Securitization

Securitization ( securitization English ) means the issuance of tradable securities (English: securities) loans or other proprietary rights in the broadest sense.

General

In the early 1970s sat on the international money and capital markets, a development that (about syndicated ) was characterized by a strong increase in the issuance of securities to the detriment of recording of loans. First was the forerunner of the securitization promissory notes. Securitization means the introduction of a credit agreement in a deed which is fungible as securities and thus can be transferred from one creditor to another creditor easily. Ginnie Mae began in 1970 through its pass-through program with the securitization of mortgage loans in the U.S. secondary market, where they do not even issued securities but acted as guarantor for other issuers. Freddie Mac developed in 1971 with its Participation Certificate the securitization of non-government- backed mortgages, he selected by the mortgage itself, summarized and issued subsequently.

Examples of securitized

• Mortgage Backed Securities (MBS )
• Asset-backed commercial paper (ABCP )
• Collateralized Debt Obligation (CDO )
• Collateralized Loan Obligation (CLO )
• Collateralized Bond Obligation ( CBO)
• Bond

Securitization of receivables

In recent years, an increasing trend to securitize even exotic property rights to expand the financing options of the issuer ( originator ) can be observed.

The securitization is often done by means of special purpose entities - the so-called SPVs (Special Purpose Vehicles), a company whose sole purpose is the issue of these securities and their assets from the introduced into this society property rights exists.

The so vested rights can be broken down further and act according to risk criteria.

Expiration

In a securitization transaction, the seller ( originator) transfers certain asset items to a buyer. The buyer refinances this purchase by issuing securities on the capital market. The buyer is usually to so-called special purpose special purpose vehicle ( SPV). Due to the often high complexity of the transactions, the entire process usually by a third party (Arranger ) is accompanied structuring advice and above all.

A necessary condition for the Verbriefbarkeit an asset position that they guaranteed over a certain period of time a steady cash flow to cover the refinancing of the buyer ( Thus the material is, for example, particular loans, since by the credit debtors to be paid over the life of the loan principal and interest payments, the creditor ensure a steady inflow of capital ).

Smaller companies often lack the business volume for a single true sale transaction (single -seller structure), therefore it combines these transactions, thus refinancing is kosteneffzienter even with smaller portfolios. In a multi-seller structure, the administration of the funding register is for the refinancing intermediaries. If several refinancing intermediaries involved, so make sure that the respective refinancing objects are entered in the Register at the refinancing refinancing intermediaries competent. An entry in the wrong tab to the invalidity of the registration result.

To make the complexity of the underlying asset positions for the investors in the securities tangible, to be defined acquisition criteria which ensure that the sale of the asset positions especially insolvency law is secure. For this reason, many legal questions for a transaction are often to be clarified.

Furthermore entire portfolios of asset positions are always sold and rating agencies should ensure to be followed by various criteria and indicators ( thresholds ) that the risk profile of the portfolio remains in pre-agreed limits. If these thresholds breached, the transaction will generally may be terminated without substantial losses for investors.

Since a typical portfolio not generally corresponds to the risk profile of the asset-backed securities to be issued, a risk reduction with so-called credit enhancement is introduced to achieve this. This can for example be a trade credit insurance for trade receivables and performance.

The risk reduction and, where appropriate, timely termination of a transaction makes this instrument very attractive for investors. In fact, despite the complexity of the transactions, the recoverable rate is usually much higher than in other securities of comparable rating.

Asset Backed Securities

A securitization transaction, the (short- ABS) based on the issuance of asset-backed securities called asset-backed securities is called the ABS transaction. An ABS transaction is based on a love triangle between a seller of the receivables ( Originator ), a special purpose vehicle Special Purpose Vehicle ( SPV ) and the investor. If, for example a bank as the seller of their credit claims, it first combines suitable loans in a pool of receivables and sells them to the SPV. This is for the purpose of becoming independent of the receivables. For payment claims that are securitized in ABS transactions, it is usually to combined according to certain diversification rules financial assets of a company. The originator receives the value of the receivables sold as liquid assets in return. The acquiring SPV refinances even turn on the ( public or private ) placement of securities on the capital market. The interest and principal payments to investors shall be made from the restructured interest and principal payments made by the borrower. The SPV is established solely for the securitization of receivables and maintains the only asset the risk of this diversified pool of receivables. A trustee ensures the feasibility of the transaction and the security of the cash flows by managing payments and receivables. The cash flows that serve to secure the securities (usually commercial paper and medium-term notes ) can be used at a different time than the payments that are due under the Securities. In this respect a close interest rate and cash flow management for this product is necessary. A credit rating agency shall evaluate the emission and thus influences the successful placement and price of the securities. In addition, also an arranger (usually an investment bank ), the selection and structuring of receivables support, and a servicer, who manages the receivables sold and the borrower, are involved. Often the demand Seller assumes latter two functions themselves, because after current provisions of the German banking supervision, the original borrower does not have to inform them of the loan securitization in this case.

True sale securitization

In so-called " true sale " securitization is ABS transactions where the asset positions ( SPV ) will be transmitted to balance the effect of releasing the seller to the buyer. It is the law of obligations, a non-recourse sale of the asset positions and thing legally a transfer of title instead (since they are claims on the securitized by way of ABS transactions, asset positions, as a rule, these are transferred by way of assignment ) so that the asset positions from the assets of the seller complete, ie including all the risks associated with them, drop out.

Synthetic securitization

In addition to " true sale " securitization and synthetic securitization are possible. While "true sale" securitization, the claim itself sold and transferred to property law standards, found in synthetic securitisations only one to blame legal transfer of any or all of the debt associated risks with the help of credit derivatives held ( For example, the default risk by means of credit be transferred default swaps ). Synthetic securitisations have therefore - as opposed to " true sale " securitization - no influence on the amount of the available balance in the loan portfolio, but they under certain circumstances reduce the associated risk of default and thus the charges applicable bank regulatory capital requirements.

Notes

Notes are the securitized loans, for example, all asset-backed securities, or " ABS ". These are rated. The lower the probability of default of the loan, the better the rating. The breakdown of the notes normally runs like this:

• A note also called senior note ( bond class A)
• B-Note also Junior Note ( interest payments on this tranche usually done only after operation of A- grade)
• Mezzanine Note ( usually has no rating )
• First loss piece Equity (poor credit is usually bought by hedge funds, because high expected return )

Requirements

For an ABS transaction following key points should be noted:

Financial market crisis

The coalition CDU - CSU - SPD from 2005, is of Finance responsible Minister Peer Steinbrück, demanded under the heading of product innovations and new channels of distribution must be strongly supported a massive expansion of the instrument: We want to create the conditions for new asset classes in Germany. These include the introduction of real estate investment trusts ( REITs ) under the condition that the predictable taxation ensures the investor and positive effects on the property market and site conditions are to be expected, and the expansion of the securitization market.

In 2009 Economic Report (p. 20 ) provides for the federal government, herein following the advice from the Advisory Council on the Assessment of economic development, the securitization market, were sold bundled on the credit risks in the center of the U.S. housing crisis.