Asset-Backed Securities. Deals. Prof. Ian Giddy. Stern School of Business New York University

Transcription

1 ABS Deals/1 Asset-Backed Securities Deals Prof. Ian Giddy Stern School of Business New York University Case Study: FIAT What are the underlying assets, and why do they need to be financed in this manner? What is the legal relationship between the parties to the deal? How would you explain the risks to a potential investor? Group work Copyright 1999 Ian H. Giddy ABS Deals 2

2 ABS Deals/2 Hong Kong Card Master Trust Using a diagram, show the relationships between the parties Define the terms of the deal What is the credit quality of the assets? What other risks must be reduced? How profitable is the ABS deal to the seller/servicer? Copyright 1999 Ian H. Giddy ABS Deals 3 Case Study: Trains I PLC What are the underlying assets, and why do they need to be financed in this manner? What is the legal relationship between the parties to the deal? What are the benefits or risks to the borrower and investors? Group work Copyright 1999 Ian H. Giddy ABS Deals 4

3 ABS Deals/3 Case Study: FILMS What are the underlying assets, and why do they need to be financed in this manner? What is the legal relationship between the parties to the deal? What are the benefits or risks to the borrower and investors? Group work Copyright 1999 Ian H. Giddy ABS Deals 5 FIAT Deal Seller? Investors Copyright 1999 Ian H. Giddy ABS Deals 6

4 ABS Deals/4 Chase Manhattan Hong Kong: Summary Credit Card Agreement (HK$) Hong Kong Credit Card Obligors Chase 100% Manhattan Card Co.Ltd. (Servicer) Bankers Trust Receivables Purchase Agreement (HK$) Pooling & Servicing Agreement (HK$ Payments) Trustee Manhattan Card Funding Corp. (Seller/Cayman Island SPV) Hong Kong Card Master Trust (US Based Issuer) HK$ HK$ Swap Payments Spread Account Excess Spread (HK$) after losses Chase Manhattan Bank N.A. (Swap Bank/Back-up Servicer) FSA Financial Guaranty Investors US$ Swap Payments US$ Principal/Interest Payments Copyright 1999 Ian H. Giddy ABS Deals 13 Summary of Terms Issuer Hong Kong Card Master Trust Amount US$200mm Paydown 4-7 years Calls 5% Clean-up Rate Libor+0.25% Collateral $255mm HK credit card receivables pool Rating AAA/Aaa (FSA guarantee) Copyright 1999 Ian H. Giddy ABS Deals 14

5 ABS Deals/5 The Assets: Credit Card Receivables What is the credit quality of the assets? Diversified: 281,352 accounts Charge-offs (0.74%-2.70%) Delinquencies (2.2%-4.0%) Balance/Limit ratio 47% Age: 43% over 3 years Fraud: partial insurance from Visa/MC 25% overcollateralization Servicing: high quality Copyright 1999 Ian H. Giddy ABS Deals 15 Paydown Structure 225 Seller interest 200 June 1999 (princ. Commencement) 10 Clean-up call Nov 1994 Jan 2000 (exp. Final) Nov 2001 (Final) Copyright 1999 Ian H. Giddy ABS Deals 16

6 ABS Deals/6 Other Risks Currency risk Interest rate risk Sovereign risk Legal risks Payment timing risks Swap counterparty risk Guarantor risk Copyright 1999 Ian H. Giddy ABS Deals 17 The Economics Average revenue yield HK$ 25.25% Less charge-offs HK$ -1.50% (2xaverage) Less rate paid US$ -5.31% (Libor+0.25%) Other costs (est.) -2.50% Net revenue (est.) +/-16.00% Copyright 1999 Ian H. Giddy ABS Deals 18

7 ABS Deals/7 Thai Cars: Swap Needed Swap US$/Yen Swap Baht/Yen Bankers Trust Bankers Trust Amount in US$ equal to the principal and interest to be paid on the notes (LIBOR+0.22%) Amount in Yen equal to the principal and interest on the Yen Loan (*%) Amount in Yen equal to the principal and interest to be paid on the Yen Loan Amount in Baht equal to the principal and interest on the Baht Notes/Loan (weekly payment date) 9.25% Dollar principal and interest LIBOR+0.22% Thai Cars Ltd (Issuer) Yen principal and interest Tru Lease Copyright 1999 Ian H. Giddy ABS Deals 19 Sample Transaction: Leasing ABS Step Two : Funding of Lease Purchases Lessees Billing & Collection Leasing Company (servicer) Sale of Lease Payments Cash & Notes Scheduled Lease Payments Lease Funding Corp Series I 100% Surety Bond Insurance Company Trust Certificates or Bonds Cash Proceeds Investors Copyright 1999 Ian H. Giddy ABS Deals 20

8 ABS Deals/8 Trains? Seller Investors Copyright 1999 Ian H. Giddy ABS Deals 21 Trains Train manuf. companies Investors Int & Princ. NIFTI Int & Princ. Porterbrook Leasing Swap Rental payments UBS Train Operating Companies Copyright 1999 Ian H. Giddy ABS Deals 22

