Asset Backed Securities Flashcards
Largest sectors within ABS
credit card receivable-backed securities
auto loan-backed securities
rate reduction bonds
Home Equity
Student Loans
Equipment Loans
Conduit
A company that buys the loans and securitizes them.
All asset-backed securities are credit enhanced(T or F)
T
Why would a company raise funds through securitization rather then bonds
potential to reduce funding costs
to diversify funding sources
to accelerate earnings for financial reporting purposes
to achieve (if a regulated entity) relief from capital requirements
External credit enhancement
Enhancement involves a guarantee from a third party. Most common form of external credit enhancement is bond insurance
Asset Risks
Evaluating asset risks involves the analysis of the credit quality of the collateral.
Structural Risks
the rating agencies examine the extent to which the cash flow from the collateral can satisfy all of the obligations of the bond classes in the securitization.
the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The requirement that “securitizers” retain a portion of the transaction’s credit risk. – “Risk retention”
Requirements regarding reporting standards and disclosure for a securitization transaction.
CDOs backed by investment-grade corporate bonds, high-yield corporate bonds, and emerging market bonds
collateralized bond obligations
CDOs backed by nonagency RMBS and CMBS are referred to
structured finance CDOs
CDOs backed by leveraged bank loans are
collateralized loan obligations
CDOs backed by bond classes of other CDOs are
CDO-squared
Structure of a CDO
is a collateral manager responsible for managing the portfolio of debt obligations.
The portfolio of debt obligations in which the collateral manager invests is
Collateral
