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Euromoney Training

Structured Finance School

Prof. Ian Giddy
New York University

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 Course

The goal of this course is to understand how structured financing techniques can work for bankers and corporate finance professionals. The course 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

Asset securitization, one of the core techniques of structured finance, constitutes a growing segment of the global capital markets. Despite recent credit market disruptions, 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 or isolated, are employed as backing for high-quality securities designed to appeal to investors.

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.

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 capital investment financing, share buybacks and special dividend payouts. As a catalyst for leveraged finance, companies sometimes employ so-called mezzanine finance that falls between senior debt and pure equity.

This intensive course explains why and when corporations and financial institutions should issue equity-linked funding, asset-backed securities, leveraged 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 modeling, and a roadmap for choosing among the alternative forms of these techniques that are employed in today's global 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 analyzing a proposal, so as to grasp the main strengths and risks of each structure after an initial rapid analysis.

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.

Course Materials

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

Key Issues
  • 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?
  • How have developments in the CDO market affected the credit markets?
  • Synthetic ABS: how do they really work, and what are their strengths and shortcomings? How are credit derivatives used in conjunction with synthetics?
  • What role do "structured notes" play in a corporation's funding strategy?
  • 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 are the various forms of subordinated and mezzanine finance?
  • What is leveraged finance? How can it be use to facilitate a management buyout or other forms of ownership transition? When should a company undertake a leveraged recapitalization?

Outline of Workshop

Day 1 Structured Finance Techniques and Asset-Backed Securities
  • What is Structured Finance?
  • Structured finance in a disrupted credit market
  • 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 purpose 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 bank capital 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
  • Credit enhancement and the rating process
  • Deal diagnosis: seller/originator risk; servicer performance risk; swap counterparty risk; legal risks; sovereign risk. Originator, servicer, counterparty and manager analysis
  • Techniques of credit enhancement: credit risk management; overcollateralization; senior-subordinated structures; excess servicing and liquidity accounts; financial guarantees
  • Case study: Chase Credit Card Securitization. How would you assess the credit risk in this deal? What are the other risks? What protections do investors have?
  • Rating agency analysis: stress testing approach
  • Credit statistics: understanding default probabilities and recovery rates
  • Pool analysis: ratings and historical loss rates
  • Assignment: Rating CDOs. What determines the rating on a securitization of leveraged loans?

Case Studies
A Day in the Life
Finance Company Ltd.
Ford Motor Credit
Chase Credit Card ABS
Rating European CDOs

Introduction to ABS


Day 2 

Securitization and Beyond
  • Focus: CLOs and CDOs: Collateralized loan and collateralized debt obligations
  • 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?
  • Credit enhancement analysis for cash flow and market value CDOs
  • Default probabilities and recovery rates
  • Group work: Designing a CDO. Using information in the case study and current market data, delegates are set the task of designing an arbitrage CDO.
  • Credit default swaps, total return swaps, and credit options
  • Credit-linked notes
  • Synthetic structures and role of credit derivatives
  • Case study: Artemis This deal illustrates the role of credit default swaps in synthetic asset-backed securities and credit-linked notes
  • Leveraged synthetic CDOs and super-senior credit default swaps
  • Case study: A Synthetic CLO. Delegates learn the role of the super-senior unfunded tranche in a synthetic CDO.
  • Using CDS and CDO techniques to lay off the risk in of a portfolio of loans.
  • 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.
  • Mortgage-backed securities
  • Prepayment risk in residential MBS
  • Managing mortgage prepayment risk through multi-tranche RMBS
  • 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
  • Credit analysis of commercial property securitisation
  • Case study: Bear Stearns CMBS


Case Studies
Designing a CDO
Noname Bank Synthetic CLO
Orion Synthetic CDO
Memphis Synthetic RMBS
Bear Stearns CMBS 2007

CDOs Explained
Synthetic CDOs
Fitch CDO Criteria

Credit Derivatives 101
Synthetic ABS
Credit Checklist
Fitch CMBS Criteria


Day 3

Structured Notes and Hybrid 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 studies: Bavaria Bank Bond and Endesa. Insight into design and pricing of structured notes
  • Design of convertibles, warrants and other debt-equity hybrids
  • Case study: Sealed Air Convertible
  • Capital-protected index-linked notes -- and variants
  • Case study: JP Morgan Equity-Index Linked Note
  • Unprotected and protected equity bull and bear notes
  • Case study: DK Worst-Of ELNs. How is the bank able to offer investors such a high interest rate on this investment instrument?
  • Commodity linked products
  • Warrant-linked loans
  • Case study: Dubrovnik Eyewear. What is the effective spread on this loan?
  • Hybrid bonds as a financing instrument
  • Case study: US Bancorp Hybrid. Is this debt or equity?
  • Sale and leaseback finance
  • Case study: Grupo Taca Aircraft Financing. Delegates work out the possible leasing structures for  this regional airline.


Case Studies
Bavaria Bank Bond
Sealed Air Convertible
Equity Index Note
U.S. Bancorp Hybrid
Grupo Taca Leasing

Structured Notes
Warrant Bonds

On-Line Model

Day 4

Leveraged and Mezzanine Finance
  • Leveraged buyouts and leveraged finance
  • Getting the deal done: bridge finance
  • Case study: A Bridge Too Dear. How should the bridge loan be priced? And the senior debt?
  • Capital market refinancing: ISS bonds example
  • Implementing a management buyout: senior, mezzanine and equity finance
  • Leveraged finance as a temporary capital structure
  • Spreadsheet-based Debt Capacity Analysis for leveraged finance
  • Leveraged term lending: pricing and terms
  • Assets versus cash flows as support for leverage
  • Covenants and debt capacity
  • Case study: The Management Buyout of Nukem Security Services. We trace the steps in leveraged debt capacity analysis and paydown
  • Developing leverage spreadsheets
  • Case study: Acquiring Plato Data. Delegates plan the financing of a management-led leveraged acquisition in Lithuania.
  • Mezzanine finance
  • Checklist of senior and subordinated financing techniques
  • Senior and second lien financing
  • Case study: Cognis. How second-lien lending contributed to the leveraged refinancing of a German chemicals company.
  • Negotiating a second lien termsheet
  • Pay-in-kind (PIK) notes
  • Case study: Sealy. When do the investors get repaid? How much?
  • Structural subordination in PIKs
  • Mezzanine notes with warrants
  • Case study: Woodstream. Who gets the warrants, and what are they worth?
  • Negotiating a mezzanine termsheet
  • Performance-linked mezzanine notes
  • Four forms of mezzanine for emerging markets: performance-participation notes, subordinated debt with warrants, convertible notes, and preferred stock
  • Case study: Maputo Fruit. What are the advantages and disadvantages of the EBITDA-linked interest rate in this deal? What are the exit possibilities?
  • Summary and recap


Case Studies
Nukem Security Services
Acquiring Plato Data
Cognis Second Lien
Sealy PIK
Woodstream Termsheet

Mezzanine Finance 1 &
Mezzanine Finance 2
The ISS Deal

Corporate Finance and Debt Capacity Tables

Additional Reading
  • Introduction to Structured Finance  by Frank J. Fabozzi
  • Credit Derivatives: A Primer on Credit Risk, Modeling, and Instruments by George Chacko, Anders Sjöman, Hideto Motohashi, and Vincent Dessain

The Instructor

Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in over forty 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. As a banker and consultant he has been involved in the growth of the structured finance 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. He and his wife are the founders of Cloudbridge, a nature reserve in Costa Rica. | | | | contact
Copyright ©2008 Ian Giddy. All rights reserved.