ABS

Question 1

COVERED BONDS

Answer 1

. No SPE, asset remain in balance sheet
. Dual resource: collateral and other assets
. credit risk is lower than ABS
. YTM from covered bonds is lower than YTM ABS

Question 2

Provisions

Answer 2

1. Hard bullet covered bond: if default, payment accelerated
2. Soft bullet covered bond: if default 1 año de gracia
3. conditional pass through covered bond: if CF are not enough the remaining can be obtain from other assets

Question 3

Internal Credit enhancement

Answer 3

1. Overcollateralization
   2.Excess on spread
   3.Credit tranching /subordination

Question 4

External Credit enhancement

Answer 4

With counterparty risk
1. Bank guarantee
2. Surety bond
3. letter of credit

With no counterparty risk
4.Cash collateral amount (scroll)

Question 5

Credit card ABS

Answer 5

backed by payments of credit cards
lockout period: only interest and fees, no principal (if done used to buy new credit card receivables)
early period amortization

Question 6

Solar ABS

Answer 6

Backed by payment of loans for installing solar system
Attractive to ESG investor
Credit enhancement common
can be secured by solar system or property
Pre period funding: first ABS is issued to raise capital and then diversificate investment in solar systems.

Question 7

Collateralized debt obligations (CDO)

Answer 7

do not rely only on payments from collateral, instead have a COLLATERAL MANAGER that sells and buy securities in the collateral pool to generate the cash to make the payments

Question 8

Collateralized loans obligations (CLO)

Answer 8

cashflow CLO: pmt by cashflows of collateral
Market value CLO : pmt by trading market value of collateral
Synthetic CLO: pmt by credit derivative contract (SPE IS NOT OWNERSHIP OF THE COLLATERAL)

Question 9

Collateralized bond obligations (CBO)

Answer 9

If collateral is corporate and emerging market debt