Securitisation / ABS (Asset-Backed Securities)

Overview

This course enables participants with minimal or no background knowledge to comprehend securitisation mechanics, implementation, and the advantages and disadvantages for both issuers and investors. The programme begins with Residential Mortgage-Backed Securities (RMBS), examining non-US markets followed by the structurally distinct US market. It then explores Commercial Mortgage-Backed Securities (CMBS) and retail asset-backed securities (such as credit card and auto loans). Both cash and synthetic structures are examined.

Required Existing Knowledge

None, except that with a couple of specialist areas — US RMBS and synthetic securitisation — some knowledge of, respectively, fixed income and Credit Default Swaps (CDSs) would be helpful.

Methodology

Includes case studies and exercises based on actual examples. Given sufficient preparation time and client input, these would ideally include examples from the client.

Key Learning Objectives

Participants will understand: how securitisation is executed and the SPV's role; why credit enhancement is necessary and how subordination/tranching provides it; how subordination levels and tranche widths are calculated; the rating agencies' critical function; how subordination determines cash flow waterfall mechanics; excess spread significance; typical equity holders and their motivations; regulatory impacts; pros and cons for issuers and investors; alternative credit enhancement methods; underlying asset characteristics and structural interactions; interest rate and other risk hedging strategies; synthetic versus cash securitisation; and securitisation's role in the credit crisis.

Agenda

• Session One: Overview — market size and development; investor drawbacks with standard bonds; securitisation outline; advantages for issuers and investors; SPV role; subordination requirements; principal and interest cash flows; equity holders; excess spread; Basel capital adequacy regulation; originator motivations; the investment case; securitisation versus covered bonds; alternative credit enhancement; RMBS case study
• Session Two: Credit issues — main structuring areas (credit, ALM, legal, tax, accounting, regulatory); rating agency tranching methodology; loan-by-loan expected loss analysis; corporate versus securitisation rating arbitrage; rating agency RMBS methodology case study
• Session Three: Asset-liability management and other issues — prepayment impact on investors and issuers; weighted average life; prepayment mitigation strategies; servicer roles; liquidity facilities; interest rate and FX hedging; stressed cash flow modelling; true sale documentation; offshore SPV tax efficiency; accounting treatment; CLO case study
• Session Four: Other sectors — US RMBS structures (pass-throughs, CMOs, agencies, private label); prepayment effects on yields and valuation; negative convexity and OAS spreads; PACs, TACs, IO and PO structures; CMBS characteristics and lease tenor importance; UK CMBS and investor preferences; credit card and auto ABS differences; Asset-Backed Commercial Paper; CMBS and retail ABS case studies