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Copyrighted Material Index Accounting standards, 68n Arbitrage cash CDOs, 244–247 Accounting volatility, absence. See Synthetic CDOs assets, 245–246 Accretion-directed bonds, 50–55 fl owchart, 245f classes legal structure, 245 creation, 51 reinvestment period, 246 specialization, 54 returns, 246–247 Accretion process, 50 Arbitrage CDOs, 215–216, 243–249 Accrual bonds (Z bonds), 50–55 assets, purchase, 216 class examples, 243 structure, comparison, 52 issuance, capability, 243–244 structuring, 54 pooling process, profi t source, 243 lockout period, months (number), 51 purpose, 243–244 par value, lockout period (addition), 50 relevance, 219–220 Actual/365 day count, usage. See Sterling-denomi- returns, 246–247 nated swaps example, 247t Administrative agent. See Asset-backed commercial Arbitrage conduits, 173 paper S&P defi nition, 172 duties, 179. See also Commercial paper Arbitrage-free model, 331 role, 180 Arbitrage synthetic CDOs, 247–249 Administrative receivership, usage, 199–200 collateral manager, appointment, 248 Agency CMOs creation, 248–249 creation, 65 fl owchart, 249t qualifi cation, 31n. See also Nonagency CMOs income, 248–249 usage, 75 ramp-up period, 248 Agency costs, reduction, 284 Arbitraging, purpose, 314–315 Agency deals, 22n Asset-aging analysis, usage. See Servicers arbitrage transactions, 65 Asset-backed bonds, 10 structuring, 34, 38 Asset-backed commercial paper Agency MBS deals, structuring, 31 placement agent, involvement, 180 summary, 61–64 Asset-backed commercial paper (ABCP), 10 Agency passthrough securities, valuation alterna- administrative agent, involvement, 179–180 tive, 329n bank usage, 170 Agreed-upon periodic interest rate, 101–102 collateral, 174 American Skandia Life Assurance Company (ASLAC), deleverage triggers, usage, 176–177 securitization transactions issuance, 205 initiation, 170 Amortization issuance programs, 170 calculation, 35 issuing agent, involvement, 180 triggers. See EarlyCOPYRIGHTED amortization triggers manager, MATERIAL involvement, 180 Amortizing swap, notional amount (decline), 108 paying agent, involvement, 180 Annualized percentage rates (APRs), 164 program Arbitrage. See Securities parties, involvement, 178–180 activity, impact, 279 sponsor, involvement, 178–179 profi ts, making, 216 structure. See Partially supported multiseller term, usage, 211–212 ABCP program structure looseness, 243 securitization, relationship, 173 transactions, 65 Asset-backed commercial paper (ABCP) conduits, diversifi cation, attainability, 232 169. See also Multiple-seller ABCP conduits; ramp-up risks, impact, 269 Single-seller ABCP conduits 349 iindex.inddndex.indd 349349 55/31/08/31/08 88:26:47:26:47 PMPM 350 INDEX Asset-backed commercial paper (Cont.) perpetual life, absence, 67 assets, credit quality, 181–182 proceeds, maximization, 24 going concerns, 173 Assets/existing receivables, usage, 7 management, quality, 181 Assets/receivables, initiation, 7 rating, 180–182 Auction call, 219n receivables eligibility criteria, 182 Auto leases, 314 summary, 182–185 Auto loan deals, 164 types, 170–173 Auto loan securitization, 161–165 Asset-backed notes, 10 collateral quality, 163 Asset-backed obligations, 10 credit enhancements, 164 Asset-backed pools, 152 funding vehicles, 162 Asset-backed securities (ABSs), 211. See also issues, 164–165 Mortgage-related asset-backed securities refi nancing signifi cance, 162 cash fl ow, 326 retail loan pool support, 212 yield measure, 327 structures, 164–165 collateral classes, 149 Automatic deleverage triggers, usage, 258n summary, 165–167 Available funds cap, inclusion, 113n creation, 283–284 Average life. See Bond classes; Collateral; Planned differences, 173 amortization class bonds investor problems, 17 examination. See Bond classes market, 92–93 expected maturity, contrast, 43n transaction, payment problem, 318 valuation, 325 Backup servicer, 125, 142. See also Cold backup ser- Asset-backed transactions, relation, 187 vicer; Hot backup servicer; Warm backup servicer Asset-based lending, 5 classifi cation, 142 Asset pool Balance sheet assets, amount, 190–191 base case loss, 96 Balance sheet cash CDOs, fl owchart, 231f diversifi cation, 85 Balance sheet CDOs, 211, 215–216, 229–243, 311 identifi cation, 68–69 assets, 231 long-term assets, inclusion, 79 creation, 229–230 losses, absorption, 15 process, 230 principal balance, replenishment, 155 credit enhancement structure, 233 Assets, 149–150 diversity, 231–232 acquisition, synthetic mode, 215 legal structure, 230–231 classes, 153f loans, selection criteria, 232–233 classifi cation, 151f regulatory/economic capital relief, 216 credit quality. See Asset-backed commercial reinvestment period, 232–233 paper conduits structural tests, 233–234 credit risk, 17–18 Balance sheet synthetic CDO, fl ow chart, 237f coverage, pool level