Principle
of securitization
Securitization is a financial operation leant against a portfolio
of homogenous assets (claims, assets generator of cash-flows):
- for funding purpose
- and /or risk transfers, in order to reduce the consumption
of equity.
It consists in transferring assets or related credit risks under
a structured form to various investors.
It generally provokes an emission of stocks on funds markets,
related to subjacent assets risk.
Securitization can be used by banks:
- either to reduce the amount of the regulatory capital required
to face the risks they have in their books.
- either to obtain a funding resource at an attractive price
or with a consistent maturity with the one of securitized assets.
- or both
The assignor bank generally stays in charge of the management
of securitized claims.
The investors of securitizations only take a risk on securitized
assets, and not on the operation of the assignor bank (its bankruptcy
for example).
Securitization is an operation which takes time to put in place
and it requires:
o to collect data about securitized assets.
o a review of the internal procedures of the assignor bank.
o the setting up of an elaborated juridical documentation.
The market of securitization is now very developed, and the
volume of the issue is closely correlated with the economic
activity and the credit dynamics of the concerned country (real
estate market – automobile sale – sale of consumer
goods…).
The different products of securitization are defined according
to the type of subjacent assets (home loan for private individuals
or firms – consumer credit and credit cards…-bonds
and credits to firms).
The main categories of protection assignors and buyers :
o financial institutions : generalist banks, specialised lenders…
o insurance companies
o firms
o public entity : states, public firms
Goals for assignor entities :
o Raise a funding linked to titrised assets on funds markets
o Management of the balance-sheet
o Reduction of deficits
o Change of claims into realizable stocks
o Improving of the balance-sheet presentation
The
stakeholders
• The assignor
It is the credit establishment that sells its claims. The assignor
isolates a homogenous portfolio of claims (example: car loans,
housing loans, credit cards…), he analyses the behaviour
and the risk before transferring it to a SPV.
•The SPV
It is formed by the manager and can only exercise limited activities,
like the purchase of assets within the framework of a securitization
operation and the issue of stocks representing parts of the
funding and / or bonds linked to those assets.
• Trust company
It is the one that constitutes the fund, manages it and represents
it toward the third party, and this in the exclusive interest
of the investors.
• Lender of records
He receives in deposit the assets transferred by the fund assignor,
and he insures the administration.
• The arranger
Securitization operations being complex operations by nature,
the assignor establishments generally call for specialized financial
banks or institutions to :
o Define the financial engineering
o Insure the investments of shares to investors (underwriting)
• Rating agencies
SPV shares are compulsorily rated. Because of this, the setting
up of titrisation financial engineering is made in collaboration
with a rating agency.
