Securitization

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A securitization is generally the assurance of a right with a document . In finance specifically (under a securitization is English securitization ) the exhibition of tradable securities from loans or property understood right.

General

At the beginning of the 1970s, a development began on the international money and capital markets that was characterized by a sharp increase in the issuance of securities at the expense of taking out book loans (e.g. syndicated loans ). The promissory note loan was the first forerunner of securitization . Securitization means the inclusion of a credit agreement in a document that is fungible as a security and can therefore easily be transferred from one creditor to another. Ginnie Mae began securitizing mortgage loans in the US secondary market through her pass-through program in 1970, not issuing securities herself, but acting as a guarantor for other issuers. With its Participation Certificate, the mortgage bank Freddie Mac developed the securitization of non-state-secured mortgages in 1971 by selecting the mortgages itself, combining them and then issuing them. At the same time, bank balances were also securitized by means of savings bonds .

In recent years there has been an increasing trend towards securitization of even exotic property rights in order to expand the financing options of the issuer (originator).

Examples of securitized securities

Securitization of receivables

The securitization is often done by means of a special purpose vehicle ( English special purpose vehicle , abbreviated SPV), the only purpose of the emission of this is securities and their assets made of the introduced in Society this property rights.

The rights evidenced in this way can be broken down and acted on according to risk aspects.

procedure

In a securitization transaction, the seller ( originator ) transfers certain asset positions to a buyer. The buyer refinances this purchase by issuing securities on the capital market . The buyer is usually a single-purpose company. Due to the often high complexity of the transactions, the entire process is usually accompanied by a third party ( arranger ) in an advisory and above all structuring manner.

A necessary prerequisite for the securitization of an asset position is that it guarantees a steady flow of payments over a certain period of time in order to cover the buyer's refinancing. Particularly suitable for this are loan receivables that have a fixed interest and repayment plan over the entire term of the loan and thus promise a predictable inflow of capital .

Since a sole proprietorship often does not have the necessary business volume for a single true sale transaction (“single seller structure”), these transactions are bundled; this makes refinancing more cost-efficient. In the case of several sellers (“multi-seller structure”), the refinancing agent is responsible for maintaining the refinancing register. If several refinancing intermediaries are involved, it must be ensured that the respective refinancing objects are entered in the refinancing register of the respective refinancing intermediary. An entry in the wrong register would render the entry ineffective.

In order to make the complexity of the underlying asset positions tangible for investors in the securities, purchase criteria must be defined, which ensure that the sale of the asset positions is above all safe under insolvency law. For this reason, there are often many legal issues to clarify for a transaction.

Whole portfolios of asset positions are preferably sold and rating agencies should use various criteria and key figures (thresholds) to ensure that the portfolio's risk profile remains within previously agreed limits. If these thresholds are breached, the transaction can usually be terminated without significant losses for the investors .

If the portfolio does not match the desired risk profile of the securities to be issued, the risk is reduced with the help of so-called credit enhancements . This can be, for example, trade credit insurance for trade accounts receivable.

The risk reduction and the timely termination of a transaction, if necessary, make this instrument attractive for investors. The disadvantage of the complexity of the transaction is usually offset by the advantage of a mostly significantly higher achievable return than with other securities with a comparable rating .

Asset backed securities (ABS)

A securitization transaction that on the issue of asset-backed securities ( English asset-backed security , abbreviated ABS) is based, is called the ABS transaction. An ABS transaction is based on a triangular relationship between an originator, a special purpose vehicle and the investor. For example, if a bank acts as the seller of its loan receivables, it first bundles suitable loans in a receivables pool and sells them to the special purpose vehicle. This only serves the purpose of making the claims independent. The payment entitlements that are securitized in ABS transactions are usually a company's financial assets that are grouped according to certain diversification rules. In return, the originator receives the value of the receivables sold as cash. The acquiring special-purpose vehicle in turn refinances itself by placing securities on the capital market. The interest and principal payments to the investors are made from the restructured interest and principal payments of the borrowers. The special purpose vehicle was founded exclusively for the securitization of these receivables and is the only asset that holds the risk from this diversified pool of receivables. A trustee ensures the feasibility of the transaction and the security of cash flows by managing payments and receivables. The cash flows used to secure the securities (usually secured money market papers and medium term notes ) may be received at a different time than the payments due under the securities. In this respect, tight interest and cash flow management is necessary for this product. A rating agency evaluates the issue and thus influences the success of the placement and the price of the securities. In addition, an arranger (usually an investment bank) who supports the selection and structuring of the receivables portfolio and a servicer who looks after the receivables sold and the borrowers can be involved. The seller of the receivables often takes on the latter two functions himself, since in this case he does not have to inform the original borrower of the loan securitization according to the current provisions of the German banking supervision.

