Chapter 11 Lecture slides

Chapter 11 Lecture slides - Chapter 11 Asset-Backed...

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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Chapter 11 Asset-Backed Securities Securities backed by loans and other credit arrangements (i.e. receivables, commercial loans, car loans, equipment loans, etc…) FINA 4065 Dr. Krause Marquette University
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Chapter 11 Asset-Backed Sector of the Bond Market Major learning outcomes: Discuss the securitization process Basic features of a securitization transaction Major asset types that have been securitized. Collateralized Debt Obligations (CDOs)
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Asset-Backed Securities MBSs represent the largest and most extensively developed asset-backed security. A number of other asset-backed securities have been developed. The most common types are those backed by Automobile Loans Credit Card Receivables Home Equity Loans Student Loans These asset-backed securities are structured as pass-throughs and many have tranches.
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Asset-Backed Securitization As an alternative to the issuance of a bond, a corporation can issue a security backed by loans or receivables . Debt instruments that have as their collateral loans or receivables are referred to as asset- backed securities. The transaction in which asset-backed securities (ABS) are created is referred to as a securitization.
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Securitization Process of ABS An entity that wants to raise funds via a securitization will sell assets to a special purpose vehicle (SPV) and is referred to as the ‘‘seller’’ in the transaction. The “buyer” of assets in a securitization is a special purpose vehicle and this entity, referred to as the issuer or trust, raises funds to buy the assets via the sale of securities (the asset-backed securities). There will be an entity in a securitization that will be responsible for servicing the loans or receivables. Third party entities in the securitization are attorneys, independent accountants, trustee, rating agencies, servicer, and possibly a guarantor.
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Securitization Process
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE ABS Securitization The waterfall of a transaction describes how the distribution of the cash flow will be distributed to the bond classes after fees are paid. In a securitization structure, the bond classes issued can consist of a senior bond that is tranched so as to redistribute prepayment risk and one or more subordinate bonds ; the creation of the subordinate bonds provides credit tranching for the structure. The collateral for an asset-backed security can be either amortizing assets (e.g., auto loans and closed-end home equity loans) or nonamortizing assets (e.g., credit card receivables).
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MARQUETTE UNIVERSITY FINA 4065 DR. KRAUSE Home Equity Loans (HEL) A home equity loan is a loan backed by residential property.
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Chapter 11 Lecture slides - Chapter 11 Asset-Backed...

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