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Description of Securitisation Workbook |
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
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Contents of Securitisation Workbook |
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
Answers to exercises
Glossary
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