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CHCapital
Partners
LLC
SecuritizationMarket
By
SokH.
Cordell
Sr.
Managing
Director
Knowwhoyouareworkingwith
StrivingtohelpSmallBusinessandMiddleMarketstocreatejobsforourfellowAmericans
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WhatIsSecuritization?
Securitizationis
the
pooling
of
cash
flows
and
the
issuance
of
securities
backed
by
underlyingassets
Therepaymentofsecuritiesissolelydependentontheperformanceoftheassets
Securitizationdelinksthecreditriskoftheissuerfromthesecuritization
transaction
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Typesofsecuritization
Borrowers
(Obligors)
Originator
(Bank/FI)
SPV
CMBS
Securities
Liquidity
SupportCredit
Enhancement
Receivables
Loan
Cash
Securities
SellReceivablesCash
Investors
CreditMarket
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TypesofSecuritization
Residentialmortgage
backed
securities
(MBS)
Assetbackedsecurities(ABS)
Collateralizeddebtobligations(CDO)
Commercialmortgagebackedsecurities(CMBS)
Futureflowsecuritization
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RequirementsforSecuritization
Legalenvironment
Accountingenvironment
Regulatoryenvironment
Taxenvironment
Backofficesystems/Informationsystem
Stronginvestordemand
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WhySecuritizeAssets?
Efficientfunding
Lowercost
Alternativeinvestorbase
Issuerscreditratingbecomesirrelevant
Improvingbalancesheetstructure
Improvescapitalutilization
Releasescapital
Arbitrage yield
and
term
Enablesbetterutilizationofresources
Riskmanagement
Dressupaccountingprofitsiftruesalecriteriaissatisfied
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BenefitstoInvestors
Bettersecurity
Greatermoralresponsibility
Createinstrumentstomatchinvestmentobjectives
Betterandmoreresilientcreditratings
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RisksInSecuritization
Tranching,Cashreservesover collateralization
Risk
CreditRisk
RecoveryRisk
LiquidityRisk
PrePayment&YieldRisk
RiskMitigant
Tranching,Cashreserves
overcollateralization
Loan
to
Value
(LTV)
Asset
DepreciationRates
LiquiditySupport
PortfolioSeasoning
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SecuritizationinMars?
Predominantlyused
for
auto
leases
Notsecuritization,butAssetBackedLending
Notrue
sale
>On
Balance
Sheet
financing
Thecreditratingofthetransactionislinkedtotheissuerscreditrating
Comingling
risk
of
cash
flows?
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CurrentModelInMars
Trust
CMBSSecurities
Borrowers
(Obligors)
Originator
(Bank/FI)
Credit
Enhancement
Receivables
Loan
Recourse
Pledge
ReceiptsCash
Cash Securities
CreditMarkets
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RiskManagementThroughSecuritization
Spreadingprofits
through
various
different
level
of
production
of
CMBS
8%Loan
Service&Collection
Funding
Originate 1%
6%
1%
Highest
Commissionisthe
fundingspreadServicingislong
termincome
generation:5to10
years
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BasicCDOStructure
Bank SPVSeniorNotes
MezzanineNotes
Equity
Loans
CashFunds
Coupons&
principal
CDOSecurities
Credit
Markets
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ImpacttoOriginator
Notexposed
to
Credit
&
Interest
Rate
risk
Netincomewouldbeclose duetooriginating&servicingfeesaswellastheexcessspread
Cashflowimprove
Betterutilizationofcapitalinfrastructure
ImprovesROA/ROE
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ImpedimentsforSecuritizationinSriLanka
FinanceLeasing
Act
ConcernsonthelossofParatePowers?
TransactionCost
RegistrationProcedure
Poorinformationsystems
Lackofeducation
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PracticalIssuesinUndertakingSecuritization
Greaterdisclosure
of
information
Internalsystemsmaytaketimetogeneratetheinformationrequired
Initialcostandtimeinvolvedinthefirsttransactionwillbehigherthanother
formsoffinancing
Lessflexiblecovenants
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TheWayForward
FinanceLeasing
Act
needs
to
be
amended
to
facilitate
securitization
NewSecuritizationAct
Transactioncost
RegistrationProcedures
Clearaccounting
treatment
for
securitization
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TheWayForward
Cleartax
treatment
for
securitization
Internalinformationsystemsneedtobemodified
Investorsneedtogetusedtotakingontheriskofthesecuritizedassets
Investorsneedtobepreparedtoacceptunscheduledcashflows
RMBScouldbeundertakenundertheexistinglegalframework
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2008&2009FinancialCrisis
Sowhere
are
we?
SecuritizationMarkethasshrunkfrom$280Bin2007to$44Bin2011
Sincethemarketreceivedsomanydefaultsandstructuralcollapseofthe
wholecapitalmarkets,itwillbemanyyearsbeforethewereachthepeakof
2007.
Manyofthetranchesarebeingbrokenupandrestructuredtochangethe
ratingoftheloans,andtoday2012,JPMorganretranched defaultedloansas
azerocouponCMBS.
Sois
the
market
going
to
be
efficient
or
are
we
still
waiting
for
the
credit
to
thaw
SincetheBankregulators,FDICandOCCarepressuringbankstocleanuptheir
balancesheets,itisprettyclearthatwewillnotseethesamecreditmarkets
forat
least
adecade.
Didlackofcreditcausetherecession,andwhatcycleareweinforthis
decade?
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Disclosures
The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the
judgment of the author as of the date of the report and are subject to change without notice. Information has been obtained from sources believed to be
reliable, but its accuracy and completeness are not guaranteed. CH Capital Partners LLC a member of Cordell Financial Group is an equal opportunity lender.
The solutions discussed may not be suitable for you, even if your personal situation is similar to the example presented. Investors must make their own
decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this
situation achieved any of the client's goals mentioned. This example is hypothetical and does not represent any specific clients, investments or strategies.
Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus,which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest. Variable annuities are sold
by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. Withdrawals from an Annuity before 59 1/2
may incur 10% tax penalty. All guarantees from an Annuity are based upon the claimspaying ability of the insurance company. CFG or any of its affiliates
reserves the right to share information between various businesses that CFG is affiliated with. It will still concur with the privacy act.