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Asset Securitisation

&

Asset Securitisation & Long Term Financing in the Power Sector A presentation to Nigerian Electricity Regulatory
Asset Securitisation & Long Term Financing in the Power Sector A presentation to Nigerian Electricity Regulatory

Long Term Financing in the Power Sector

A presentation

to

Nigerian Electricity Regulatory Commission

25 th of January, 2007

Regulatory Commission 25 t h of January, 2007 By Mr. Sonnie Ayere Managing Director / CEO
Regulatory Commission 25 t h of January, 2007 By Mr. Sonnie Ayere Managing Director / CEO
Regulatory Commission 25 t h of January, 2007 By Mr. Sonnie Ayere Managing Director / CEO
Regulatory Commission 25 t h of January, 2007 By Mr. Sonnie Ayere Managing Director / CEO

By Mr. Sonnie Ayere

Regulatory Commission 25 t h of January, 2007 By Mr. Sonnie Ayere Managing Director / CEO

Managing Director / CEO

Regulatory Commission 25 t h of January, 2007 By Mr. Sonnie Ayere Managing Director / CEO

UBA GLOBAL MARKETS

Introduction

Introduction
Introduction
Introduction
Introduction
Introduction
Introduction
Introduction
Introduction
Introduction What is Securitisation ? l Securitisation is the raising of debt secured on the
Introduction What is Securitisation ? l Securitisation is the raising of debt secured on the

Introduction

Introduction What is Securitisation ? l Securitisation is the raising of debt secured on the cashflow
Introduction What is Securitisation ? l Securitisation is the raising of debt secured on the cashflow

What is Securitisation ?

l

Securitisation is the raising of debt secured on the cashflow and/or collateral value of a selected pool of assets

l

Securitisation debt is non-recourse to the originator, so that investors depend solely on the performance of the assets and are insulated from the financial condition of the originator

Prepared by

Sonnie Ayere

Debit Capital Markets

Introduction cont’ l Pure asset securitisation is generally achieved by legally and economically isolating the
Introduction cont’ l Pure asset securitisation is generally achieved by legally and economically isolating the

Introduction cont’

Introduction cont’ l Pure asset securitisation is generally achieved by legally and economically isolating the
Introduction cont’ l Pure asset securitisation is generally achieved by legally and economically isolating the

l

Pure asset securitisation is generally achieved by legally and economically isolating the receivables / assets from the balance sheet of the originator

l

This is achieved by what is commonly referred to as a “True Sale” of the assets or receivables

Prepared by

Sonnie Ayere

Debit Capital Markets

Range of Debt Markets & Assets
Range of Debt Markets & Assets

Range of Debt Markets

&

Assets

Range of Debt Markets & Assets
Range of Debt Markets & Assets
Range of Debt Markets & Assets
Range of Debt Markets & Assets
Range of Debt Markets & Assets
Range of Debt Markets & Assets
Range of Debt Markets Illiquid Highly liquid Actively Non tradable Private Placements Tradable Private Placements
Range of Debt Markets Illiquid Highly liquid Actively Non tradable Private Placements Tradable Private Placements

Range of Debt Markets

Range of Debt Markets Illiquid Highly liquid Actively Non tradable Private Placements Tradable Private Placements
Range of Debt Markets Illiquid Highly liquid Actively Non tradable Private Placements Tradable Private Placements

Illiquid

Highly liquid

Actively Non tradable Private Placements Tradable Private Placements Commercial Public Traded Paper issue bonds
Actively
Non tradable
Private Placements
Tradable
Private Placements
Commercial
Public
Traded
Paper
issue
bonds

Prepared by

Sonnie Ayere

Debit Capital Markets

Range of Assets l Generally, any asset that produces a certain level of predictable cashflow
Range of Assets l Generally, any asset that produces a certain level of predictable cashflow

Range of Assets

Range of Assets l Generally, any asset that produces a certain level of predictable cashflow can
Range of Assets l Generally, any asset that produces a certain level of predictable cashflow can

l

Generally, any asset that produces a certain level of predictable cashflow can be securitised

l

Both short-term (e.g. trade credit ) and long-term (residential mortgages) can be securitised

Prepared by

Sonnie Ayere

Debit Capital Markets

Range of Assets cont’ l Examples of asset types that have been securitised l Residential
Range of Assets cont’ l Examples of asset types that have been securitised l Residential

Range of Assets cont’

Range of Assets cont’ l Examples of asset types that have been securitised l Residential and
Range of Assets cont’ l Examples of asset types that have been securitised l Residential and

l Examples of asset types that have been securitised

l

Residential and Commercial Mortgages

l

Auto / Equipment / Aircraft Leases

l

Credit Card Receivables

l

Auto and Consumer Loans

l

Bank and Corporate Debt

l

Trade Receivables

l

Export and Domestic Corporate Receivables

l

Air Ticket Receivables

l

Workers Remittances

Prepared by

Sonnie Ayere

Debit Capital Markets

Typical Structure of a Securitisation
Typical Structure of a Securitisation

Typical Structure of a Securitisation

Typical Structure of a Securitisation
Typical Structure of a Securitisation
Typical Structure of a Securitisation
Typical Structure of a Securitisation
Typical Structure of a Securitisation
Typical Structure of a Securitisation
Typical Structure of a Securitisation SPV Special Purpose Issuing Vehicle Sale & Service of Receivables
Typical Structure of a Securitisation SPV Special Purpose Issuing Vehicle Sale & Service of Receivables

Typical Structure of a Securitisation

Typical Structure of a Securitisation SPV Special Purpose Issuing Vehicle Sale & Service of Receivables Seller,
Typical Structure of a Securitisation SPV Special Purpose Issuing Vehicle Sale & Service of Receivables Seller,
SPV Special Purpose Issuing Vehicle Sale & Service of Receivables Seller, Servicer Assets Liabilities Assets
SPV
Special Purpose
Issuing Vehicle
Sale & Service of
Receivables
Seller, Servicer
Assets
Liabilities
Assets
Liabilities
Sr. ABS
Receivables
(AAA)
Purchase
Pool
Receivables
Receivables
Pool
Mezz. ABS
(BBB/BB)
Jr. ABS
(Equity)

