Securitisation 2nd edition ensures you have a complete grasp of the concepts and the practice of securitisation. In eight extensive modules, the authors provide an introduction to the terminology and conceptual issues of asset securitisation, examine the types of credit enhancement, the structural challenges and cashflow analysis underpinning securitisation and more recent applications such as synthetic technology. Interest areas: securitization, securitisation, CDOs, CMOs, CBOs, credit risk, risk management., asset finance.
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A new update of our best-selling workbook on securitisation. In its 2nd edition, this workbook has trained a generation of structured finance specialists.
In eight extensive modules, this collection of specialists provide an introduction to the terminology and conceptual issues of asset securitisation, examine the types of credit enhancement, the structural challenges and cashflow analysis underpinning securitisation and more recent applications such as synthetic technology. The book also examines securitisation from the perspective of each of the key participants, including the issuer, trustee and rating agency. The legal, regulatory, tax and accounting considerations supporting securitisation are also fully explored.
Each of the modules include self-test exercises to test your knowledge of these complex issues, and the workbook includes a glossary to ensure that you have a complete grasp of the terminology.
Module 1 - Introduction and the issuer's perspective
Module 2 - The rating agency's approach
Module 3 - Credit enhancement, structural issues and cashflow analysis
Module 4 - Collateralised debt obligations and synthetic securitisation structures
Module 5 - Legal and regulatory considerations
Module 6 - Tax issues
Module 7 - Accounting issues
Module 8 - The trustee's perspective
The workbook includes contributions from Bankgesellschaft Berlin, Deloitte & Touche, Fitch Ratings, JP Morgan Chase, Prometheon and White and Case.
Who Should Read this? Bankers, treasurers, insurance executives, investors, regulators, structured financiers, lawyers, risk managers
Securitisation for Issuers, Arrangers and Investors, second edition
Table of Contents
Author biographies
Preface
Module 1: Introduction and the issuer’s perspective Objective What does ‘securitisation’ mean? What is the difference between securitisation and factoring? Exercise 1.1 Why securitise? Macro objectives Strategic objectives Financial objectives Who are the investors? Advantages for investors Factors stimulating the growth of securitisation and development of the market The UK market Other European markets Exercise 1.2 What type of assets can be securitised? Who are the originators? Exercise 1.3 The growth of new asset classes and funding sources New asset classes The asset-backed commercial paper market Does a securitised transaction have to be off-balance sheet? Relevant structures for different asset types Trade receivables Residential mortgages Car receivables Exercise 1.4 Exercise 1.5 The key components of an asset-backed structure Temporary cash shortfalls Credit losses Basis risk Reinvestment risk Administration risk Exercise 1.6 Typical steps in a securitised transaction Typical originator concerns Exercise 1.7 Parties to a securitisation transaction Phases to a securitisation transaction Phase 1: Planning and preparation Phase 2: Structuring Phase 3: Documentation Phase 4: Issue to closing Phase 5: Post-closing administration Exercise 1.8
Module 2: The rating agency’s approach Introduction Exercise 2.1 Main steps in the assignment of a rating to a structured finance transaction Phase 1: Feasibility study/sector review/sovereign risk Phase 2: Asset analysis/seller/servicer review/legal structure Phase 3: Cashflows model/credit enhancement calculations Phase 4: Presale report/final documents review/ expected ratings/monitoring Exercise 2.2 Established methodologies versus new asset classes Default probabilities Loss severity Concentration risk Exercise 2.3 Counterparty risk Financial exposure Operational risk Exercise 2.4 Conclusion
Module 3: Credit enhancement, structural issues and cashflow analysis Overview Credit enhancement Objective What is credit enhancement? The development of credit enhancement How much enhancement is required? Sources of credit enhancement Types of credit enhancement Choosing the best type of credit enhancement Conclusion Exercise 3.1 Structural issues Objective The nature of prepayment risk Causes of prepayment Risks of prepayment Valuing fixed-rate bonds with prepayment risk Measures of prepayment Estimating prepayment rates Practical methods of dealing with prepayment The importance of the order of priority of payment Conclusion Practical applications Objective Case study 1: Trade receivables securitisation Case study 2: A portfolio of residential mortgages – Granite Mortgages 00-2 plc Conclusion Cashflow analysis Objective What risk analysis procedures should be undertaken? Classical credit analysis The cashflow implications of asset purchase risks Structural risks Asset administration SPV management Funding risk Control Practical implementation Prepayment Arrears Static pool analysis Creating the first-loss provision The effect of seasoning Conclusion Exercise 3.2
Module 4: Collateralised debt obligations and synthetic securitisation structures Overview Collateralised debt obligations Introduction Small and medium-sized entities CDO structures Types of CDOs Tranching of risk CBO/CLO collateral New collateral classes in CDOs What is the motivation for issuing CDOs? Who issues arbitrage CDOs? Balance-sheet CDOs CDO analysis Cashflow CDOs Structural features Cashflow CDOs – portfolio analysis Arbitrage CDOs and market value structures Synthetic CDOs Exercise 4.1 Comparison between cashflow and synthetic transactions Synthetic arbitrage structures Conclusion Exercise 4.2
Module 5: Legal and regulatory considerations Introduction Participants De-linkage True sale Receivables sale No recourse Transfer methods Novation Assignment Stamp duty Due diligence Declarations of trust Off-balance sheet treatment Bankruptcy remote Limiting creditors Limiting shareholder actions Limited recourse Non petition SPV location Security Disadvantages of floating charges Contents Registration Administration Company voluntary arrangements Insolvency Rating agencies Profit extraction Recharacterisation Fixed or floating charge Credit enhancement FSA Guide EU Insolvency Regulation Exercise 5.1
Module 6: Tax issues Introduction Tax issues – originator Tax treatment of the sale of the debt or receivables portfolio What securitisation costs can be borne by the originator? Obtaining relief for credit enhancement Stamp duty and transfer tax Tax issues – SPV Location of SPV – tax haven versus treaty country Exercise 6.1
Module 7: Accounting issues History Treatments of securitisation transactions Under UK GAAP Worked examples Originator company only accounts Originator consolidated group accounts SPV company only accounts Detailed example International Accounting Standards Background IAS 39 Financial Instruments: Recognition and Measurement IAS 27 and SIC 12
Module 8: The trustee’s perspective Introduction Generic trust and agency services Trustee Paying agent Common depositary Custodian Cash manager and account bank Listing agent Back-up servicing Product specific servicing CDO – portfolio administrator CDO – swap administrator Conduits – sub-administration Structured investment vehicles Conclusion Exercise 8.1 Appendix: Quick reference guide to trustee and agency services
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