"...an impressive collection of experts whose compiled views and experience of the securitisation markets and practice is a must have for every structured finance practitioner's desk"
Jean-Francois Despoux, Head of European Securitisation, Société Générale
The European asset- and mortgage-backed securities markets have grown from €33bn in 1998 to over €260bn in 2005. There are no signs of it slowing down. An essential read for issuers, investors, arrangers and consultants involved in asset securitisation and derivative products.
More than 20 leading European practitioners explain:
the market developments driving growth;
the evolving securitisation techniques;
how to best manage your risk;
the market's best practice techniques.
This new book will help you:
mark the trends and gain expert insights into the futures of European ABS and CDO markets;
understand the impact of Basel II on the structured products market;
learn about the new developments in ABS structures for true sales, linked, hybrid and synthetics;
stay up-to-date with tax, accounting and rating considerations;
identify the changes in issuer motivations and the investor base for European ABS, including SIVs and conduit investors;
appreciate the market for first loss and mezzanine risk;
better structure RMBS, auto loans and consumer ABS, cash CDOs, credit derivatives, and synthetic arbitrage CDO products;
understand the innovative applications of whole business securitisations, insurance and embedded value securitisation and the workings of monoline insurance; and
explore securitisation in emerging markets and the growing market for Islamic securitisations.
Also by Abdulkader Thomas:
Islamic Bonds: Your Guide to Structuring, Issuing and investing in Sukuk (Nathif J Adam and Abdulkader Thomas, published 2004),
Structuring Islamic Finance Transactions (Abdulkader Thomas, Stella Cox and Bryan Kraty, published 2005)
Structuring Islamic mortgage and home finance productschapter in Islamic Retail Banking and Finance: Global Challenges and Opportunities (edited by Sohail Jaffer, published 2005).
Table of Contents
Foreword
Preface
Part I: Trends in the Securitisation Market
Chapter 1: The boom in asset securitisation
Krishna Prasad, Lehman Brothers
Chapter 2: The way forward: Future trends for securitisation and structured products
Rick Watson, Lead Editor
Chapter 3: The changing profile of risk: Impact of Basel II on ABS issuance and investment
Marcus Herrmann, HSBC
Part II: Exploring ABS Structures
Chapter 4: Legal structure of cash and synthetic structures
Patrick Clancy, Shearman and Sterling
Chapter 5: Regulatory impact of synthetic securitisation
Dieter Glueder, KfW banking group
Chapter 6: Tax considerations for consumer and whole business securitisations
Michael Wistow, Clifford Chance
Chapter 7: The accounting consequences
Peter Jeffrey, PwC
Chapter 8: The rating process for structured finance
Jeremy Carter, Fitch Ratings
Part III: Distribution – Is it Cheap or Expensive?
Chapter 9: Exploring the investor base: Who buys and sells European ABS and why?
Rob Ford, Barclays Capital
Chapter 10: Converging developments in ABCP conduits and SIV markets
Doug Long, Principia Partners
Chapter 11: Markets for first loss and mezzanine risk
Terri Duhon, B&B Structured Finance Ltd
Part IV: Product Sector Reviews
Chapter 12: Residential mortgage-backed securities Joseph Smallman, GMAC-RFC Securities and Shadi Salman
Chapter 13: Auto loans and lease ABS
Ralf Hesdahl andStuart Litwin, Mayer, Brown, Rowe and Maw LLP
Chapter 14: Cashflow CDOs
Kate Birchall, CIBC
Chapter 15: Arbitrage synthetic CDOs
Loic Fery, Calyon
Chapter 16: Whole business securitisations
Robert Velins, FGIC
Chapter 17: Value in-force securitisation
Murray Wood, Lehman Brothers
Chapter 18: Monoline insurer financial guarantees: Expanding the investor horizon
Paul Severs, FGIC
Chapter 19: Islamic securitisations: Opportunities with Sukuk
Abdulkader Thomas, SHAPE Financial Corp
Chapter 20: Emerging market securitisation
Noel Edison, Standard Chartered
Author biographies
About the Editors
Rick Watson Rick was most recently Managing Director – Structured Finance for FGIC UK Limited in London, the European subsidiary of Financial Guaranty Insurance Company, one of the four largest Aaa/AAA/AAA rated monoline insurance companies. He was head of the team responsible for the origination, underwriting and execution of financial guarantees and credit derivatives for European structured finance transactions including consumer asset, CDO, and whole business securitisations. Prior to joining FGIC, Rick was head of European ABS and CDOs at HSBC Bank plc, where he led a pan-European team of originators of consumer, CDO and other securitisation products. He was previously Managing Director and Head of European Securitisation at Bear Stearns in London, Executive Director at UBS Limited, a Vice President at Morgan Stanley in New York, and a product manager and treasury specialist at the Federal Home Loan Mortgage Corporation (Freddie Mac) in Washington DC. From 2000–2004, Rick was co-chair of the European Securitisation Forum’s Legal and Regulatory Committee, which was actively involved in providing industry feedback to a variety of global banking regulatory bodies on the Basel II framework and other topics. Rick received an MBA from the Fuqua School of Business at Duke University in Durham, North Carolina, a BA from Grove City College, Grove City, Pennsylvania and has a CPA Certificate in Washington DC.
