The Principles of Banking Moorad Choudhry

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Presentation transcript:

The Principles of Banking Moorad Choudhry Chapter 4: A Primer on Securitization Reference: Hull RMFI – Ch. 6 WHUT Robert R. Reitano

The Creation of Asset-Backed Securities (ABS) WHUT Robert R. Reitano

Single Purpose Vehicle/Entity SPV/SPE Separate Legal Entity (Legal Trust) Buys assets from Issuer/Originator Sells ABS to Investors Services payments, recoveries, etc. Bankruptcy Remote (from Originator) Investors’ risk is to asset collateral Incorporated “Offshore” for tax treatment Example: Cayman Islands, Ireland WHUT Robert R. Reitano

Motivations for Securitization WHUT Robert R. Reitano

A Securitization Structure WHUT Robert R. Reitano

Credit Rating Considerations True Sale and Ownership of Assets Asset Quality and Loss Rate Asset Servicing Cash Flow Modelling Loan-to-Value Ratio Payment-to-Income Ratio WHUT Robert R. Reitano

Cash Flow “Waterfall” WHUT Robert R. Reitano

Subprime ABS Compounding Are all BBBs Equal? WHUT Robert R. Reitano

ABS Pre-Crisis WHUT Robert R. Reitano

ABS Post-Crisis WHUT Robert R. Reitano

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