Senior

Investors

Subordinated or Mezzanine Investor

Sell ABS

Investors Subordinated or Mezzanine Investor Sell ABS Debt Service Sell ABS Debt Service Retain Residual Interest

Debt Service

Sell ABS

or Mezzanine Investor Sell ABS Debt Service Sell ABS Debt Service Retain Residual Interest (First Loss)

Debt Service

Retain Residual Interest (First Loss)

Prepared by

Sonnie Ayere

Debit Capital Markets

Key Elements of Securitisation l In-depth knowledge of the assets l Isolation / transfer of
Key Elements of Securitisation l In-depth knowledge of the assets l Isolation / transfer of

Key Elements of Securitisation

Key Elements of Securitisation l In-depth knowledge of the assets l Isolation / transfer of assets
Key Elements of Securitisation l In-depth knowledge of the assets l Isolation / transfer of assets

l

In-depth knowledge of the assets

l

Isolation / transfer of assets

l

Servicing

l

Credit Rating (Domestic or International)

l

Legalese and Deal Documentation

l

Placement

l

Monitoring

Prepared by

Sonnie Ayere

Debit Capital Markets

Basic Transfer Mechanism Sale or Assignment SPONSORING COMPANY Accounts Receivable SPECIAL PURPOSE VEHICLE ISSUES
Basic Transfer Mechanism Sale or Assignment SPONSORING COMPANY Accounts Receivable SPECIAL PURPOSE VEHICLE ISSUES

Basic Transfer Mechanism

Basic Transfer Mechanism Sale or Assignment SPONSORING COMPANY Accounts Receivable SPECIAL PURPOSE VEHICLE ISSUES
Basic Transfer Mechanism Sale or Assignment SPONSORING COMPANY Accounts Receivable SPECIAL PURPOSE VEHICLE ISSUES

Sale or Assignment

SPONSORING COMPANY

Accounts Receivable SPECIAL PURPOSE VEHICLE ISSUES Accounts Receivable SECURITIES
Accounts
Receivable
SPECIAL PURPOSE
VEHICLE
ISSUES
Accounts
Receivable
SECURITIES

ASSET-BACKED

Prepared by

Sonnie Ayere

Debit Capital Markets

Methods of Asset Transfer l Novation – An arrangement that involves the termination of the
Methods of Asset Transfer l Novation – An arrangement that involves the termination of the

Methods of Asset Transfer

Methods of Asset Transfer l Novation – An arrangement that involves the termination of the existing
Methods of Asset Transfer l Novation – An arrangement that involves the termination of the existing

l

Novation – An arrangement that involves the termination of the existing contract and the writing of a new one

l

Sub-Participation Funded or Unfunded - Involves one party depositing monies which may only be repaid when the underlying assets pays or unfunded when the related loan is drawn or the the asset defaults

l

Assignment – Full transfer of the assets to the assignee

Prepared by

Sonnie Ayere

Debit Capital Markets

Case Study

Case Study
Case Study
Case Study
Case Study
Case Study
Case Study
Case Study
Case Study
Case Study IPP Securitise its Receivables l Some factors need to be in place before
Case Study IPP Securitise its Receivables l Some factors need to be in place before

Case Study IPP Securitise its Receivables

Case Study IPP Securitise its Receivables l Some factors need to be in place before a
Case Study IPP Securitise its Receivables l Some factors need to be in place before a

l Some factors need to be in place before a securitisation can occur.

Some of which are:-

Corporate commitment

Management depth

Internal systems (servicing, and collection)

Available and up to date information (company and collateral)

Origination capacity

Prepared by

Sonnie Ayere

Debit Capital Markets

Case Study IPP Securitise its Receivables l Other factors necessary are :- – Ability to
Case Study IPP Securitise its Receivables l Other factors necessary are :- – Ability to

Case Study IPP Securitise its Receivables

Case Study IPP Securitise its Receivables l Other factors necessary are :- – Ability to legally
Case Study IPP Securitise its Receivables l Other factors necessary are :- – Ability to legally

l Other factors necessary are :-

Ability to legally assign receivables

Enforceability of law

Ability to perfect interest quickly - property

At least a 5 year fixed rate government curve – the longer the better

Electronic payment systems e.g. direct debits

Prepared by

Sonnie Ayere

Debit Capital Markets

Initial Contract and Receivable Consumers of Power Agreement Disco Monthly Payments Prepared by Sonnie Ayere
Initial Contract and Receivable Consumers of Power Agreement Disco Monthly Payments Prepared by Sonnie Ayere

Initial Contract and Receivable

Initial Contract and Receivable Consumers of Power Agreement Disco Monthly Payments Prepared by Sonnie Ayere Debit
Initial Contract and Receivable Consumers of Power Agreement Disco Monthly Payments Prepared by Sonnie Ayere Debit
Consumers of Power Agreement Disco Monthly Payments
Consumers of Power
Agreement
Disco
Monthly Payments

Prepared by

Sonnie Ayere

Debit Capital Markets

Transfer of Receivables to SPV Consumers Disco Monthly Payments Receivables Funding Trust proceeds proceeds Investors
Transfer of Receivables to SPV Consumers Disco Monthly Payments Receivables Funding Trust proceeds proceeds Investors

Transfer of Receivables to SPV

Transfer of Receivables to SPV Consumers Disco Monthly Payments Receivables Funding Trust proceeds proceeds Investors
Transfer of Receivables to SPV Consumers Disco Monthly Payments Receivables Funding Trust proceeds proceeds Investors