Jeremy Carter Jeremy Carter is a director in Fitch Ratings’ European structured finance group. As a senior member of the credit derivatives team, Jeremy is responsible for conducting rating analyses of synthetic CDOs, writing market research and analysing innovative synthetic structures. Before joining Fitch, Jeremy ran the London office for Institutional Investor News. During his time as a journalist he edited Derivatives Week and Securitization News as well as writing for both the Journal of Structured Finance and Risk magazine.
Jeremy is a graduate of Exeter University.
About the Contributors
Judith Baker Judith Baker is a senior lawyer in the tax group of Clifford Chance LLP, which she joined in 2003. Judith has worked on a wide range of structured real estate securitisations, including the recent Land Securities transaction, and on whole business securitisations for the BUPA and Priory Healthcare groups.
Kate Birchall Kate Birchall is a Director of DCM at CIBC World Markets where she is responsible for the structuring and marketing of credit products. Previously, Kate was Director and Head of Research and Analytics at ANZ Investment Bank, based in both London and Sydney. During her time at ANZ, Kate was responsible for the analysis of synthetic and cash credit transactions. Prior to this, she worked at UBS as a member of the High Grade Credit Research team.
Patrick Clancy Patrick Clancy joined the London Office of Shearman & Sterling LLP in autumn 2001, after a spell of four years as in-house counsel at WestLB. He began his career at Slaughter and May in 1988. Patrick specialises in derivatives, particularly fixed income and credit-related derivatives and repos, and in structured finance and structured products. His clients include hedge funds, financial institutions, financial insurers and corporates. In addition to legal qualifications, Patrick holds a degree in finance from London Business School.
Terri Duhon Terri Duhon graduated from MIT in Maths in 1994 and immediately joined JPMorgan as an interest rate derivatives trader in New York. In 1998, she moved to Credit Derivatives and Structured Products at JPMorgan and was instrumental in developing the credit derivative market as well as building the BISTRO business: a cutting edge securitisation technique pioneered by JPMorgan. Later she moved to London and helped to build their European structured finance business with a focus on managed synthetic transactions and single tranche trades. In 2002, she joined ABN AMRO to help build a global structured credit business. Terri left in May 2004 to found B&B Structured Finance Ltd.
Noel Edison Noel Edison is a Managing Director and Head of Asset Securitisation with responsibility for Latin America, Emerging Europe, Africa, Middle East and South Asia in the Asset Securitisation Group at Standard Chartered Bank. Since the team was formed in 2002, Standard Chartered has successfully closed a number of securitisations in various emerging markets. Prior to joining Standard Chartered, Noel was a managing director at Banc of America Securities Ltd. in the London-based Global Asset-Backed Securitisation Group, and before that in the London-based Structured Finance Group. Noel holds a BA degree in Economics and Psychology from Hobart College, New York and an MBA from the Johnson School, Cornell University, New York.
Loic Fery Loic Fery is Managing Director in the Capital Markets division of Calyon in London and acting as Global Head of Structured Credit & CDOs. His product line responsibilities include the synthetic and cash CDO business-line, as well as structured credit product innovation. He began working in the credit derivatives industry in 1996 and has been involved successively in both trading and structuring sides of this growing activity. Loic was based in Hong Kong from 1997 to 2002 where he ran the Asian Credit Derivatives desk for CAI and previously for SocGen. Loic Fery graduated from HEC (France). He has published numerous articles and is a frequent lecturer on credit derivatives issues.
Rob Ford Rob Ford is Managing Director and Head of European ABS Secondary Trading at Barclays Capital in London. He has been trading ABS since 1989, when Barclays launched their first MBS issue - Gracechurch Mortgage Finance. Rob was responsible for building Barclays Capital’s successful Libor credit trading team and he still retains particular responsibility for trading the Sterling FRN book. Previously he has traded Corporate Bonds, Gilts and prior to that Futures & Bond Options (both on LIFFE and OTC), in a 19 year career with Barclays (formerly BZW). Prior to joining Barclays he obtained a degree in Music from Colchester Institute School of Music and in his spare time plays keyboards in a successful rock band.
