Investment Banking Structured Finance Explained

Welcome to Corporate Bridge YouTube Channel. This Video clearly explains you about Investment Banking Structured Finance.

Good morning students today our webinar is on structured finance in this topic we will be covering details about the securitisation the process the financial modeling for the securitization and also we would be covering credit derivatives in the credit derivatives we would be covering credit for swaps credit link notes credit lien deposits or then we packaging then

Videos etc and etc okay so we would try to as it is a one-day seminar so we would try to cover as many topics as possible and if time would permit we will be doing the life intention modeling for the securitization transaction and i will be circulating the financial model thus all financial model as well as the reading or the rating rationale for the securitizations

Transaction in the second half so let’s begin our webinar with the help of first with the securitization that is jen let’s first understand what is securitization to begin with we will discuss what a securitization how it is different from the traditional lending or the corporate finance so basically securitisation is a process in which non-tradable assets are

Packaged and converted into security and then soon it is a process in which entity securitized its asset is not boring but selling a stream of cash flows that was otherwise accrue it it is also a device of a structured products in which an entity seeks to pull together its interest in identifiable cash flows over a time transfers same to investor either with or

Without support of further collaterals or they might achieve the purpose of financing see the difference between the traditional method of financing and the securitization is very big securitization what happens in that the originator originally item means the person who has assets in his books identify the assets that is the stream of the cash flows okay and

Then sell those cream of cash flows to the other investors according to their risk return needs so basically here the identification of the cash flows that these cash flows are repackaged and sold to various investors according to their risk taking ability and according to their reward needs in this the beauty of the securitization is that it total it totally

Segregate the originators balance sheet from the securitized pool that is the investors have only claimed on the stream of the cash flows that is securitize they do not have any claim on the originators book whereas the original od generator also does not have any access to the stream of the cash flows that’s been already securitized so basically in this it

See also  Where investors should look to invest amid inflation

Helps us to achieve the bankruptcy remote structure now what is the length of the remote structure if this structure means that even in the case that the originator is going bankrupt okay none of the creditors of the originator can have access to the cash flows or the stream of the cash flows that the illustrator has already securitized and also it applies this

Uh visa that in case of the stream of the cash flows if they are behaving very badly or if there are lot of levels are there the investors from those cash flows would not be able to touch the effects of the originator so there is a clear-cut segregation between the originator book and the cash flows or the essence that’s being securitized in a traditional method

Of corporate finance a corporation raises equity obligations to own the assets in securitisation of corporate creates and securitizers ss letters transfer assets in the form of securities the claim is on assets and not on the entity as we already discussed hence asset based funding securitization and traditional funding now the question is is a difference very

Big yes because in securitization all the claims are eventually claims on the assets now the question is one of the stacking order that what is the order for the kids then in securitization the securitization puts investors on the top of the second order by the isolation as we have this cuz then on the stream of the cash flows are on the essence the investor will

Have the first right and the originator that is the person who has created the essence who has originated the essence would not have any access to those few of the cash flows the asset that back funding narrows down as a definition and hence reduces the volatility now how the volatility is reduced because it’s the characterization there are identifiable stream of

The cash flows they are the stream of cash flows against whom the security is created and is and anisole to the investors we are in the traditional corporate finance if you see it’s like there is no particular effect on a stream of cash flows against to which the finance has been raised it’s a mass like for the corporation the entire finances which the completion

Holes the lending is against them they are not identifiable the stream of the cash flows varun’s whereas in securitization there are identifiable stream of the cash flows hence in securitization the need of the credit enhancement is there but the credit enhancement needs are lesser than what we need in the traditional method of the corporate finance thus the crux

See also  WPI | Finance ministry announcements | Foreign investment

Of sfx funding lies in reducing the equity and increasing the leverage so what happens the securitization facilitates where the the entity can reduce the equity and what would help – you can say expand the business with the help of the leverage ctr dyzee you should incorporate finance now in this slide we have discussed about the various parameters on which the

Securitization and corporate finance are different first is the nature general claim against the assets of an entity claim against the specific assets of an nth with the entity on mutually exclusive basis in corporate finance the claim is against the assets of an entity now the assets are not identifiable that they are not particular assets against which the

Finance has been raised whereas in the securitisation the claim is against a specific assets of an entity and on mutually exclusive basis object to harness the strength of the copied fare corporates balance sheet to raise funding to strip the excess spread inherent in the assets and serviced them on off-balance-sheet basis now whatever the funding is raised the

Securitization is on off mellon is off balance sheet that is its or not on the balance sheet whereas the corporate finance funding is always on the balance sheet it’s never off the balance sheet investors rich risk subject to entity wide risk like all the investors who have invested in the corporate finance instruments they are exposed to whatever the risk the

Entity is having whereas in securitisation the entity risk is isolated from the risk that the stream of the cash flows or the cash flows has structured funding less amenable to structured funding more amenable to structured funding since assets are harmed off into a separate entity leverage leverage limited to entity wide prudential regulatory limits leverage

Based on the portfolio risk usually quite high then comes the basis for the basic process of the securitization that is how if this this is the very very basic process now there can be many i mean the process can be structured according to investors needs the cash flows can be structured according to investors needs such as this is a very very basic process of

The securitisation now here what happens see the first is the originator the originator either has or creates the underlying assets that is the transaction receivables to be securitized okay then selection of the receivables are done so that it’s so done oeste securitize or assign the survivors now the scv spv is formed now svd acquires the receivables under a

See also  Sun Life Maxilink Prime - (VUL) Insurance & Investment Plan in the Philippines

Discounted value from the originator the servicer of the transaction is appointed normally a generator act as a servicer because the originator has originated the stream of the cash flows or assets so the originator would be in a better position to service the entire transactions in many cases there can be even the outside party who will act as a servicer now the

Role of a servicer servicer collects the receivables usually it’s based on the escrow mechanism and pays off the collection to the spv now the spv either passed the collection to the investor or reinvest the saints to the payoff spg has again two options whether as in when s-u-v receives the receivable it can pass it to investors or in other case there can be the

Fixed states for the payout to the investors of the spd’s so if the spd is receiving the cash flows in between the sv we can reinvest the cash flows to the date which it has to pay to its investors okay now in case of the default a servicer takes action against datas as spd’s agent now when only a small amount of outstanding receivables are left to be collected

The originator usually chains of the transaction by buying back the outstanding receivables and at the end of the transaction the originator profit if we retain and subject to any losses to the extent agreed by the originator in the transaction is the is paid off so it’s a very very simple thing originator originates the assets or the streams of the cash flow it

Then the spe is created the originator identifies a stream of the cash flows to be securitized sp we purchase the stream of the cash flows at some discounted value now the spv will sell off the securities or nodes through the investors the investors whatever the money the investor will give it to sp we would be transferred to the originator as a purchase price now

There can be the trustees trustees are appointed to look after the entire proceeding whether all the documents are placed whether the investors who the spd’s are getting their money on the timely payment whether all the calculations and profit on accounts etc are maintained in a timely manner

Transcribed from video
Investment Banking Structured Finance Explained By EDUCBA