Consumers

Disco

Monthly

Payments

Receivables

Funding Trust

proceeds

Disco Monthly Payments Receivables Funding Trust proceeds proceeds Investors Asset Backed Securities Sale of monthly

proceeds

Payments Receivables Funding Trust proceeds proceeds Investors Asset Backed Securities Sale of monthly payments

Investors

Receivables Funding Trust proceeds proceeds Investors Asset Backed Securities Sale of monthly payments Prepared by
Receivables Funding Trust proceeds proceeds Investors Asset Backed Securities Sale of monthly payments Prepared by

Asset Backed

Securities

Sale of monthly payments

Prepared by

Sonnie Ayere

Debit Capital Markets

Independent Trustee appointed & reallocation of cashflow Consumers Trustee Monthly Payments Principal &
Independent Trustee appointed & reallocation of cashflow Consumers Trustee Monthly Payments Principal &

Independent Trustee appointed & reallocation of cashflow

Independent Trustee appointed & reallocation of cashflow Consumers Trustee Monthly Payments Principal &
Independent Trustee appointed & reallocation of cashflow Consumers Trustee Monthly Payments Principal &
Consumers Trustee Monthly Payments Principal & Interest proceeds proceeds Disco Investors Receivables
Consumers
Trustee
Monthly
Payments
Principal &
Interest
proceeds
proceeds
Disco
Investors
Receivables
Funding Trust - A
Sale of
Asset Backed
Receivables
Securities

Prepared by

Sonnie Ayere

Debit Capital Markets

Allocation of Excess Spread Consumers Trustee Principal & Interest Principal & Interest proceeds proceeds
Allocation of Excess Spread Consumers Trustee Principal & Interest Principal & Interest proceeds proceeds

Allocation of Excess Spread

Consumers Trustee Principal & Interest Principal & Interest proceeds proceeds Disco Investors
Consumers
Trustee
Principal &
Interest
Principal &
Interest
proceeds
proceeds
Disco
Investors
Receivables
Funding Trust - A
Asset Backed
Sale of
Securities
Receivables

Excess Spread + Servicing Fees

Prepared by

Sonnie Ayere

Debit Capital Markets

Introduction of Swap counter-party and Guarantor Consumers Trustee Principal & Interest Principal & Interest
Introduction of Swap counter-party and Guarantor Consumers Trustee Principal & Interest Principal & Interest

Introduction of Swap counter-party and Guarantor

Introduction of Swap counter-party and Guarantor Consumers Trustee Principal & Interest Principal & Interest
Introduction of Swap counter-party and Guarantor Consumers Trustee Principal & Interest Principal & Interest
Consumers Trustee Principal & Interest Principal & Interest proceeds proceeds Disco Investors
Consumers
Trustee
Principal &
Interest
Principal &
Interest
proceeds
proceeds
Disco
Investors
Receivables
Funding Trust - A
Asset Backed
Sale of Assets
Securities
Excess Spread +
Servicing Fees
Financial
Swap
Counter party
Guarantor

Prepared by

Sonnie Ayere

Debit Capital Markets

Other form of Credit Enhancement considered Consumers Trustee Principal & Interest Principal & Interest
Other form of Credit Enhancement considered Consumers Trustee Principal & Interest Principal & Interest

Other form of Credit Enhancement considered

Other form of Credit Enhancement considered Consumers Trustee Principal & Interest Principal & Interest
Other form of Credit Enhancement considered Consumers Trustee Principal & Interest Principal & Interest
Consumers Trustee Principal & Interest Principal & Interest proceeds proceeds Disco Investors
Consumers
Trustee
Principal &
Interest
Principal &
Interest
proceeds
proceeds
Disco
Investors
Receivables
Funding Trust - A
Asset Backed
Sale of
Securities
Receivables
Excess Spread +
Servicing Fees
Financial
Swap
Counter party
Guarantor

Prepared by

Sonnie Ayere

Debit Capital Markets

Use of Senior/subordinated Structure Consumers Trustee Principal & Interest Principal & Interest proceeds
Use of Senior/subordinated Structure Consumers Trustee Principal & Interest Principal & Interest proceeds

Use of Senior/subordinated Structure

Consumers Trustee Principal & Interest Principal & Interest proceeds proceeds Disco Investors
Consumers
Trustee
Principal &
Interest
Principal &
Interest
proceeds
proceeds
Disco
Investors
Receivables
Funding Trust - A
Asset Backed
Sale of
Securities
Receivables
Excess Spread +
Servicing Fees
AAA
Senior
Swap
Counter party
BBB
Mezzanine
Equity

Prepared by

Sonnie Ayere

Debit Capital Markets

Senior Subordinate Structure l This is the most common kind of structure /credit enhancement for
Senior Subordinate Structure l This is the most common kind of structure /credit enhancement for

Senior Subordinate Structure

Senior Subordinate Structure l This is the most common kind of structure /credit enhancement for the
Senior Subordinate Structure l This is the most common kind of structure /credit enhancement for the

l This is the most common kind of structure /credit enhancement for the following reasons :-

Internal credit enhancement and therefore, generally speaking, the cheapest form of credit enhancement

However, the ability to calculate the expected loss of each tranche and size the required credit enhancement is imperative

The adviser and rating agency is usually responsible for this work

Prepared by

Sonnie Ayere

Debit Capital Markets

Typical Senior/Sub structure example l As noted above, the cost of funding to the issuer
Typical Senior/Sub structure example l As noted above, the cost of funding to the issuer

Typical Senior/Sub structure example

Typical Senior/Sub structure example l As noted above, the cost of funding to the issuer is
Typical Senior/Sub structure example l As noted above, the cost of funding to the issuer is
Typical Senior/Sub structure example l As noted above, the cost of funding to the issuer is

l As noted above, the cost of funding to the issuer is close to the interest rate of the AAA bond

Prepared by

Sonnie Ayere

Debit Capital Markets

Other types of Credit Enhancement l Monoline Insurance l Letters of Credit l Reserve /
Other types of Credit Enhancement l Monoline Insurance l Letters of Credit l Reserve /