9 ABS Deals/9 Films (Finance for an Italian Library of Movies) Copyright 1999 Ian H. Giddy ABS Deals 23 Asset-Backed Securities Summary Prof. Ian Giddy Stern School of Business New York University

10 ABS Deals/10 Issuer economics SPONSORING COMPANY ACCOUNTS RECEIVABLE Excess Servicing Fees SALE OR ASSIGNMENT SPECIAL PURPOSE VEHICLE ACCOUNTS RECEIVABLE ISSUES ASSET-BACKED CERTIFICATES Copyright 1999 Ian H. Giddy ABS Deals 25 Sample Cost/Benefit Analysis With securitization Without securitization Portfolio yield 18.50% 18.50% Funding cost -7.22% -9.00% Default rate -5.00% -5.50% Amortized upfront issuance costs -0.10% -0.05% Amortized upfront securitization costs -0.20% Annual costs of guarantees and credit lines -0.25% Annual additional costs (systems, reporting, trustee fees, etc) -0.25% Effect on sponsor's marginal cost of capital 0.00% Profits 5.48% 3.95% Net savings from securitization 1.53% per annum Copyright 1999 Ian H. Giddy ABS Deals 26

11 ABS Deals/11 Investor economics SPONSORING COMPANY ACCOUNTS RECEIVABLE SALE OR ASSIGNMENT SPECIAL PURPOSE VEHICLE Rates Ratings Risk Liquidity Spread analysis ACCOUNTS RECEIVABLE ISSUES ASSET-BACKED CERTIFICATES Copyright 1999 Ian H. Giddy ABS Deals 27 Key Factors Agencies Examine the quality of the pool of assets, evaluated as a portfolio the credit quality of all the parties to the deal. operational support for servicing, transfer, recording, follow-up, etc; credit enhancement legal structure sovereign risks market price risks payment timing risks Copyright 1999 Ian H. Giddy ABS Deals 28

12 ABS Deals/12 Structure of the US MBS Market Mortgage Mortgage Loan Loan Bank Bank (mortgage (mortgage originator) originator) makes makes a a whole whole loan loan Ancillary: Ancillary: brokers, brokers, servicers, servicers, insurers insurers Mortgage Mortgage Pass-Through Pass-Through FNMA FNMA or or GMAC GMAC (conduit) (conduit) pools pools mortgage mortgage loans loans with with similar similar characteristics characteristics Mortgage Mortgage Strips Strips Interest-Only Interest-Only and and Principal-Only Principal-Only CMO CMO or or REMIC REMIC Takes Takes a a mortgage mortgage pool pool and and makes makes the the cash cash flows flows more more predictable predictable by by assigning assigning priority priority of of claims claims to to the the cash cash flows flows MBS MBS Portfolio Portfolio Institutional Institutional investor investor evaluates evaluates risk/return risk/return behavior behavior of of mortgage-backed mortgage-backed securities securities through through option-adjusted option-adjusted price price and and spread spread analysis analysis Copyright 1999 Ian H. Giddy ABS Deals 29 Convexity of Callables Mortgage-backed securities and other callable bonds may have negative convexity which cushions a bond s price rise and accelerates its fall! PRICE YIELD Copyright 1999 Ian H. Giddy ABS Deals 30

13 ABS Deals/13 Legal, Tax & Accounting Sponsor/Parent Consolidation into parent could cause problems LEGAL Trust Pass-Through Securities Corporation Pay-Through Securities Copyright 1999 Ian H. Giddy ABS Deals 31 Rating Analysis Pre-securitization risk reduction Originator s credit underwriting standards Screening of assets to be included in the portfolio Diversification of the portfolio Legal structure based credit risk reduction Legal insulation from originator default Legal insulation from servicer default Credit quality of deal participants Originator/Seller/Servicer Trustee, swap counterparties Guarantors Integrity of cash flow structure Cash flow sufficiency and mismatches Safeguards and agreements such as swaps or caps Credit enhancement Rating Internal credit enhancement Third party credit enhancement Direct recourse Senior/subordination or overcollateralization Reserve or spread accounts Cash collateralized accounts Financial guarantees Copyright 1999 Ian H. Giddy ABS Deals 32

14 ABS Deals/14 Asset-Backed Securities: Managing the Risks LOCs and and puts puts Cash Cash collateral Overcollaterization Over- First-Loss Protection Second- Loss Protection Senior/ subordinate structure Recourse to to originator Copyright 1999 Ian H. Giddy ABS Deals 33 The Final Analysis The Deal what kind? The pool The business and the cash flow economics The structure The parties involved motivation and quality Copyright 1999 Ian H. Giddy ABS Deals 34

15 ABS Deals/15 Ian H. Giddy NYU Stern School of Business Tel ; Fax Copyright 1999 Ian H. Giddy ABS Deals 36