Dieter Glüder Dieter Glüder is Head of Asset Securitisation at KfW-banking group and Managing Director of TSI GmbH . Dieter has been employed with KfW, in various functions since 1987, including in general policy, treasury, asset management and risk management. Since 2001, Dieter has been head of securitisation developing the PROMISE and PROVIDE programmes as well as the TSI-Initiative. He has a Ph.D. in economics from the University of Frankfurt/Main.
Ralf Hesdahl Ralf Hesdahl is a securitisation partner in the Frankfurt office of Mayer, Brown, Rowe & Maw LLP. His practice focuses on advising arrangers, issuers and originators in public and private securitisation transactions, in particular with respect to German auto loan and auto lease transactions. He acted as transaction counsel for Volkswagen Bank’s German auto loan securitizations, Driver One and Driver Two, known as the first German true sale securitisations making use of True Sale International’s securitisation platform. From 1977 to 1979 Ralf was with Bethmann Bank, Frankfurt. He was admitted to the Frankfurt Bar in 1988 after studying law at Justus-Liebig-Univerity, Giessen, Germany. In 1992, Ralf obatined a doctor’s degree in law.
Markus Herrmann Markus Herrmann heads the Global ABS Strategy team at HSBC, covering international ABS, RMBS, CMBS and other structured product. Before, he was a senior ABS analyst at Deutsche Bank, where earlier he covered Pfandbriefe and other covered bonds. He is a regular speaker at conferences and contributor to books on European capital markets, securitisation and credit derivatives. He is a member of the Market Standards and Practices Subcommittee, and the Market Data Taskforce, of the ESF. Markus received his Ph.D. in Finance, summa cum laude from Universität Konstanz in 1996 having previously completed a Diplom-Volkswirt (MSc) in Economics and Finance at Universität Konstanz in 1991.
Peter C. Jeffrey Peter Jeffrey heads the PWC European Securitisation Group. He has been involved in helping set up some of the earliest UK securitisations and has worked in a range of transactions from RMBS in prime and sub-prime market to whole company securitisations. He is an expert in structuring, including accounting and regulatory, as well as project management and feasibility studies. Peter is also co-chairman of the accounting committee of the European Securitisation Forum, and has contributed a number of articles published in leading structured finance magazines and regularly speaks at conferences and seminars.
Stuart Litwin Stuart M. Litwin is a partner and co-head of the global Securitization Group at Mayer, Brown Rowe & Maw LLP. He is one of the leading US lawyers in structuring, negotiating and documenting asset-backed securities transactions. Stuart is currently the Co-Chairman of the Auto Issuers Subforum of the American Securitization Forum. Mr. Litwin holds a J.D. from the University of Chicago Law School, an M.B.A. from the University of Chicago Graduate School of Business and is a Certified Public Accountant. Mr. Litwin has been ranked as one of the best securitization lawyers in the US by, among others, Chambers Global, IFLR and Euromoney.
Douglas Long Douglas Long is European Vice President for Business Strategy at Principia Partners where he is involved in the development of the credit, equity and interest rate derivatives capabilities of the Principia System, a portfolio and risk management system for assets, liabilities and derivatives widely used in the banking, insurance, hedge funds, corporate and structured finance industries. Previously, Douglas was a senior researcher and vice president at Deutsche Bank, where he developed new concepts for credit, equity and interest rate modeling. He has also served as a quantitative analyst with Infinity (SunGard) and Renaissance Software in London. Douglas has authored several books and numerous articles on quantitative analytics and market practices and has a Ph.D.
Krishna Prasad Krishna Prasad is head of Structured Finance Research at Lehman Brothers in London. His group covers the European securitised market, with a particular focus on quantitative analysis of fundamentals. He has been at Lehman Brothers for over eight years, all of it in asset-backed research. He has an undergraduate degree from the Indian Institute of Technology and a Ph.D. from Northwestern University in Evanston, Illinois. Prior to joining Lehman Brothers, he worked at Bell Labs in telecommunications planning. In his current job, Krishna’s team is consistently ranked at the top in investor polls of ABS research groups.
Paul Severs Paul Severs is Managing Director at Financial Guaranty Insurance Company and head of legal and compliance for FGIC UK Limited and FGIC Credit Products Limited. In this capacity he has responsibilities for infrastructure, utilities, ABS and whole business securitisations as well as credit derivatives. Prior to joining FGIC in 2004, Paul was a partner in the securitisation practice of Clifford Chance where he worked for seventeen years. He has extensive experience in the structured finance markets in Asia and Europe covering a broad range of asset classes including real estate, residential and commercial mortgages, consumer loans, NPLs, pubs, ports and healthcare related receivables.
