Master trust structures

The master trust structure gives originators a high degree of flexibility over the redemption profiles of the notes they can create. The emphasis has understandably been on creating bullet securities in order to attract investors who would prefer to invest in securities with traditional bullet redemption profiles and short legal maturities. There have also been notes with a scheduled redemption profile issued from master trust structures and, in practice, the redemption profiles that can be created will only be limited by the size of the trust, the length of the required accumulation period, and any other note redemptions that are due from the same trust. 

Master trusts allow issuers to sell multiple securities from a single trust. There is no segregation of any sort between the receivables in the trust and as such, all issues are backed by the same collateral. The master trust structure affords the issuer great flexibility, since the cost and effort associated with issuing a new series from a master trust is lower than for creating a new trust for every issue. For example, an issuer creates a new master trust and sells 100 million in credit card receivables from selected accounts into the master trust and then issues securities backed by these receivables. When more financing is needed, the issuer sells a further 100 million in receivables from more accounts into the same trust and issues more securities. This means that the issuer does not have to set up new master trusts if it wants to securitise new receivables. All securities are issued from the same master trust and backed by the same collateral. 

A simplified credit card master trust structure is shown in Exhibit 13.6. This particular structure has been developed in the United States and was introduced in Europe with the creation of MBNA s UK Receivables Trust II. 

Since 1991, the stand-alone trust has been replaced with a master trust as the preferred structuring vehicle for credit card ABS. The master trust structure allows an issuer to sell multiple issues from a single trust and from a single, albeit changing, pool of receivables. Each series can draw on the cash flows from the entire pool of securitized assets with income allocated... 

The structure of a mortgage master trust is essentially identical to a credit card master trust except that credit card receivables are replaced with mortgage collateral (see Exhibit 11.13). The originator sells an equitable interest in a specified group of mortgages to the master trust. This can then be used as collateral for a number of securitisations. Over time, additional mortgages may be added to the trust, subject to various constraints to protect the quality of the collateral. The same pool of mortgages will support all the series of notes issued by all issuers, with... 

A master trust allows an RMBS issuer to establish a sizeable securitisation programme, even with many series of notes secured through multiple SPVs, at a dramatically lower cost than through traditional separate securitisations. The ability to issue notes with a variety of maturities and redemption profiles allows the issuer to expand the available investor base and to tap into specific demand in the market. However, this process does rely on economies of scale and so is probably not the ideal form of securitisation for a smaller lender. Also, the requirement to maintain a minimum seller s share in the trust would make this type of structure less suitable than others for lenders wishing to securitise 100% of their balance sheet. 

In the United States, standalone trusts were the dominant issuance vehicles from 1987 to 1991. An originator designates a specific pool of credit card accounts and sells the receivables and rights to the future receivables arising from those accounts to a discrete trust. The major disadvantage with standalone trusts is that each subsequent securitisation requires the issuer to set up a new trust. This structure was used until 1991 when the master trust became the preferred issuance vehicle. 

Exhibit 14.6 below shows the structural diagram for a typical auto or consumer loan ABS transaction. Although there have been attempts to create a master-trust like structure for consumer loan ABS, we discuss in this chapter the most common structure used for auto and consumer loan ABS issuance. ... 

For example, the Master Noria transactions are issued from a master-trust type structure. The transactions, backed by unsecured consumer loans, use the concept of an FCC (Fonds Commun de Creances), which may issue different series over time. Master Noria may acquire new eligible loans using both funds from the amortisation of its assets and proceeds from future series issuance. 

---