True sale securitization

If the asset items are transferred to the buyer (the special-purpose vehicle) with a balance sheet-relieving effect for the seller, one speaks of a true sale securitization. Under the law of obligations, the asset positions are sold without recourse and under property law there is a transfer of ownership (since the asset positions securitized by way of ABS transactions are usually claims, these are transferred by way of assignment), so that the asset positions are taken from the assets of the Completely, including all risks associated with them.

Synthetic securitization

In contrast to true sale securitization, synthetic securitisations only transfer individual or all risks associated with the receivable with the help of credit derivatives . For example, the credit default risk can be transferred using a credit default swap . For the seller - in contrast to true sale securitisations - synthetic securitisations have no influence on the amount of the loan portfolio on the balance sheet, but under certain conditions they reduce the associated default risk and thus the applicable regulatory capital requirements.

Tranches

The securitized loans (called "Notes") can be divided into tranches according to their creditworthiness, each of which is given an individual rating. The following breakdown of the "Notes" into tranches according to decreasing creditworthiness is typical:

  • A or senior (bond class A)
  • B or Junior (interest payments for this tranche are usually only made after the A tranche has been serviced)
  • Mezzanine (usually not rated)
  • First Loss Piece Equity (bad credit rating, is usually bought by hedge funds because of the high expected return)

conditions

The following essential points must be observed for an ABS transaction:

  1. Controlled compilation of the portfolios to be purchased according to the eligibility and limit rules. These are defined on the basis of historical performance.
  2. Implementation of the necessary risk reduction through suitable credit enhancements.
  3. Definition of suitable risk indicators and escalation measures
  4. Continuous reporting to monitor points 1, 2 and 3.
  5. Contractual documentation of the framework conditions for purchases and the servicing of payment flows specified in points 1., 2., 3. and 4.
  6. Process-safe processing of the transaction.

Financial market crisis

The CDU / CSU / SPD coalition of 2005 - with Finance Minister Peer Steinbrück - called for product innovations and new sales channels to be emphatically supported for a massive expansion of the instrument: We want to create the framework for new asset classes in Germany. This includes the introduction of real estate investment trusts (REITs) under the condition that reliable taxation is ensured for investors and positive effects on the real estate market and location conditions can be expected, as well as the expansion of the securitization market .

In the 2009 Annual Economic Report (p. 20), the Federal Government, following the expert's report on the assessment of macroeconomic development , sees the securitization market, on which credit risks were bundled and resold, at the center of the US real estate crisis , with which the financial crisis began in 2007 .

literature

  • Douglas W. Arner, Paul Lejot, Lotte Schou-Zibell: The global credit crisis and securitization in East Asia. In: Capital Markets Law Journal. 3, 3, 2008, ISSN  1750-7219 , pp. 291-319.
  • Adam B. Ashcraft, Til Schuermann: Understanding the Securitization of Subprime Mortgage Credit . In: Wharton Financial Institutions Center Working Paper. No. 07-43, Federal Reserve Bank of New York , Staff Report No. 318, March 2008, online (PDF; 441 kB) .
  • Erik Bank: Alternative Risk Transfer. Integrated Risk Management through Insurance, Reinsurance, and the Capitalmarkets. Wiley, Chichester et al. 2005, ISBN 0-470-85745-5 ( Wiley finance series ).
  • Georg Erber : Securitisations. A financial innovation and its fatal consequences. In: DIW , weekly report. 75, 43, 2008, ISSN  0012-1304 , pp. 668-677.
  • Georg Erber: Securitisations are dead - long do securitisations live? In: DIW weekly report. 78, 35, 2011, pp. 3-11.
  • Georg Erber: Public Debt and Financial Engineering. In: DIW weekly report. 78, 36, 2011, pp. 11-19.
  • Jan Pieter Krahnen: The trading of credit risks. A new dimension in the capital market. Johann Wolfgang Goethe University , Center for Financial Studies, Frankfurt 2005 ( CFS Working Paper Series 2005/05, ZDB -ID 2523669-6 ), online (PDF; 997 kB)
  • Gary Gorton, Andrew Metrick, Securitization, in: George M. Constantinides, Milton Harris and Rene M. Stulz (Eds.) (2013), Handbook of the Economics of Finance, Volume 2, Part A, pages 1-70.
  • Heinrich Meyer, Frank R. Primozic: The securitization transaction - claims-based corporate financing on the capital market , Richard Boorberg, Stuttgart 2011, ISBN 978-3-415-04718-1 .

Web links

Individual evidence

  1. ↑ Gablers Banklexikon, 1988, p. 1854
  2. ↑ Andreas Bertl: Securitization of Receivables: History and today's structure of Asset Backed Securities , 2004, p. 22
  3. ↑ Andreas Bertl: Securitization of Receivables: History and today's structure of Asset Backed Securities , 2004, p. 23.
  4. ^ Coalition Agreement , p. 86 ( Memento from November 25, 2011 in the Internet Archive ) (PDF; 2.1 MB)