Pooling Of Assets, Securitization, Special Purpose Vehicle, Asset Securitization, Asset Based Securities, Mortgage Based Securities.

1. ASSET FINANCE:
SECURITIZATION
BY -
N I S H A N T K U M A R S I N G H

2. SECURITIZATION
• It stands for conversion of loans or loan recoveries into
marketable paper or securities by SPV(Special Purpose
Vehicle).
• By pooling assets, it diversifies and reduces risks of the
portfolio and, with additional credit enhancement
arrangement, can produce highly creditworthy
instruments to market.
• Isolating and efficiently allocating the risk.
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3. ASSET SECURITIZATION
“Asset securitization is the process
whereby interests in loans and receivables
are packaged and sold in the form of ABS
asset backed securities”.
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4. PARTIES INVOLVED
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5. TYPICAL STRUCTURE
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6. TERMS
• Originator: An entity making loans to borrowers or having receivables
from customers.
• Special Purpose Vehicle: The entity which buys assets from Originator and
packages them into security for further sale.
• Investment Bank : A body that is responsible for conducting the
documentation work.
• Credit Rating Agency: To provide value addition to security.
• Insurance Company/ Underwriters: To provide cover against redemption
risk to investor and/ or under-subscription.
• Obligors: Company that gives debt to other company as a result of
borrowing. (debtor)/ The loan customers that pay cashflows that are
securitised.
• Investor: The party to whom securities are sold. 6

7. WHY TO SECURITIZE ASSETS?
• More efficient financing.
• Improved balance sheet structure.
• Better risk management.
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8. WHY ORIGINATOR SECURITIZE
• Off-balance sheet financing– remove illiquid assets.
• Improves capital structure.
• Extends credit pool.
• Reduces credit concentration.
• Risk management by risk transfers.
• Avoids interest rate risk.
• Improves accounting profits.
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9. INVESTORS VIEW POINT
Pros
• Opportunity to potentially earn a higher rate of return.
• Opportunity to invest in a specific pool of high quality credit-enhanced
assets.
• Portfolio diversification.
Cons
• Prepayment by borrowers can lessen the earning through interest.
• Currency interest rate fluctuations which affect the floating rates on ABS.
• Maintenance obligations of the collateral are not met as given in the
prospectus. 9

10. WHAT TYPE OF ASSETS CAN BE
SECURITIZED?
• Any type of asset with a reasonably predictable stream of future cash
flows can be securitized.
• Assets that are easiest to securitize are those: that occur in large
pools; for which past experience can be used to predict default rates;
for which documentation is standardized; and for which ownership is
transferable.
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11. WHAT CAN BE SECURITIZED
• Auto loans.
• Student loans.
• Mortgages.
• Credit card receivables.
• Lease payments.
• Accounts receivable.
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12. CATEGORY OF SECURITIZATION
• Assets backed securities :Those securities whose income is derived from
pool of underlying assets.
Example: payments from car loan, credit card.
• Mortgage backed securities: Mortgage loans are purchased from banks
and assembled into pools which become securities.
• Credit debt obligation:
CDO: Those backed by corporate bonds.(collateralized Debt obligation)
CMO: Those backed by leveraged home loans.(collateralized mortgage
obligation) 12

13. DIFFERENCE BETWEEN ABS & MBS
No. Asset backed securities Mortgage backed securities
1.
The duration for trading is up
to 5 years.
The duration for trading is
more than 15 years.
2.
Example: Credit card papers,
Share certificates, Auto or
vehicle papers.
Example: Mortgage papers,
House papers, Land &
papers.
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14. INDIAN SCENARIO
• First securitization deal in India between Citibank and GIC Mutual
Fund in 1991 for Rs 160 million.
• L&T raised Rs 4,090 mn through the securitization of future lease
rentals to raise capital for its power plant in 1999.
• Securitization of aircraft receivables by Jet Airways for Rs 16,000 mn
in 2001 through offshore SPV.
• India’s largest securitization deal by ICICI bank of Rs 19,299 mn in
2007. The underlying asset pool was auto loan receivables.
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15. INDIAN SCENARIO
• Securitisation volume in the first six months of 2016-17 year
increased to Rs 45,000 crore and is likely to reach close to all-time
high of Rs 1 lakh crore by the end of the fiscal, (Source: PTI )
• MFIs (including some erstwhile MFIs - now small Finance Banks)
raised nearly Rs 5,500 crore through the securitisation route in the
first six months of FY17’.
• "The dip in micro loan securitisation volumes is primarily due to the
impact of the demonetisation event on the portfolio of most MFIs.
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16. THANK YOU
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