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IntroToSecuritizationML

IntroToSecuritizationML

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Published by George Bilkis

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Published by: George Bilkis on Mar 06, 2011
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01/23/2015

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Highlights of This Issue
Global ABS/MBS Markets 4
Mortgage-backed securities were launched in the US two decades ago. Today the USsecuritisation market continues to provide the highest volume and liquidity.However, the engine of growth for global securitisation is now in Europe and Asia.
Defining Securitisation 7
The terms structured finance and securitisation are usually used interchangeably,although the former is by definition broader and includes traditional asset-backedsecuritisations, as well as more creative and innovative financial and risk transfertechniques.
Structural and Legal Aspects of ABS and MBS 13
The securitisation process features many legal and structural features, whose mainobjective includes the separation of credit risk of the underlying assets from theoriginator’s credit risk, and achieving higher credit rating of the securitised bondsthan that of the assets’ originator and the asset pool.
Asset Classes and Basic Securitisation Structures 21
The different classes of assets determine the different securitisation structures thatare available in the market. Almost any asset type can be securitised if it meets somebasic conditions.
Rating Stability for ABS/MBS 27
ABS and MBS ratings remain more resilient. The caveat is the shorter securtisationmarket history, in comparison with the corporate bond market.
Originator’s Perspective: Securitisation Benefits and Drawbacks 29
The main benefits of securitisation for the issuer lie in the alternative off-balancesheet financing and balance sheet re-engineering, while possible drawbacks arerelated to the potential residual concentration of economic risk and over-reliance onsecuritisation.
Investor’s Perspective: Securitisation Investment Considerations 34
Constantly broadening range of investors are entering the securitisation market withthe banks and funds playing a major role. The benefits of securitisation areassociated with diversification, yield pick-up, exposure to new areas and creditstability.
ABS/MBS on Bloomberg 37
Bloomberg is an essential tool for the participants on the securitisation market, hencethe need to understand the related main screens and functions.
ASSET-BACKED
Global
Contributors
William Ross
Assistant Vice President+44 20 7573 0432william_ross@ml.com
Xavier De Pauw
Associate+44 20 7573 0437xavier_depauw@ml.com
4 September 2000
London
Alexander Batchvarov, PhD, CFA+44 20 7892 8649Ganesh Rajendra+44 20 7892 8544
Tokyo
Chinatsu Hani+81 3 3213 7680
Introduction toSecuritisation
Presentation Notes
Merrill Lynch & Co.Global Securities Research & Economics GroupFixed Income Strategy
RC#61424801
 
Introduction to Securitisation
4 September 2000
2
Executive Summary
We present here a series of introductory notes tosecuritisation with the goal of covering the basics on awide range of securitisation topics.
The Global ABS/MBS Market inNumbers
The securitisation market in the US has grown rapidlysince the beginning of the 1980
s, and it continues toprovide the highest volume and liquidity. Most recently,the lead in growth was taken by Europe and Asia. Thesecuritisation market is increasingly becoming global.
Securitisation Fundamentals
Structured finance and securitisation are usually usedinterchangeably, although the former is by definitionbroader and includes traditional asset-backed securities aswell as more creative and innovative approaches. Amongthese innovations are the future flow (or revenue-based)financing and operating assets (or whole business)securitisation. Most recently, the marriage of structuredfinance tools and credit derivatives with the purpose of transferring the risk of a pool of assets has come to beknown as synthetic securitisation. We discuss the mainfeatures of the different types of securitisation.
Structural and Legal Aspects ofABS and MBS
The securitisation process features many legal andstructural aspects with the main objective of separation of credit risk of the underlying assets from the originator
scredit risk, and achieving credit quality of the asset-backedsecurities higher than that of the originator. We discussthe main legal and structural aspects of the securitisationprocess.
Asset Classes and BasicSecuritisation Structures
The different classes of assets determine the differentsecuritisation structures that are available in the market.Almost any asset type can be securitised if it meets somebasic conditions.
Rating Stability for ABS
ABS ratings have proved to be rather resilient since thedawn of securitisation in the early 1980ies, particularly if compared to corporate bonds.
The Issuer Perspective: Benefitsand Potential Drawbacks ofSecuritisation
Securitisation is viewed differently by originators andinvestors. We look deeper into the main benefits andpotential drawbacks of securitisation for originators. Thenwe turn to the investors, by identifying who they are andwhat their main considerations could be.
ABS/MBS on Bloomberg
Bloomberg is an essential tool for participants in thesecuritisation market and we describe how to use mainscreens and functions to access and interpret ABS/MBSrelated information.
 
Introduction to Securitisation
4 September 2000
3
CONTENTS
n
Section PageExecutive Summary 2The Global ABS/MBS Market inNumbers1. 4Securitisation Fundamentals 2.
What is Structured Finance or What is Securitisation?Asset-Backed and Mortgage-Backed SecuritiesFuture Flow (Revenue-Based) FinancingOperating Asset SecuritisationSynthetic Securitisation
7891011Structural and Legal Aspects of ABS and MBS3.
The Securitisation ProcessKey Securitisation Parties and ConceptsForms of Credit Enhancement Rating Methodologies
13141621Asset Classes and BasicSecuritisation Structures4. 21Rating Stability for ABS 5. 27Benefits and PotentialDrawbacks of Securitisation6.
Securitisation SponsorsIncentives for Bank SecuritisationPotential Drawbacks of Securitisation
293033ABS / MBS Investors and TheirConsiderations7. 34ABS/MBS on Bloomberg 8. 37

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