Assets collateral

The traditional concept of a custodian as explained above is applicable to those deal types that hold the assets noted. This is usually the case for ABCP programs (although these deals may be set up to fund exclusively trade receivable assets), collateralized debt obligations (CDOs), and special investment vehicles (SIVs). With certain forms of CDO transactions, the proceeds of issued notes are sometimes invested in collateral. This is also held by the deal custodian. In addition ABS deals may also... 

Issue of debentures. These will normally carry a fixed rate of interest and have a predetermined date of redemption, possibly at a premium. The holders of debentures will usually require security perhaps by means of a fixed charge over specific assets (or all the assets), and will have a right of prior payment in the event of a liquidation. Debenture holders can also sometimes exercise their rights on the occurrence of certain events. Widespread security given to one class of lender can militate against the provision of shortterm finance from other lenders who require collateral. 

Over the last decade, the challenges faced by asset managers have become significantly more complex. The array of investment choices has expanded tremendously in response to globalization and financial engineering. New products are now available such as collateralized debt, insurance-linked securities, and exotic structured products. At the same time, the need for investment planning has shifted more to individuals as companies and public entities relinquish responsibility for retirement programs. 

In certain jurisdictions, covered bondholders have some recourse to noneligible assets and, in the case of the special purpose affiliates, may also rely on some form of parental support for the issuer. For ABS/ MBS, in the event of insufficient proceeds from the pool assets to cover the claim, holders have no recourse above and beyond the collateral contained within the pools and the original ABS/MBS structure. 

There are two diametrically opposing views as to the effect this difference has on the security aspect of the Lettres de Gage the first is that the Luxembourg could be considered to be more secure than its German counterpart. This is thought to be due to the fact that in their search for diversified assets to use as collateral for their Pfandbrief-like product, Luxembourg banks will diversify their exposure to top-rated OECD sovereigns such as Australia and Japan. 

In economic terms, an exchange of assets, usually bonds but also money market paper or equities as collateral against cash. 

Stock lending or securities lending is defined as a temporary transfer of securities in exchange for collateral. It is not a repo in the normal sense there is no sale or repurchase of the securities. The temporary use of the desired asset—the stock that is being borrowed—is reflected in a fixed fee payable by the party temporarily taking the desired asset. In a stock loan, the lender does not monitor interest rates during the term of the trade, but... 

In European RMBS transactions, bonds are not generally written down when losses are incurred in the collateral pool. Instead, the losses are recorded in a principal deficiency ledger, which records the extent to which the balance outstanding on the notes exceeds the remaining assets. Usually, both excess spread and the reserve fund can be used to cover losses and so pay down the principal deficiency ledger. This mechanism is beneficial to holders of the lower-rated notes because the notes do not get written off immediately and any future excess spread will be used to cover the loss. 

Commercial mortgage-backed securities (CMBS) represent an important and growing sector of the European securitisation market. However, in many cases there are significant differences between transactions, even those backed by collateral from the same originator, and it is these differences, in both collateral types and structural features, that make European CMBS such an interesting asset class. This chapter focuses on some of the more important aspects that investors should consider when analysing the collateral supporting these transactions and briefly looks at the key features of the common transaction structures. 

Investing in CMBS, whether they are single-asset or multiborrower transactions, requires an appreciation of the nature of the underlying properties and the inherent sensitivities of the cash flows they generate. The type and extent of analysis undertaken should be tailored to reflect the characteristics of the collateral pool and also whether the proposed investment is at a senior or junior level in the capital structure. 

Credit card ABS (CCABS) constitute one of the most liquid and widely accepted asset classes in Europe and most European ABS investors are likely to hold some credit card securitisations. The purpose of this chapter is to discuss the structural features and investment characteristics of CCABS. The focus is on the UK credit card ABS market because the vast majority of European credit card transactions are backed by sterling-denominated collateral. 

Three types of consumer finance receivables have been securitised in the past credit card receivables, auto receivables (essentially auto loan and auto lease receivables), and other consumer finance receivables, which typically include unsecured personal loans. Credit card receivables are discussed in Chapter 13. The purpose of this chapter is to provide an overview of the European auto and consumer loan ABS markets and review the structural, collateral, and performance characteristics of the two asset classes. We decided to review auto and consumer loan ABS combined in one chapter because of the many similarities between the two asset classes. 

Hopefully, at this point, one has gotten a flavour as to how our minibank can be shaped to accommodate the particulars of the underlying collateral and an asset manager s style. We shift our discussion to the investor and rating agencies, each of which also have influence on CCDO I s construction. 

An important constituent that we have not mentioned lately is the German institutional investor. For those that remember, the catalyst behind the overall transaction. Now that we have built the basic product or tool (CCDO I) to help intermediate the high-yield market to the investor, we should explore any tailoring the CDO can provide to the end investor. The vehicle thus far has been customised principally around the collateral and asset manager. 

In snmmary, a CDO is a very powerfnl tool that facilitates the needs of many market constituents. Like all tools, however, they have to be used properly. A CDO structured where the unique particulars of the collateral, the asset manager, and investor are considered, and most importantly balanced, begins to define the minimum standard of excellence that all good structnred financiers shonld respect. 

As already discussed, collateralised debt obligations are a form of security whose interest and principal payments are linked to the performance of a specific pool of assets (sourced either directly or by reference). These underlying assets act as the collateral for the issued notes, hence the name. In terms of basic principals, there are many similarities between CDOs and their predecessors asset-backed securities (ABS) (see Exhibit 15.5). The major difference between CDOs and other ABS securities is... 

In addition to debt, there may be unrated subordinated—or equity—interests issued. Although the equity interest in a CDO is structured like a bond, it does represent the residual interest in the CDO vehicle its return is variable and linked to the residual value of the collateral pool after all debt liabilities have been extinguished. Given that the equity resides in the first loss position, it carries the greatest risk and warrants the highest return—and represents a leveraged exposure to the asset class. More is offered on CDO equity later in this chapter. 

As stated, balance sheet CDOs are almost exclusively cash-flow-based, and on that basis, cash flow CDOs are similar in nature to other asset-backed securitisations involving a special purpose vehicle (SPV). Like asset backed securities, assets are pooled together in order to collateralize the liabilities of the SPV. As the underlying assets are sold to the SPV,... 

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