Securitization and Structured Finance Post Credit Crunch: A Best Practice Deal Lifecycle Guide (The Wiley Finance Series)

Structured bonds are often viewed as complex and opaque, and participants in the securitization and structured finance markets have traditionally had a narrow focus on a specific part of the securitization value chain. However, in the post credit crunch environment, the market is more regulated, standardized, transparent, and better structured with closer-aligned and more balanced incentives for all participants, more focus on investors and improved comprehension of these bond instruments. In order for the market to succeed, it is vital that all participants take a broader view and understand every part of the transaction lifecycle. In Securitization and Structured Finance Post Credit Crunch: A Best Practice Deal Lifecycle Guide , Markus Krebsz draws on his years of experience in the global finance markets to provide a jargon-free guide to the entire lifecycle of securitization and structured finance deals. The book: Introduces much needed sound practice principles, based on lessons learnt post credit crisis Takes the reader through a generic deal's typical lifecycle stages Discusses each stage of the deal in detail, from 'Pre-Close' (strategic aims, feasibility studies, deal economic analysis and transaction documentation) through 'Close' (credit ratings, investor appetite/marketability, legal considerations) and 'Aftercare' (reporting, surveillance and performance analysis, and ordinary and extraordinary repayment) Opens up the author's personal 'tool box' and provides the reader with a comprehensive selection of references, tables, a glossary and other useful resources. Electronic versions of these tools are available from the book's companion website at www.structuredfinanceguide.com This unique, holistic and pragmatic insight into all deal life cycle stages makes Securitization and Structured Finance Post Credit Crunch an invaluable reference for all market participants in their efforts to get this important and - if used properly - hugely beneficial part of the capital markets back up and running. "Krebsz has provided a thorough and helpful reference book on all aspects of structured finance. For the layman, the opening chapters will provide a useful account of the processes and motivations behind structured finance products. For those involved in the ongoing management of data and risk processes, the detail in later chapters on systems and infrastructure available is unique and it is good to find all of this information in one place." —Faten Bizzari, Principal at Eastfield Capital Ltd "Markus Krebsz has achieved a rare feat. He has written a book about securitization that is practical and useful for practitioners but at the same time provides enlightenment to the general reader.... If all market participants and investors were to read, learn and inwardly digest this book, common sense would doubtless prevail." —Ian Fraser, Financial Times correspondent and consulting editor at Bloomsbury Publishing's Qfinance "... an authoritative text on the practicalities of securitization, providing a wealth of detailed information on the lifecycle of a typical deal. As the market for structured finance products comes gradually back to life, this book is likely to become a valuable reference for market participants." —Professor Alexander J. McNeil, Department of Actuarial Mathematics and Statistics, Heriot-Watt University "This is a fantastically researched in-depth publication that I learned a great deal from reading and will continue to consult on an ongoing basis. No matter which angle you come from this should be a must-read for all market participants both old and new." —Martin Sampson, European ABS Business Manager, Bloomberg L.P. "... a book that is both encyclopaedic in its coverage of the structured products business and a model of clarity of exposition." —Paul Wilmott, financial engineer and founder of Wilmott.com Securitization and Structured Finance Post Credit Crunch......Page 1 Contents......Page 7 Preface......Page 13 Acknowledgments......Page 19 1.1 Setting the scene: About this book......Page 21 1.3 Role-based roadmap to the book......Page 22 PART I THE CREDIT CRISIS AND BEYOND......Page 25 2.1 Overview......Page 27 2.3 Paper reports......Page 28 2.4 Electronic reports......Page 29 2.7 Reporting standards......Page 30 2.9 Due diligence......Page 31 2.12 Rating shopping......Page 33 2.13 Overreliance on credit ratings......Page 34 2.14 Models, assumptions, and black boxes......Page 35 2.15 Proprietary analysis......Page 36 2.17 Senior management awareness......Page 37 2.18 Lack of drilldown capability and group-wide controls......Page 38 2.20 Government salvage schemes: What’s next?......Page 39 2.22 Conclusion......Page 40 3.1 Current initiatives: An overview......Page 41 4 Sound practice principles......Page 43 4.1 Data......Page 44 4.2 Definitions......Page 50 4.3 Standards......Page 52 4.4 Investor focused......Page 55 4.5 Motivation and deal drivers......Page 56 4.6 Analysis......Page 59 PART II DEAL LIFECYCLE......Page 67 5.1 Strategic considerations......Page 69 5.3 Deal structure type......Page 83 5.4 Asset classes......Page 88 5.6 Credit enhancement and