enhancement (usage), 176 Balance sheet transactions, asset allotment, 232 distribution, 6 Banc One, credit card receivables (purchase), 154 duration/liabilities, mismatch, 17–18 Bank for International Settlements (BIS) future fl ows, contrast, 150 defi nition. See Structured fi nance interest rate risk, 17–18 recognition. See Securitization originator sale, 7–8 Banking, health, 224–225 pooling, 4 Bank lockbox, usage, 126 portfolio, 156 Bank One, N.A. v. Poulsen, et al., 145 quality tests, 255–256 Bank risk risks, 270 capital, inadequacy, 293 seasoning, 70 masking, 302 securitization opaqueness, increases, 300–302 cash fl ow, presence, 149 Bankruptcy selection, 69–70 defi nition, inapplicability, 317–318 tests, 257–260 protection. See Whole business securitization types, 7–8, 68 Bankruptcy-remote entity, SPV structuring, 15 unavailability, risk, 269 Bankruptcy remote structure, 6 value, computation, 258–259 Banks Asset securitization adverse impact, 293 issuer motivation, 13 facilities, liquidity enhancement source, 78 summary, 24–27 loan sale, BusinessWeek observation, 294 iindex.inddndex.indd 350350 55/31/08/31/08 88:26:48:26:48 PMPM Index 351 Barclays, conduit setup, 170 Bullet repayment, providing. See Liabilities Base case loss, 95. See also Asset pool Business continuity planning. See Servicing multiplication, 96–97 Business securitization. See Block of business Basel I, 69 securitization Basel II, 69 Buyer, term (usage), 116 capital requirement, 293 defi nition. See Operational risk Callable agency debentures, valuation, 329 Base rate, 160 Call back option, constraint, 242n Basis mismatch, relationship. See Interest rates Capital Basis risk, 111–112 banking regulations, 69 mitigation, 111–112 credit enhancement replacement, 173 shortfall, coverage, 113 inadequacy. See Bank risk Basket default swaps, 313 management. See Regulatory capital Basket trades, 313 notes, issuance, 173 Bear Stearns Asset Backed Securities 1 Trust 2005- providing. See First-loss risk HE5 Asset-Backed Certifi cates, Series 2005- raising, 3 HE5 issue (prospectus supplement), 114–115 relief, 150 Benefi cial interest certifi cates. See Pass-through source, usage, 15 certifi cates structure, equity cost. See Securitization Berkshire Hathaway Assurance, license, 92n Capital market Best execution, obtaining, 23–24 deals, 310–311 Bilateral deals/transactions, 310–311 counterparty/OTC deals, contrast, 311 Binary swaps, usage, 320 funding, raising, 187 BISTRO (JPMorgan), 243 Caps, 115–118. See also Interest rate cap Block of business securitization, 204–205 payout, compensation, 116 Bond classes. See Floating rate bonds; Prepayment- usage. See Securitization protected bond classes Cash asset CDO, asset acquisition, 213 average life, examination, 53 Cash CDO, 229–234 cash fl ow, range, 22–23 contrast. See Synthetic CDOs collateral backing, 15 structure, usage (initiation), 229 coupon rate, 39 synthetic CDO, contrast, 215 creation, 9, 56 Cash collateral account (CCA), 233 determination, 73–75 Cash collateral (cash reserve), 88–89 excess interest, combination, 61 account, creation, 88 existence, 10 Cash collateralization, impact, 89–90 issuance, average life, 47 Cash diversion, 113 PAC bonds, comparison, 48 Cash fl ow. See Floating rate bonds pay-down structure, selection, 76–77 allocation, rules (establishment), 23 simulated cash fl ows, 335t components, decomposition, 35 theoretical value, determination, 336–337 control, 199 time tranching, 75 projection. See Mortgage pool total par value, 39, 48, 58 simulation, 330–334 Bondholders, trust interest liability, 111–112 timing, 105–106 Bonds trapping. See Future fl ows analytics, 144 waterfall insurance, 92 scenarios, 201 market usage. See Whole business securitization exposure, 306 yield seniority, 306 analysis, 325–327 par value, comparison, 39n calculation, 326 principal paydown, interest (usage), 113n Cash fl ow-related EATs, 194 unavailability, risk, 269 Cash infl ow. See Life insurance business; London Book size reduction, absence. See Synthetic CDOs Interbank Offered Rate Borrower fi nancials, problems, 160–161 Cash investments, presence, 258 Borrowers, refi nance right, 328 Cash market instruments, package, 103–105 Bowie bonds, 3 Cash outfl ow. See Life insurance business Broad-based bond market indexes, mortgage Cash outlay, 105 sector, 287 Cash reserves. See Cash collateral Buffett, Warren, 92n liquidity enhancement source, 78 Bullet repaying notes, usage. See Synthetic CDOs maintenance, 193 iindex.inddndex.indd 351351 55/31/08/31/08 88:26:48:26:48 PMPM 352 INDEX Cash securitization, 151 collateral/structural risks, 266–270 true sale structure basis, 237–238 proposals identifi cation, technological invest- Cash settlement, 308, 320–321 ments (usage), 263 Cash structures, 150–151 investor preference, 265–266 CDX.NA.IG
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