Securitization++

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How Information technology can fix the problems that created the financial crisis

How Information technology can fix the problems that created the financial crisis

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  • 1. Cortex – Automation for Structured Finance Tranquilmoney, Inc.Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 2. 1.The Securitization Process and Cortex System Features.............................................. 32. Features of Interest – Originator....................................................................................4 2.1Loan Details - Asset Class Definition........................................................................ 4 2.2Loan Details – Schedules..........................................................................................5 2.3Pooling - Synthetic Field Definition........................................................................... 6 2.4Pooling - Covenant Definition....................................................................................7 2.5Pooling - Covenant Monitoring.................................................................................. 8 2.6Pooling - Optimizer ...................................................................................................9 2.7Pool Monitoring - Stratifications.............................................................................. 11 2.8Pool Monitoring - Static Cash Flows....................................................................... 12 2.9Pool Monitoring - Prepayment Speeds and Delinquencies.....................................13 2.10Pricing - Risk Based Pricing .................................................................................15 2.11Pricing – Cash Flow based Pricing....................................................................... 16 2.12Pricing – Online Structuring.................................................................................. 17 2.13Pricing – Liability Cash Flow................................................................................. 18 2.14Deal Structuring - Tranche Creation..................................................................... 20 2.15Deal Structuring - Cash Flow Rules...................................................................... 21 2.16Deal Structuring - DoubleHelix Scripting Language..............................................23 2.17Deal Structuring - Deal Summarization.................................................................243.Features of Interest – SPV........................................................................................... 25 3.1Collect Money from Asset to Account..................................................................... 26 3.2Payout to the investors............................................................................................27 3.3Deal Monitoring - Static Tranche Cash Flows.........................................................28 3.4Deal Monitoring - Trustee Reports.......................................................................... 30 3.5Deal Monitoring - DoubleHelix Scripting Language................................................ 324.Features of Interest – Rating Agencies........................................................................ 33 4.1Analytics.................................................................................................................. 33 4.2Online Structuring................................................................................................... 34 4.3Monitoring Deal Performance - Tranche Schedule Report..................................... 37 4.4Report on Accounts.................................................................................................38 Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 3. 1. The Securitization Process and Cortex System Features Securitization Process Features Borrower Borrower Single platform for issuing multiple pools, funders and asset classes Integrated origination, pooling and funding Lender Lender Collaboration with lenders, originators, issuers, structurers, underwriters and investors Customized pool, loan tracking by dealLoan Aggregator Loan Aggregator principals and investors Compliance, risk management, dynamic pool composition monitoring Pool Creator Risk based pricing and aggregation Funder Customized reporting Deal structuring and analysis Pipeline hedging Investor Investor Funding arbitrage analysis Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 4. 2. Features of Interest – Originator2.1 Loan Details - Asset Class Definition Users define assets and asset classes by specifying important fields Data is loaded into the system via an XML or an Excel interface Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 5. 2.2 Loan Details – SchedulesAll assets have a pay down schedule that is stored period wise. This is updated with period wise payment / non-payment information Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 6. 2.3 Pooling - Synthetic Field Definition Synthetic fields (formulae) can be defined on any asset. After defining synthetic fields, covenants can be defined using these synthetic fields. In this case, we have defined “Curr LTV” as a weighted average of LTV’s of all loans in the pool Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 7. 2.4 Pooling - Covenant Definition A covenant has been defined on the synthetic field “Current LTV” as “Current LTV > 50%” Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 8. 2.5 Pooling - Covenant Monitoring Current LTV is less than 50%, so it fails the covenant of Current LTV being greater than 50%. Such failed covenants are displayed in red font to alert the user. This happens when the pool pays down or its loan composition changes. Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 9. 2.6 Pooling - Optimizer If there are covenants to be complied with forAssets that the tranche they willcomply with be shown herethesecovenantsalone will beconsidered Optimizer will pick the assets and the liability structure that will maximize these functions Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 10. Tranche structure suggested by the optimizerAssetsselected bythe optimizerare marked. Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 11. 2.7 Pool Monitoring - Stratifications Loans are organized into different buckets, which can be custom specified User can choose the columns reported on for each bucket Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 12. 2.8 Pool Monitoring - Static Cash FlowsPool performance is monitored vis-à-visprepayments, delinquencies and defaults.User can drill down to loan-level detail Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 13. 2.9 Pool Monitoring - Prepayment Speeds and Delinquencies Special statistics such as prepayment speeds can be monitored period-wise for each loan Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 14. Loans can be bucketed by delinquency Drilling down on a bucket gives loan-level detail for that bucketTranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 15. 2.10Pricing - Risk Based Pricing Price adjustment and loan acceptance criteria are specified via a matrix of rules Eligible loans are priced based on the price adjustment matrix Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 16. 2.11Pricing – Cash Flow based Pricing Net yield on Assets – Net Effective Yield on Liabilities + Deal Fees gives the P&L from the securitization. Users can iterate on asset price / yield to optimize the resulting profit for a given capital structure Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 17. 2.12Pricing – Online Structuring Users can create different capital structures to determine optimal funding for a given asset profile Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 18. 2.13Pricing – Liability Cash Flow Liability cash flow for the initial capital structure size of $ 6 million. Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 19. User can view the effect ofincreasing the size of the capitalstructure from $ 6 to $ 7 million inthis reportTranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 20. 2.14Deal Structuring - Tranche CreationUser can create cash flowwaterfall via a visual,interactive interfaceIn this case, we havecreated 4 tranches in asequential pay waterfall Details of each tranche in the waterfall can be captured Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 21. 2.15Deal Structuring - Cash Flow Rules Waterfall description is captured under the “covers” via DoubleHelix Summary of deal structure Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 22. Additional details describing cash flows and payment priorities can be specified. Tests capturing shortfalls and overcollateralization can be set.Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 23. 2.16Deal Structuring - DoubleHelix Scripting Language System configuration / customization is done via an XML based language, DoubleHelix. These XML scripts can be stored in a hierarchical library Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 24. 2.17Deal Structuring - Deal Summarization The system produces a summary of salient deal parameters Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 25. For example, all reports defined for the deal are listed and made accessible3. Features of Interest – SPV Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 26. 3.1 Collect Money from Asset to Account SPV should just click the “Execute” button to collect money from the Assets to Account Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 27. 3.2 Payout to the investors To Pay to the tranches the SPV can execute the already defined cash flow by specifying the Pay Out Date and clicking “Execute”” Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 28. 3.3 Deal Monitoring - Static Tranche Cash Flows The user can drill down on any tranche to get details for that trancheReal performance (paydowns, cash allocation) can bemonitored for each tranche in a deal.These reports can be customized and triggers set to notify auser on occurrence of events such as defaults. Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 29. Drill down Users can drill down to a period wise level of detail on paydowns, cash allocations. This permits bond administration. Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 30. 3.4 Deal Monitoring - Trustee Reports Can capture the current status of all accounts and fees associated with an SPV Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 31. Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 32. 3.5 Deal Monitoring - DoubleHelix Scripting Language System configuration / customization is done via an XML based language, DoubleHelix. These XML scripts can be stored in a hierarchical library Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 33. 4. Features of Interest – Rating Agencies 4.1 AnalyticsCan be customized for any other RatingAgency also Analyze a tranche for a particular Moodys rating Agency Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 34. 4.2 Online Structuring Users can create different capital structures to determine optimal funding for a given asset profile Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 35. Liability cash flow for the initial capital structure size of $ 6 million.Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 36. User can view the effect of increasing the size of the capital structure from $ 6 to $ 7 million in this reportTranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 37. 4.3 Monitoring Deal Performance - Tranche Schedule Report Rating Agency can view the Schedules and Payments to tranche Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com
  • 38. 4.4 Report on Accounts Rating Agency can view audit trail of the amount that is taken from the Reserve Account (if any) and judge the performance of the deal Rating Agency can confirm the compliance with the Terms of Issue Tranquilmoney, Inc., 29 West 34th Street, 9th floor, New York, NY 10001. Phone: (212) 494-0383. Fax: (212) 656 1492 Email: info@tranquilmoney.com. World Wide Web: http://www.tranquilmoney.com