Other types of Credit Enhancement

Other types of Credit Enhancement l Monoline Insurance l Letters of Credit l Reserve / Spread
Other types of Credit Enhancement l Monoline Insurance l Letters of Credit l Reserve / Spread

l

Monoline Insurance

l

Letters of Credit

l

Reserve / Spread Account

l

Cash Collateral Loan / Subordinated Loan

l

Yield Supplement Account

Prepared by

Sonnie Ayere

Debit Capital Markets

Rating a Transaction
Rating a Transaction

Rating a Transaction

Rating a Transaction
Rating a Transaction
Rating a Transaction
Rating a Transaction
Rating a Transaction
Rating a Transaction
Rating the transaction l Credit risk l Liquidity risk l Servicer performance risk l Swap
Rating the transaction l Credit risk l Liquidity risk l Servicer performance risk l Swap

Rating the transaction

Rating the transaction l Credit risk l Liquidity risk l Servicer performance risk l Swap
Rating the transaction l Credit risk l Liquidity risk l Servicer performance risk l Swap

l

Credit risk

l

Liquidity risk

l

Servicer performance risk

l

Swap counter-party risk

l

Guarantor risk

l

Legal risk

l

Sovereign risk

l

Interest rate and currency risks

l

Prepayment risk

Prepared by

Sonnie Ayere

Debit Capital Markets

How does the rating help l l Rating is an indication of the likelihood of
How does the rating help l l Rating is an indication of the likelihood of

How does the rating help

How does the rating help l l Rating is an indication of the likelihood of credit
How does the rating help l l Rating is an indication of the likelihood of credit

l

l

Rating is an indication of the likelihood of credit losses on the securitised assets exceeding the available credit protection to the transaction structure

Ratings are widely accepted by investors (and the agency must be certified by the regulators)

To the investor, it creates efficiency, provides pricing benchmarks and carries highly condensed information

l

Moodys, Standard and Poors and Fitch Ratings have global recognition

Prepared by

Sonnie Ayere

Debit Capital Markets

Benefits of Securitisation
Benefits of Securitisation

Benefits of Securitisation

Benefits of Securitisation
Benefits of Securitisation
Benefits of Securitisation
Benefits of Securitisation
Benefits of Securitisation
Benefits of Securitisation
Benefits of Securitisation l The three main market constituents -   l Originator – Underlying
Benefits of Securitisation l The three main market constituents -   l Originator – Underlying

Benefits of Securitisation

Benefits of Securitisation l The three main market constituents -   l Originator – Underlying Lender
Benefits of Securitisation l The three main market constituents -   l Originator – Underlying Lender

l

The three main market constituents -

 

l

Originator – Underlying Lender / owner of asset

l

Investors - Buyers

l

Underlying Borrowers – Obligors

l

Others are -

l

Credit Enhancement Provider

l

Liquidity Facility Provider

l

Servicer

l

Trustee

Prepared by

Sonnie Ayere

Debit Capital Markets

Benefits to the Parties Originator 1. Progressively cheaper and longer term funding 2. Diversification of
Benefits to the Parties Originator 1. Progressively cheaper and longer term funding 2. Diversification of

Benefits to the Parties

Benefits to the Parties Originator 1. Progressively cheaper and longer term funding 2. Diversification of funding
Benefits to the Parties Originator 1. Progressively cheaper and longer term funding 2. Diversification of funding

Originator

1. Progressively cheaper and longer term funding

2. Diversification of funding sources

3. Timing Flexibility

4. Stable funding source

5. Improved credit risk management

6. Improved asset-liability management

7. Often improved operating efficiency

8. Increased Transparency

Prepared by

Sonnie Ayere

Debit Capital Markets

Benefits to the Parties cont’ Investor 1. Opportunity to invest in a risk that is
Benefits to the Parties cont’ Investor 1. Opportunity to invest in a risk that is

Benefits to the Parties cont’

Benefits to the Parties cont’ Investor 1. Opportunity to invest in a risk that is much
Benefits to the Parties cont’ Investor 1. Opportunity to invest in a risk that is much

Investor

1. Opportunity to invest in a risk that is much lower than that of the originator

2. Direct investment in the performance of the underlying asset

3. Generally, allows the investor to worry less about event risk

4. Asset Liability matching e.g. pension funds

5. Provides investors with different risk return opportunities e.g. senior or subordinated tranches

Prepared by

Sonnie Ayere

Debit Capital Markets

Benefits to Parties cont’ Underlying Borrower / Obligor 1. Cheaper, longer term funding 2. Increased
Benefits to Parties cont’ Underlying Borrower / Obligor 1. Cheaper, longer term funding 2. Increased

Benefits to Parties cont’

Benefits to Parties cont’ Underlying Borrower / Obligor 1. Cheaper, longer term funding 2. Increased flexible
Benefits to Parties cont’ Underlying Borrower / Obligor 1. Cheaper, longer term funding 2. Increased flexible

Underlying Borrower / Obligor

1. Cheaper, longer term funding

2. Increased flexible credit for consumers and corporations

3. Diversification of funding sources

4. Tapping into a new investor base.

Prepared by

Sonnie Ayere

Debit Capital Markets

Typical Regulatory Issues
Typical Regulatory Issues

Typical Regulatory Issues

Typical Regulatory Issues
Typical Regulatory Issues
Typical Regulatory Issues
Typical Regulatory Issues
Typical Regulatory Issues
Typical Regulatory Issues
Legal and Regulatory l Legal   l Asset Transfer l The Special Purpose Entity or
Legal and Regulatory l Legal   l Asset Transfer l The Special Purpose Entity or

Legal and Regulatory

Legal and Regulatory l Legal   l Asset Transfer l The Special Purpose Entity or Vehicle
Legal and Regulatory l Legal   l Asset Transfer l The Special Purpose Entity or Vehicle

l

Legal

 

l

Asset Transfer

l

The Special Purpose Entity or Vehicle

l

Bankruptcy Remoteness

l

Regulation

l

Taxation

Prepared by

Sonnie Ayere

Debit Capital Markets

Conditions for True Sale l Transfer must be a true sale, or its legal equivalent.
Conditions for True Sale l Transfer must be a true sale, or its legal equivalent.

