1 / 26

Credit Guarantee Facilities Applied in Structured Finance in Ex-Japan Asia

Credit Guarantee Facilities Applied in Structured Finance in Ex-Japan Asia. Presented by: Li Ma VP-Senior Analyst Structured Finance Group Hong Kong. Shanghai May 31, 2006. Agenda. The Role of Credit Enhancement (CE) in Structured Finance

forbes
Download Presentation

Credit Guarantee Facilities Applied in Structured Finance in Ex-Japan Asia

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Credit Guarantee Facilities Applied in Structured Finance in Ex-Japan Asia Presented by: Li MaVP-Senior Analyst Structured Finance Group Hong Kong Shanghai May 31, 2006

  2. Agenda • The Role of Credit Enhancement (CE) in Structured Finance • Applications of Credit Guarantee Facilities in ex-Japan Asia • Case Studies • Fully-supported Structure • Partially-supported Structure

  3. The Role of Credit Enhancement

  4. Role of CE in Structured Finance • Structured finance is NOT a way to remove credit risk, but a way to re-allocate credit risk through a particular capital “Structure” • An important step in structuring a securitization transaction is determining the adequate level of CE which • Protects investors against loss when there is loss in the underlying collateral • Brings the credit quality of the transaction to the desired rating

  5. Determining the Amount of CE • Based on the frequency, severity and timing of future losses on the collateral • Use of historical data to estimate future losses • Determine overall credit risk based on credit strength of the underlying assets • Based on the credit quality of the transaction party and the transaction structure to determine the timeliness of the CE availability

  6. Types of CE • Internal • Overcollateralization • Senior/Subordinated Structure • Excess Spread / Excess Collection • Cash Reserve • External • Interest / FX Swaps • Political Insurance • Payment / Recovery Guarantee

  7. External CE • Amount of Enhancement • Fully-supported Structure • Stand-by fully supported structure • Direct-pay fully supported structure • Partially-supported Structure • Thailand: EGAT • Philippines: PSALM

  8. The Applications of Credit Guarantee Facilities

  9. Fully-Supported Structure • Security Default = 3rd Party Default + Insufficient funds from collateral to pay off investors as promised (“two-party pay”) • Severity of loss is likely to be lower in the event of default • Rating of security depends on: • Quality of assets and the support provider • Correlation of asset quality with the fortunes of the 3rd party • Possible that the final rating will be higher than that of the 3rd party due to joint default probability

  10. Partially-Supported Structure • 3rd Party only provides credit support • when certain conditions are met • during certain period • up to certain amount • Rating of security depends on: • Quality of assets and the support provider • Correlation of asset quality with the fortunes of the 3rd party • Rating of security may fluctuate over time

  11. Providers of Credit Guarantee Facilities • Monoline insurers • FSA, MBIA, AMBAC, XLCA, etc. • Highly rated financial institutions • Highly rated corporations • Supranational organizations • World Bank, ADB, etc. • Swap Provider, Recovery Guarantee, etc.

  12. Benefits of Credit Guarantee Facilities • For Investors • Increase investor confidence in the underlying securities, especially those from new markets • Alternative investment choices • For Issuers/Originators • Increase the credit quality/rating of the underlying security • Allows the rating of the transaction to be higher than the “country ceiling” • For Guarantors • Guarantee fee income • Market / portfolio / risk diversification • Macro-economy • Speed up the implementation of structured finance/alternative financing options in new market

  13. Applications of Credit Guarantee Facilities in Ex-Japan Asia (1/3)

  14. Applications of Credit Guarantee Facilities in Ex-Japan Asia (2/3)

  15. Applications of Credit Guarantee Facilities in Ex-Japan Asia (3/3)

  16. Case Studies

  17. Fully-supported Structure (1/3) Hsinchu RMBS Transaction Structure Diagram

  18. Fully-supported Structure (2/3) • Hsinchu RMBS Transaction • Originator: Hsinchu Int’l Bank (Not Rated) • Taiwan’s Foreign Currency Ceiling: Aa3 • Notes Rating (without Guarantee): Aa3 • Notes Rating (with Guarantee): Aaa • Guarantor: AMBAC • Guarantor’s Rating: Aaa

  19. Fully-supported Structure (3/3) • Due to both internal credit enhancement and external 3rd party guarantee, the rating of the notes is • The same as the guarantor’s rating • Higher than the originator’s rating and • Pierces Taiwan’s foreign currency ceiling • The guarantee covers: • Full and timely interest payment of the notes • Ultimate repayment of principal by the notes’ legal maturity date • Notes issuer's payment obligation under the cross-currency swap

  20. Partially-supported Structure (1/4) EGAT Bonds Structure Diagram

  21. Partially-supported Structure (2/4) • EGAT Transaction • Issuer: Electricity Generating Authority of Thailand (Not Rated) • Thailand’s Foreign Currency Ceiling (1998): Ba1 • Bonds Rating (with Guarantee in 1998): A3 • Bonds Rating (2006): A1 • Guarantor: World Bank & Kingdom of Thailand • Guarantor’s Rating: Aaa & Ba1 (1998)

  22. Partially-supported Structure (3/4) • Due to the 2 guarantees provided by two 3rd parties, the rating of the bonds is • Higher than the originator’s rating, • Pierces Thailand’s foreign currency ceiling, but • Lower than one of the guarantors at the beginning, • Will gradually migrates towards the World Bank’s rating as time passes

  23. Partially-supported Structure (4/4) • The Kingdom of Thailand full guarantee unconditionally and irrevocably covers: • Full and timely interest payment of the bonds • The World Bank partial guarantee unconditionally and irrevocably covers: • One period of interest payment of the bonds (rolling) • Full repayment of principal at the bonds’ maturity date

  24. Q & A

  25. Contacts

  26. The FX Country Ceiling of Major Asian Markets (May, 2006)

More Related