Assessing Value and Risk — Europe
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Key Learning Outcomes:
- Use a structured approach to evaluate the risk profile of RMBS by assessing the collateral, originator, servicer and structure
- Understand the impact of key variables on risk assessment models
- Critique transaction structures to identify and assess the risks and mitigants
- Monitor deal performance to anticipate rating potential rating migration
- Evaluate the relative risks and rewards of RMBS across the rating spectrum
- Understand the potential ramifications of the current regulatory environment on RMBS liquidity and structural dynamics.
This course will provide an in-depth understanding of the credit and structural aspects of both existing and developing European RMBS (cash and where applicable, synthetic).
Analytic approach to credit
- A structured approach to analysis: purpose, payback, risks and structure
- Applying the approach to true sale and, where appropriate, synthetic RMBS
- Originator and investor motivations / sources of repayment
- Historical and current perspectives
- The need for vigilance: opportunities and threats in current climate.
Risks to Repayment
- Understanding RMBS collateral features: prime, non-conforming, U.S. vs. Europe
- Key variables which will impact the likelihood of default and severity of loss
- Stressing historical performance data: sizing gross credit enhancement
- Model approach: loan by loan analysis to determine loss levels
- Adjustments to assumptions: why and to what extent
- Cash flow modelling: the impact of timing on stress scenarios
- Deriving gross credit enhancement levels.
- Who how, where, why, and for how long?
- Underwriting procedures and policies
- How the business model might impact origination / securitisation.
- Types of servicers and their roles: primary, master and special
- Servicer ratings: why, how and impact on credit enhancement
- Creditworthiness and the business model
- Third party servicers and replacement risk.
- Waterfall structures: determining priority of payments
- Unravelling payment flows: sources and applications of funds
- Pay structures: sequential, pro rata and turbo features
- Allocation of fund pre- and post-enforcement
- Expected and legal maturity, "soft bullet" and optional redemption features.
Credit enhancement (CE)
- Understanding and evaluating the different types of CE
- Linking waterfall structures to changing levels and forms of CE
- Loss allocation amongst different forms of credit enhancement
- Benefits and risk associated with third party CE (private and government)
- Ensuring CE mechanisms protect investor interests.
- Substitution and replacement: eligibility criteria
- Access to liquidity: evaluating liquidity providers and alternative structures
- Swaps and caps: mitigating risk and guaranteeing excess spread
- Trust structures: triggers, funding/seller shares, loan substitution.
- Defining the reference pool
- Transferring risk via a CDS
- Credit events and loss determination
- Note collateral: de-linking the risk.
- Isolation of assets
- Events of default, reps and warranties.
- Current market conditions: impact on spreads across asset types, tranches and regions
- Benchmarking returns
- Moving down the curve: value versus risk (current perspectives).
- Surveillance: collateral, servicer / origination and counterparty
- Interpreting performance to identify early warning signals
- Credit trends: understanding and anticipating pockets of risk
- Differentiating between markets and their relevant industry standards
- Potential impact of regulatory and industry review of reporting standards.
Understanding the dynamics and interplay of global, regional and national regulation
Impact of legislation / regulation on:
- Mortgage markets and borrower behaviour
- RMBS investors
- Issuers and transaction structure.
Who should attend
For investors, issuers, fund management professionals and those involved in RMBS credit risk management.