Conditions for True Sale

Conditions for True Sale l Transfer must be a true sale, or its legal equivalent. If
Conditions for True Sale l Transfer must be a true sale, or its legal equivalent. If

l

Transfer must be a true sale, or its legal equivalent. If originator is only pledging the assets to secure a debt, then it becomes a collaterised financing in which the originator would stay directly indebted to investor

l

The assets must be owned by a special purpose entity, whose ownership of the sold assets will in all probability survive the bankruptcy of the originator/seller

l

Actual ownership of the special purpose vehicle must be independent of the originator

Prepared by

Sonnie Ayere

Debit Capital Markets

Confirmation of a asset sale l The treatment and form of the transaction l The
Confirmation of a asset sale l The treatment and form of the transaction l The

Confirmation of a asset sale

Confirmation of a asset sale l The treatment and form of the transaction l The influence
Confirmation of a asset sale l The treatment and form of the transaction l The influence

l

The treatment and form of the transaction

l

The influence the seller has on the assets after the sale

l

The extent and nature of benefits transferred via the sale

l

The purchase price

l

Notification (if necessary) to underlying borrowers when assets are sold

l

Title ownership

Prepared by

Sonnie Ayere

Debit Capital Markets

The Special Purpose Vehicle l Generally set up by the originator with ownership vested in
The Special Purpose Vehicle l Generally set up by the originator with ownership vested in

The Special Purpose Vehicle

The Special Purpose Vehicle l Generally set up by the originator with ownership vested in a
The Special Purpose Vehicle l Generally set up by the originator with ownership vested in a

l

Generally set up by the originator with ownership vested in a charitable trust

l

Commonly set up in tax havens

l

Mauritius

l

Cayman Islands

l

Jersey

l

Apart from legally isolating the assets it also helps to avoid double taxation and hence reduce the expenses (if any) of the trust

l

Cost of set-up an SPV is low

Prepared by

Sonnie Ayere

Debit Capital Markets

Why Bankruptcy Remote l Only assets in the SPV are available to protect and pay
Why Bankruptcy Remote l Only assets in the SPV are available to protect and pay

Why Bankruptcy Remote

Why Bankruptcy Remote l Only assets in the SPV are available to protect and pay investors
Why Bankruptcy Remote l Only assets in the SPV are available to protect and pay investors

l

Only assets in the SPV are available to protect and pay investors

l

No need for protection from creditors

l

All obligations are limited to those available from the assets

l

No recourse to the originator

l

The vehicle can only receive the assets as purchased and issue notes or certificates

l

Hence, probability of Bankruptcy is remote

Prepared by

Sonnie Ayere

Debit Capital Markets

Regulation l Bank Regulators will place a strong emphasis on the the amount of regulatory
Regulation l Bank Regulators will place a strong emphasis on the the amount of regulatory

Regulation

Regulation l Bank Regulators will place a strong emphasis on the the amount of regulatory capital
Regulation l Bank Regulators will place a strong emphasis on the the amount of regulatory capital

l

Bank Regulators will place a strong emphasis on the the amount of regulatory capital accorded to the transaction

l

For instance, regulators in certain countries will insist that issuing bank hold 100% Risk Weighted Capital to Equity portion of the transaction *

l

This will differ from country to country and will normally be defined by the securitisation laws of the country

l

FASB 46 …? Consolidation of VIEs - Somewhat mitigated by QSPE under FAS 140

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Sonnie Ayere

Debit Capital Markets

Current Basel II Proposals l Strong incentive for banks to issue or invest in higher
Current Basel II Proposals l Strong incentive for banks to issue or invest in higher

Current Basel II Proposals

Current Basel II Proposals l Strong incentive for banks to issue or invest in higher rated
Current Basel II Proposals l Strong incentive for banks to issue or invest in higher rated
Current Basel II Proposals l Strong incentive for banks to issue or invest in higher rated

l Strong incentive for banks to issue or invest in higher rated debt given the penal capital weights allocable to bonds below investment grade

Prepared by

Sonnie Ayere

Debit Capital Markets

SPV Taxation l Generally speaking, the Special purpose Entities are carefully structured to ensure that
SPV Taxation l Generally speaking, the Special purpose Entities are carefully structured to ensure that

SPV Taxation

SPV Taxation l Generally speaking, the Special purpose Entities are carefully structured to ensure that its
SPV Taxation l Generally speaking, the Special purpose Entities are carefully structured to ensure that its

l

Generally speaking, the Special purpose Entities are carefully structured to ensure that its income is offset by its expenses so that little or no tax is incurred

l

Tax incentives are however provided to special assets classes – e.g. most countries exempt the transfer of mortgages from Stamp Duty

Prepared by

Sonnie Ayere

Debit Capital Markets

Deal Structuring

Deal Structuring
Deal Structuring
Deal Structuring
Deal Structuring
Deal Structuring
Deal Structuring
Deal Structuring
Deal Structuring
Initial Deal Concept l The structure of a transaction typically depends on the following :-
Initial Deal Concept l The structure of a transaction typically depends on the following :-

Initial Deal Concept

Initial Deal Concept l The structure of a transaction typically depends on the following :- –
Initial Deal Concept l The structure of a transaction typically depends on the following :- –

l The structure of a transaction typically depends on the following :-

Underlying asset class

Investor preference

Cost

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Sonnie Ayere

Debit Capital Markets

Underlying Asset l The way an asset pays is strongly correlated to the liabilities created
Underlying Asset l The way an asset pays is strongly correlated to the liabilities created