pricing......Page 90 5.7 Asset readiness and feasibility studies......Page 95 5.8 Documentation review......Page 111 5.9 Target portfolio and deal economics......Page 114 5.10 Indicative rating agency and financial modeling......Page 117 5.11 Ratings models......Page 121 5.12 Rating methodologies......Page 125 6.2 Execution resources......Page 131 6.3 Transaction counterparties......Page 134 6.4 Transaction documents......Page 140 6.5 Deal configuration......Page 147 7.1 Deal documents, marketing, and roadshow......Page 153 7.3 Deal pricing and close......Page 155 7.4 New-issuance reports......Page 156 8.1 Servicing and reporting......Page 157 8.2 Deal performance measurement......Page 164 8.3 The performance analytics process......Page 165 8.4 Deal redemption......Page 174 PART III TOOLBOX......Page 175 9.1 Structure diagrams......Page 177 9.2 Analytical capabilities......Page 178 9.3 The risk of overreliance on ratings......Page 179 9.4 Analytical roadmap......Page 184 10.1 The ‘‘meaning’’ of data......Page 187 10.3 Dynamic data points......Page 190 10.4 Data providers......Page 192 PART IV ANALYTICAL TOOLS......Page 195 11 Vendors......Page 197 12.1 Introduction......Page 199 12.2 Performance data......Page 200 12.3 Pool performance......Page 201 12.4 Portfolio monitoring......Page 203 12.5 Creating benchmark indexes......Page 206 12.7 Single-bond cash flow analysis......Page 207 12.8 Single cash flow projection results......Page 210 12.9 Advanced functionality......Page 211 13 Bloomberg......Page 213 14.1 Changing the data model used for structured finance instrument administration......Page 215 14.2 The big fly in the ointment......Page 217 14.3 CapitalTrack—the new model......Page 219 15.1 Products and services......Page 227 15.2 Research services......Page 229 15.3 Structured finance solutions......Page 230 15.4 Residential mortgage models......Page 232 16.1 Company history......Page 237 16.3 Cash flow models and data......Page 238 16.4 New developments/releases......Page 243 16.5 Partners......Page 244 17.2 Broadening the horizon......Page 247 17.3 A global solution......Page 252 17.5 Streamlining workflows with automation tools and data feeds......Page 253 17.6 ABSNet scheduled export......Page 254 17.8 The demand for greater granularity......Page 256 17.9 A brighter future......Page 260 18.1 ABS/MBS investors tools: Structured Finance Workstation......Page 261 18.2 CDO investors’ tools......Page 262 18.3 ABS/MBS issuer tools......Page 263 18.4 CDO tools for asset managers......Page 264 18.5 CDOEdge for structurers......Page 265 18.6 CDOnet Underwriter......Page 266 19 Principia Partners: The Principia Structured Finance Platform......Page 267 19.1 Portfolio management......Page 268 19.2 Risk management: Cash flow and exposure analysis......Page 274 19.3 Operations and administration......Page 282 19.4 Summary......Page 285 20.2 Product suite......Page 287 20.3 Trepp for CMBS......Page 289 20.4 Trepp derivative......Page 293 20.5 Trepp loan......Page 294 20.6 Powered by Trepp......Page 297 20.7 Recent developments......Page 299 20.8 Trepp’s market affiliations......Page 300 20.9 The future......Page 301 21.2 Ratings tools......Page 303 22.1 Structure paydown function (SPA)......Page 309 22.2 Super Yield Table (SYT)......Page 322 22.3 Mortgage Credit Support (MTCS)......Page 343 22.4 Collateral Performance function (CLP)......Page 346 22.5 CMBS Loan Detail screen (LDES)......Page 356 22.6 Delinquency Report (DQRP)......Page 375 22.7 Collateral Composition Graph (CLCG)......Page 378 22.8 Cash Flow Table (CFT)......Page 382 22.9 Class Pay Down (CPD)......Page 397 22.10 Rating changes (RATT)......Page 399 22.11 Mortgage API Excel workbooks (MAPI)......Page 402 23.2 Free data portals......Page 409 23.3 Vendors......Page 410 23.4 Structured finance periodicals and other useful resources......Page 412 23.5 Rating agencies......Page 415 A Glossary......Page 417 B.1 Fitch Ratings......Page 425 B.2 Moody’s......Page 428 B.3 Standard and Poor’s......Page 436 C List of abbreviations......Page 451 D Bibliography......Page 453 Index......Page 455 Structured bonds are often viewed as complex and opaque, and traditionally most participants in the securitization and structured finance markets have had a narrow focus on a specific part of the securitization value chain. However, in the post credit crunch environment, the market is more regulated, standardized, transparent, and better structured, with closer-aligned and more balanced incentives for all participants, more focus on investors and improved comprehension of these bond instruments. In order for the market to succeed, it is vital that all participants take a broader view and understand every part of the transaction lifecycle

In this book, you will be introduced to generic best practice principles for a post credit crunch market. First, the book takes a closer look at the reasons why the market froze during the 2007 to 2009 credit crisis. Then you will learn how to use the principles explained here in your generic deal's typical life cycle stages. Throughout, each stage is discussed in detail, from strategy and feasibility, pre-close, at close, and post close. The final section of the book contains a toolbox of references, tables, dictionaries, and resources.