methods of cash-flow modelling, and a roadmap for choosing among the alternative forms of these techniques that are employed in today's capital market.

One goal for participants is to develop a check list or rapid overview of the key criteria in a structured finance deal, to consider when analysing a proposal, so as to grasp the main strengths and risks of each structure after an initial rapid analysis.

The workshop will include case studies of actual financings, as well as hands-on exercises, and will give participants the opportunity to demonstrate their understanding of deals through presentations and discussions. 

Key Issues

Some of the issues to be explored:

  • What is structured finance? Why and when should companies consider the use of structured financing techniques?
  • What are the key legal and credit issues surrounding asset-backed financing, and how can they be satisfied?
  • Synthetic ABS: how do they really work, and what are their strengths and shortcomings? How are credit derivatives used in conjunction with synthetics?
  • When is a so-called ABS really a corporate bond -- where the investor is simply taking business risk? What is "whole business securitization?" And "future flow" ABS?
  • How do equity-linked financing techniques such as convertible bonds work, and when does it make sense to use them? How are they priced?
  • What is leveraged finance? How can it be use to enable a management buyout or other forms of ownership transition? When should a company undertake a leveraged recapitalization?

Outline of Workshop
Date Topics Resources
Day 1 Structured Finance: Effective Cost Analysis and Asset-Backed Securities
  • Introduction to Structured Finance
  • Survey of Structured Finance Techniques, and When it Makes Sense to Use Them
  • Techniques of Effective Cost Analysis
  • Case study: A Day in the Life. Delegates compare the techniques and effective cost of various structured bond issues.
  • The ABS Market and the Securitization Process
  • Case study: Finance Company Ltd. Delegates study an example of a typical ABS structure and cash flows
  • Legal, Tax, Accounting and Disclosure Aspects of ABS
  • Case study: Ford Motor Credit. Delegates dissect the pool quality, legal structure and cash flow modelling of a fixed-pool auto loan. securitization.
  • Cost-Benefit Evaluation
  • Capital Cost Analysis for Financial Institutions
  • Case study: Chase Card Trust. Delegates calculate the costs and benefits of a securitization of bank assets
Introduction to ABS
Day 2  Asset-Based and Cash-Flow Financing Techniques
  • Risk Management in ABS
  • Pool analysis; Seller/originator risk; Servicer performance risk; Swap counterparty risk; Legal risks; Sovereign risk. Oiginator, servicer, counterparty and manager analysis
  • Techniques of Credit Enhancement: Credit risk management; Overcollateralization; Senior-subordinated structures; Excess servicing and liquidity accounts; Financial guarantees
  • The Rating Process
  • Case study: Atherton. Delegates use this deal to consider the rating process and debate its merits
  • Cash Flow Timing and Analysis, and ratings migration
  • Focus: CLOs and CDOs: Collateralized loan and collateralized debt obligations
  • Case study: CDO for Scratch. Using information in the case study and current market data, delegates are set the task of designing an arbitrage CDO.
  • Synthetic Structures and Role of Credit Derivatives
  • Case study: Global High Yield Bond Trust. This deal illustrates the role of credit default swaps in synthetic asset-backed securities and credit-linked notes
  • Securitization of Rights and Intangibles, and Future Flows
  • Focus: Whole Business Securitization
  • Case study: Trains. Delegates use this deal to investigate the legal framework and bankruptcy-remote issues involved in the securitization of corporate cash flows.
  • Project finance: standalone, project-payment based funding
  • Sources and structure of project finance
  • Case study: Don Pedro Hydro. This power generation project has local currency revenues. Can it be financed with conventional project finance?
  • Operating, financing and tax leases
  • How to evaluate the effective cost of lease-based financing
  • Case study: Grupo Taca Aircraft Financing. Delegates working on this strucuture will learn the funding and tax consequences of lease finance.
Fitch CDO Criteria
Credit Derivatives 101 102

Synthetic ABS
Equipment Leasing

Day 3 Structured Notes and Mezzanine Financing
  • Debt- and Equity-Linked Securities
  • When Should a Company Issue Quasi-equity or Hybrid Securities?
  • Callable Bonds, Options, Swaptions and Other Fixed-Income Derivatives Embedded in Structured Financing Techniques
  • Case study: Guernsey. Demonstration of hands-on use of option-bond pricing models and application by delegates
  • Case study: Bavaria Bank Bond and Endesa.  Insight into Design and Pricing of Fixed-Income Structured Notes
  • Design of convertibles, warrants and other debt-equity hybrids
  • Case study: Sealed Air Convertible
  • Use of Hybrids in Management Buyouts and Leveraged Finance
  • Case study: Le Meridien. Delegates work out the possible senior structured and mezzanine financing possibilities for and acquisition of this hotel group.
Structured Notes
Warrant Bonds

On-Line Model

Day 4 Leveraged Finance
  • The Essential Role of Leverage and Structured Securities in European and International M&A and LBO deals
  • Example of Spreadsheet-Based Debt Capacity Analysis for Leveraged Finance
  • Case study: Monster Garages. A private company is looking for a cash-out, and delegates estimate the company's debt capacity and the owner's options.
  • Focus: Synthetic Ratings and Debt Pricing
  • How to Structure and Price the Leverage for an Acquisition.or Buyout
  • Case study: The LBO of Plato Data. Delegates undertake a step-by-step analysis of a company's debt capacity.
  • Leveraged Build-ups and Leveraged Recapitalization
  • Case study: Sealed Air's Recap. How a company can exploit its debt capacity, and the risks it takes.
  • Post-acquisition Leveraged Finance
  • Implementing a management buyout: senior, mezzanine and equity finance
  • Flexics. Delegates apply the tools and ideas of the course to a competitive situation featuring a leveraged buyout.
  • Summary and Recap
The "VC Method"

Corporate Finance and Debt Capacity Tables
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Copyright ©2004  Ian Giddy. All rights reserved.