Underlying Asset

Underlying Asset l The way an asset pays is strongly correlated to the liabilities created l
Underlying Asset l The way an asset pays is strongly correlated to the liabilities created l

l

The way an asset pays is strongly correlated to the liabilities created

l

For example, a lease is not an interest bearing asset but it can still be securitised

l

Two things come about from securitising these assets

Fixed rate bonds (internal or external swaps can be used to create a floating rate note)

Leases are sold at discount to produce the expected yield

Generally no excess spread

Prepared by

Sonnie Ayere

Debit Capital Markets

Investor Preference l Investors have a strong influence on the deal structure by having a
Investor Preference l Investors have a strong influence on the deal structure by having a

Investor Preference

Investor Preference l Investors have a strong influence on the deal structure by having a preference
Investor Preference l Investors have a strong influence on the deal structure by having a preference

l Investors have a strong influence on the deal structure by having a preference for :-

Tenors required

Rating required

Spreads required

Prepayments

Whether bonds are fully amortising, soft bullets, etc.

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Sonnie Ayere

Debit Capital Markets

Cost l Issuers and their advisors will also consider the cost of one st ructure
Cost l Issuers and their advisors will also consider the cost of one st ructure

Cost

Cost l Issuers and their advisors will also consider the cost of one st ructure against
Cost l Issuers and their advisors will also consider the cost of one st ructure against

l Issuers and their advisors will also consider the cost of one structure against another. For example :-

Wrapping a deal by a Monoline may be less expensive than getting a Letter of Credit

Overcollateralisation may prove more expensive than a senior/subordinated structure

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Debit Capital Markets

Types of Securitisation Bond Structures l Fully Amortising – principal and interest is returned to
Types of Securitisation Bond Structures l Fully Amortising – principal and interest is returned to

Types of Securitisation Bond Structures

Types of Securitisation Bond Structures l Fully Amortising – principal and interest is returned to investors
Types of Securitisation Bond Structures l Fully Amortising – principal and interest is returned to investors

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Fully Amortising – principal and interest is returned to investors throughout the life of the transaction

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Controlled or Revolving – During this period, only interest is paid to investors. Principal payments are used to purchase additional receivables

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Sequential Pay – Multiple tranches with varying maturities where the shortest tranche receives principal until paid off and then the next tranche until all tranches are paid in full.

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Pro-rata – payments are made to tranches on equal terms

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Early Amortisation – Turbo pay of principal and interest in the event of certain triggers occurring

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Debit Capital Markets

Analytics

Analytics
Analytics
Analytics
Analytics
Analytics
Analytics
Analytics
Analytics
Analytical Concepts commonly used l Loan-by-loan analysis l Cash-flow modeling l Stratification l
Analytical Concepts commonly used l Loan-by-loan analysis l Cash-flow modeling l Stratification l

Analytical Concepts commonly used

Analytical Concepts commonly used l Loan-by-loan analysis l Cash-flow modeling l Stratification l
Analytical Concepts commonly used l Loan-by-loan analysis l Cash-flow modeling l Stratification l

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Loan-by-loan analysis

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Cash-flow modeling

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Stratification

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Monte Carlo Simulation

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Prepayment Modeling

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CBO Analysis: S&P’s CDO Model or Moody’s Binomial Expansion Method

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Sonnie Ayere

Debit Capital Markets

Example of Expected Loss Calculation Prepared by Sonnie Ayere Debit Capital Markets
Example of Expected Loss Calculation Prepared by Sonnie Ayere Debit Capital Markets

Example of Expected Loss Calculation

Example of Expected Loss Calculation Prepared by Sonnie Ayere Debit Capital Markets
Example of Expected Loss Calculation Prepared by Sonnie Ayere Debit Capital Markets
Example of Expected Loss Calculation Prepared by Sonnie Ayere Debit Capital Markets

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Sonnie Ayere

Debit Capital Markets

Understanding the Prospectus l Is the interest in loans perfected l Title perfection triggers l
Understanding the Prospectus l Is the interest in loans perfected l Title perfection triggers l

Understanding the Prospectus

Understanding the Prospectus l Is the interest in loans perfected l Title perfection triggers l Set-off
Understanding the Prospectus l Is the interest in loans perfected l Title perfection triggers l Set-off

l

Is the interest in loans perfected

l

Title perfection triggers

l

Set-off risk

l

MIG Cover

l

Basis Swap

l

Compensating interest

l

Definition of Interest and Principal

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Definition of Delinquencies and Charge-offs

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Any internal swap – How does it work

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Legal Nuances

l

Any supplements

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Sonnie Ayere

Debit Capital Markets

Trading Platforms

Trading Platforms
Trading Platforms
Trading Platforms
Trading Platforms
Trading Platforms
Trading Platforms
Trading Platforms
Trading Platforms
Trading l MBS/ABS generally trade Over The Counter – ‘OTC’ as in most fixed income
Trading l MBS/ABS generally trade Over The Counter – ‘OTC’ as in most fixed income

Trading

Trading l MBS/ABS generally trade Over The Counter – ‘OTC’ as in most fixed income securities
Trading l MBS/ABS generally trade Over The Counter – ‘OTC’ as in most fixed income securities

l

MBS/ABS generally trade Over The Counter – ‘OTC’ as in most fixed income securities

l

They trade similar to all other bonds however, the understanding of the underlying asset and structure is crucial

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Option Adjusted Spread ‘OAS’ – the ability to price the optionality in the bond due to step-ups etc is also crucial

l

Trades are generally conducted by counter-parties using Bloomberg or other terminals

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Sonnie Ayere

Debit Capital Markets

How does UBA Global get involved l Structuring mandates l Advisory mandates l Advising and
How does UBA Global get involved l Structuring mandates l Advisory mandates l Advising and

How does UBA Global get involved

How does UBA Global get involved l Structuring mandates l Advisory mandates l Advising and structuring
How does UBA Global get involved l Structuring mandates l Advisory mandates l Advising and structuring

l

Structuring mandates

l

Advisory mandates

l

Advising and structuring credit and liquidity enhancement

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Sonnie Ayere

Debit Capital Markets

Examples of infrastructure transactions globally
Examples of infrastructure transactions globally