Joseph D. Smallman Joseph Smallman established, and is CEO and Managing Director of, GMAC-RFC Securities Europe (GRSE). Based in London, GRSE is the FSA-authorised and regulated investment bank for GMAC-RFC’s European market. Joseph began as a mortgage broker in 1982, and has worked for ANZ Bank, Solomon Smith Barney and Tokyo-Mitsubishi Bank. He also established Vining-Sparks Europe, an SFA registered securities firm that distributes high-grade U.S. dollar products to European institutional investors. Since 2001, Joseph has served as the co-chairman of the ESF’s Market Standard and Practices sub-committee. Joseph earned his M.Phil. from The London School of Economics, has been a visiting guest lecturer at Cambridge University, and wrote his thesis on issuing multi-currency, sterling-based mortgage-backed securities.
Sarah Squires Sarah Squires is a partner in the tax group of Clifford Chance LLP. Sarah joined Clifford Chance in 2000, becoming a partner in May 2002. Sarah’s practice encompasses both corporate and finance transactions, with a particular emphasis on securitisations. In relation to securitisations, her experience covers both traditional CMBS and the more structured real estate securitisations, together with involvement on whole business transactions for corporate groups, primarily acting for arrangers.
Abdulkader Thomas Abdulkader Thomas is President and CEO of SHAPE(tm) Financial Corp., based in Arlington, Virginia and Kuwait. SHAPE are consultants to the financial community with respect to Shari’a-compliant financial structuring, sub-advisors to the global securities industry with respect to forms of Islamic transactional issuance, and train internationally on Islamic banking. Abdudulkader is the editor of The American Journal of Islamic Finance. Holding a Master of Arts in Law & Diplomacy from the Fletcher School of Law and Diplomacy, Abdulkader earned a BA with honours in Arabic and Islamic Studies from the University of Chicago. He has been responsible for the first US banking regulatory approvals of Islamic financial instruments and structured the first Shari’a-compliant REIT.
Robert Velins Robert Velins is Managing Director, Structured Finance, at Financial Guaranty Insurance Company (FGIC) with primary responsibility for FGIC’s structured and project finance business outside the Americas. Prior to joining FGIC, Robert was a Managing Director at MBIA Insurance Corporation, responsible for the origination, structuring and execution of infrastructure and utility transactions within the UK and Europe, before which he was the Director of the Asia Pacific Rim Region, where he was responsible for both public finance and securitisation products in the region. Robert has had significant experience in the investment banking industry including tenures at Barclays Capital in Australia, Tokyo and Hong Kong, CS First Boston and National Australia Bank. He began his career in Corporate Strategy at Coopers & Lybrand Consultants.
Michael Wistow Michael Wistow is a partner in the tax group of the international law firm, Clifford Chance LLP which he joined in 1988. Michael has specialised in the tax aspects of banking and finance work, particularly in relation to real estate where hel has experience for acting for both originator and arranger. In recent years Michael has particularly focused on applying securitisation techniques to the financing of real estate portfolios, both in relation to structured CMBS transactions and also whole business securitisations involving asset classes such as office, retail and leisure.
Murray Wood Murray Wood leads the European Insurance Solutions effort at Lehman Brothers in London. He focuses on European life insurance with a particular focus on insurance securitisation. Previously, he was a Director at Barclays Capital in London focusing on providing capital management products to European financial institutions. At Barclays Capital he was responsible for the origination and execution of embedded value securitisation transactions. He is a graduate of the London School of Economics and the Ivey School of Business at the University of Western Ontario.
Review from The Journal of Structured Finance.
Asset Securitisation and Synthetic Structures: Innovations in the European Capital Markets Edited by Rick Watson and Jeremy Carter London: Euromoney Books, 2006
This overview of securitization and structured products in Europe consists of 20 chapters contributed by practitioners from commercial and investment banks, institutional investors, law firms, monoline insurers, rating agencies, accounting firms, government-sponsored agencies, conduits, and modeling/analytics firms. Part I describes trends in the global securitization markets with an emphasis on Europe and describes the impact the new Basel II banking regulatory framework will have on both issuers and investors in ABS. Part II explores legal, accounting, tax, regulatory, and credit-rating considerations that can drive issuance decisions, including requirements for bankruptcy remoteness, ring fencing, and offbalance-sheet accounting treatment. Part III discusses who buys securitized instruments. It describes the development of the European investor base, including banks, pension funds, insurance companies, and other types of institutional investors; provides a detailed description of the structured products themselves as investors; and discusses the market for firstloss and mezzanine tranches, representing the more credit-intensive end of the structuredproduct investment-risk spectrum. Part IV provides specific reviews of key product sectors in the European and emerging markets, including an historical progression of residential mortgage-backed securities (BMBS); a country-by-country comparison of RMBS with covered bond products; and reviews of auto loan and lease and other non-mortgage ABS sectors, arbitrage CDOs, cash CDOs, synthetic CDOs, whole business securitization, value-in-force securitization for insurance companies, the role of monoline insurers in the structured products markets, and recent techniques in the world of Islamic finance to develop Shari’a-compliant securitization.
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