Securitisation - Introduction

Course level

Introductory

Delegates

This course will help delegates with a basic knowledge of the capital markets to gain a good understanding of the mechanics of securitisation and of the great breadth of its applications.

It will be relevant to investment bankers, corporate financiers, accountants, bankers and also to bond portfolio managers, leveraged financiers and finance directors from a corporate context.

Overview

This one-day course is a comprehensive introduction to the various structures and tools used in securitisation. The course looks critically at the issues which motivate both issuer appetite and investor demand. The course will also look at the central technical issue of securitisation - namely tranching, and delegates will tranche a CDO, using a simple binomial model, which we will build in class.

Learning outcomes include obtaining a greater understanding of

• Key Structuring Tools:
  • Tranching
  • Credit enhancement
  • 1st loss risk absorption
  • Insurance
  • Over-collateralisation
  • Excess spread
  • Seasoning of assets
  • Asset selection
  • Liquidity facilities
• The Original Securitisations - RMBS and Secured Loan Structures - Covered Bonds
• Whole Business Securitisations
• Rationale for Securitisation
  • Risk transfer and risk management - the bank perspective
  • Bank regulatory capital - a key driver, costs of capital implications
  • The use of special purpose vehicles and the accounting implications of off- balance sheet finance
  • The impact of IAS 39 and bringing assets 'on balance sheet'
  • The power of diversification and tranching of risk to meet investor objectives
  • Investor base - what drives bond buyers? - investment grade
• Ratings, Tranching and the Rating Agencies’ Approach
  • What do ratings mean? - default rates, PD, EDF and loss given default
  • How do agencies rate securitisations?
  • Building a simple portfolio model
  • Alternative portfolio strategies
  • Tranching a simple securitisation structure
  • The yield curve, rating fair value curves and the swap curve
  • Yield curve shape - theory and investor preference
  • Duration and its importance to investors - structuring to meet investor requirements, amortisation and 'soft bullets'
• Derivative Based and Other Securitisation Structures
  • Revolving securitisation programmes, asset backed CP
  • CDOs of CDOs - CDO squared
  • Derivative based securitisation
  • Synthetic CDOs