Examples of infrastructure transactions globally

Examples of infrastructure transactions globally
Examples of infrastructure transactions globally
Examples of infrastructure transactions globally
Examples of infrastructure transactions globally
Examples of infrastructure transactions globally
Examples of infrastructure transactions globally
Universidad Diego Portales Chile • 1,000,000 UF ($23 mm in inflation indexed Chilean pesos) eight-year
Universidad Diego Portales Chile • 1,000,000 UF ($23 mm in inflation indexed Chilean pesos) eight-year

Universidad Diego Portales Chile

Universidad Diego Portales Chile • 1,000,000 UF ($23 mm in inflation indexed Chilean pesos) eight-year bond
Universidad Diego Portales Chile • 1,000,000 UF ($23 mm in inflation indexed Chilean pesos) eight-year bond

• 1,000,000 UF ($23 mm in inflation indexed Chilean pesos) eight-year bond secured by UDP’s future tuition receipts and backed by a 30% partial guarantee from IFC;

• Rated AA- by local affiliates of Moody’s, S&P, and Fitch;

• The bond, which was oversubscribed, was bought by domestic institutional investors including pension funds, insurance companies, and mutual funds. The issue priced tight to expectations, yielding 240 basis points over the Chilean Treasury;

• The transaction represented the first future flow securitization in Chile, and the first future flow for a university in Latin America.

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Debit Capital Markets

Partial Credit Guarantee – Bharti Mobile (India) •Bharti Mobile, which operates cellular licenses in India,
Partial Credit Guarantee – Bharti Mobile (India) •Bharti Mobile, which operates cellular licenses in India,

Partial Credit Guarantee – Bharti Mobile (India)

Partial Credit Guarantee – Bharti Mobile (India) •Bharti Mobile, which operates cellular licenses in India, is
Partial Credit Guarantee – Bharti Mobile (India) •Bharti Mobile, which operates cellular licenses in India, is

•Bharti Mobile, which operates cellular licenses in India, is a part of of Bharti Enterprises, one of India’s leading telecom conglomerates.

•As Bharti’s revenues are in Indian rupee, the management placed an importance on raising long-term rupee financing in order to best match the company’s assets and liabilities.

•IFC offered a partial guarantee on three different tranches with tenors of five, eight, and ten years respectively in order to reach the widest audience of investors.

•The transaction was IFC’s second partial guarantee of a bond issue in India and opened the door for other borrowers to raise long-term local currency financing.

•Structured as three different offerings with tenors of five, eight, and 10 years respectively; •Total issue size of Indian Rupees 2.1 billion ($45 million); •Rated AA+ by Indian affiliates of S&P and Moody’s; •Placement to domestic mutual funds, banks, life insurance companies, and other institutional investors; •Well received by market with significant oversubscription.

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Debit Capital Markets

BANCO DAVIVIENDA COLOMBIA • UVR 1 billion ($50 million equivalent in inflation indexed Colombian pesos)
BANCO DAVIVIENDA COLOMBIA • UVR 1 billion ($50 million equivalent in inflation indexed Colombian pesos)

BANCO DAVIVIENDA COLOMBIA

BANCO DAVIVIENDA COLOMBIA • UVR 1 billion ($50 million equivalent in inflation indexed Colombian pesos) 10
BANCO DAVIVIENDA COLOMBIA • UVR 1 billion ($50 million equivalent in inflation indexed Colombian pesos) 10

• UVR 1 billion ($50 million equivalent in inflation indexed Colombian pesos) 10 year non-call five, subordinated step-up bond;

• 30% guarantee by IFC;

• Rated AA+ by local affiliate of Fitch;

• Placed within 1 day to domestic institutional investors;

• First-ever bond issue in Colombia to qualify as Tier 2 capital under the newly issued guidelines.

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Sonnie Ayere

Debit Capital Markets

Triple A Example • Securities: COP$ 180 billion (US$63 million equivalent) 10-year bond issue, amortizing
Triple A Example • Securities: COP$ 180 billion (US$63 million equivalent) 10-year bond issue, amortizing

Triple A Example

Triple A Example • Securities: COP$ 180 billion (US$63 million equivalent) 10-year bond issue, amortizing over
Triple A Example • Securities: COP$ 180 billion (US$63 million equivalent) 10-year bond issue, amortizing over

Securities: COP$ 180 billion (US$63 million equivalent) 10-year bond issue, amortizing over last 5 years

Guarantee: IFC Guarantee equal to greater of (i) 25% of principal or (ii) 5 coupon payments

Rating: 3-notch rating increase from AA- to AAA

Other enhancements: (a) Company revenues managed by Trustee, (b) Reserve account contributed by Sponsor

Placement: Subscribed in 4 hours by over 15 institutional investors

Pricing: Priced at IPC + 8.5% (120 bps > Gov.)

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Sonnie Ayere

Debit Capital Markets

Thank You

Thank You
Thank You
Thank You
Thank You
Thank You
Thank You
Thank You
Thank You
Sonnie Ayere - Biography Mr. Mr. Sonnie Sonnie Ayere Ayere Mr. Mr. Ayere Ayere has
Sonnie Ayere - Biography Mr. Mr. Sonnie Sonnie Ayere Ayere Mr. Mr. Ayere Ayere has

Sonnie Ayere - Biography

Sonnie Ayere - Biography Mr. Mr. Sonnie Sonnie Ayere Ayere Mr. Mr. Ayere Ayere has has
Sonnie Ayere - Biography Mr. Mr. Sonnie Sonnie Ayere Ayere Mr. Mr. Ayere Ayere has has

Mr.Mr. SonnieSonnie AyereAyere

Mr.Mr. AyereAyere hashas overover 1414 yearsyears continuouscontinuous yearsyears ofof solidsolid CorporateCorporate andand StructuredStructured Finance,Finance, BankingBanking andand AssetAsset ManagementManagement experienceexperience workingworking withwith HSBC,HSBC, RoyalRoyal BankBank ofof ScotlandScotland (formerly,(formerly, NatWestNatWest),), SumitomoSumitomo MitsuiMitsui Bank,Bank, BankBank ofof MontrealMontreal NesbittNesbitt BurnsBurns inin LondonLondon andand thethe InternationalInternational FinanceFinance CorporatioCorporationn (The(The WorldWorld BankBank Group).Group). HeHe beganbegan hishis structuredstructured financefinance careercareer inin 19971997 whenwhen hehe joinedjoined ththee structuredstructured financefinance // securitizationsecuritization teamteam ofof SumitomoSumitomo MitsuiMitsui Bank,Bank, London.London. HeHe waswas partpart ofof thethe teamteam thatthat structuredstructured thethe firstfirst everever JapaneseJapanese dede--linkedlinked BalanceBalance SheetSheet CollaterisedCollaterised LoanLoan ObligationObligation securitisationsecuritisation GBP1.4bnGBP1.4bn AuroraAurora Funding.Funding. HeHe waswas alsoalso responsibleresponsible forfor managingmanaging tthehe bankbankss fixedfixed incomeincome portfolioportfolio inin ABSABS investmentsinvestments inin otherother assetasset classesclasses forfor thethe bankbankss ownown balancebalance sheet.sheet. FollowingFollowing this,this, hehe joinedjoined BMOBMO--NesbittNesbitt BurnsBurns (the(the investmentinvestment bankingbanking armarm ofof thethe BankBank ofof MontreaMontreal)l) LondonLondon inin 19981998 asas partpart ofof thethe teamteam responsibleresponsible forfor settingsetting upup aa US$20bnUS$20bn FixedFixed IncomeIncome StructureStructuredd InvestmentInvestment VehicleVehicle ((SIVSIV),), withwith aa US$2bnUS$2bn CapitalCapital NoteNote ProgramProgram whichwhich launchedlaunched inin 1999.1999. HeHe waswas involvedinvolved inin thethe companycompanyss setset up,up, compilingcompiling aspectsaspects ofof itsits proceduresprocedures manual,manual, systemsystem evaluationevaluation andand testingtesting andand subsequentlysubsequently responsibleresponsible forfor aanalyzingnalyzing andand investinginvesting // tradingtrading inin variousvarious ABS/MBSABS/MBS andand otherother assetasset classesclasses bankbank subordinatedsubordinated debtdebt andand otherother corporatecorporate debtdebt plusplus thethe onon--goinggoing creditcredit monitoringmonitoring ofof thethe portfolio.portfolio. HeHe joinedjoined thethe GlobalGlobal StructuredStructured FinanceFinance GroupGroup ofof thethe InternationInternationalal FinanceFinance CorporationCorporation (The(The WorldWorld BankBank Group)Group) inin WashingtonWashington DCDC inin 20012001 wherewhere hehe waswas responsibleresponsible forfor originatingoriginating structuredstructured ffinanceinance andand securitizationsecuritization transactionstransactions globally,globally, notablenotable transactionstransactions includeinclude IFCIFCss rolerole asas structuringstructuring investorinvestor inin SouthSouth AfricaAfrica HomeHome LoansLoans firstfirst RResidentialesidential MortgageMortgage BackedBacked ZARZAR 1bn1bn OfferingOffering andand structuringstructuring securitiessecurities backedbacked byby ContractsContracts--toto--salesale inin thethe Philippines.Philippines. Mr.Mr. AyereAyere assumedassumed thethe rolerole ofof StructureStructuredd FinanceFinance SpecialistSpecialist forfor SubSub--SaharanSaharan AfricaAfrica inin JulyJuly 20022002 andand toto datedate hashas beenbeen responsibleresponsible forfor developingdeveloping structuredstructured financefinance andand securitizationsecuritization transactionstransactions andand developingdeveloping debtdebt capitalcapital marketmarket iinstrumentsnstruments forfor thethe bankbank andand itsits clientsclients acrossacross thethe continent.continent. InIn September,September, 20042004 hehe alsoalso becamebecame coco--headhead // sectorsector leadlead forfor financialfinancial marketsmarkets businessbusiness developmentdevelopment foforr SubSub--SaharanSaharan Africa.Africa. Here,Here, hehe waswas responsibleresponsible forfor generatinggenerating financialfinancial marketmarket investminvestmentsents acrossacross thethe regionregion toto includesincludes US$US$ lineslines ofof creditcredit toto newnew andand existingexisting IFCIFC relationshiprelationship banks.banks. HeHe pioneeredpioneered IFCIFCss interestinterest inin developingdeveloping thethe NigerianNigerian bondbond marketmarket andand waswas aa princprincipalipal adviseradviser toto thethe DMODMO onon thethe developmentdevelopment ofof thethe market.market. HeHe isis aa memmemberber ofof thethe NigerianNigerian BondBond SteeringSteering Committee.Committee. HeHe joinedjoined UBAUBA GroupGroup asas ManagingManaging Director/CEODirector/CEO ofof UBAUBA GLOBALGLOBAL MARKEMARKETS,TS, thethe combinedcombined investmentinvestment bankingbanking subsidiarysubsidiary ofof thethe bankbank groupgroup inin August,August, 2005.2005. Mr.Mr. AyereAyere obtainedobtained anan MAMA ((HonsHons.).) inin FinancialFinancial EconomicsEconomics fromfrom thethe UniversityUniversity ofof DundeeDundee Scotland.Scotland. HeHe isis anan AlumniAlumni ofof CityCity UniversityUniversity BusinessBusiness SchoolSchool LondonLondon (MBA)(MBA) andand LondonLondon BusinessBusiness SchoSchoolol (Corporate(Corporate FinanceFinance Program).Program).

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Debit Capital Markets