Appendix III: the characteristics of securitisation.

Exhibit 34. Basic securitisation process

Basic Securitisation Structure (I)

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Exhibit 35. Asset-specific types of securitisation

Basic Securitisation Structure (II)

Any asset class with a stable stream of cash flow can in principle be included in the reference portfolio and securtised.

Asset type determines the type and classification of the ABS structure (ABS, MBS, CDO, etc.)

Underyling pools can include the following: aircraft/auto/equipment leases, corporate debt, credit cards, gov't related payments, loans (consumer, home equity, project, student), project finance/operating income, trade receivables

Three types of underlying pools:

1. "Static" (standing) pool

--asset pool fixed w/o substitution

--loan balances fixed w/o redraw facilities or adjustable credit limits

--pre-defined principal amortisation schedule

--e.g. mortgages (res.&com.), leases, corporate loans

2. "Revolving" pool

--asset pool varies; allows substitution

--loan balances are adjustable up to max. limits

--no pre-defined principal amortisation schedule

--e.g. credit cards, trade receivables, corp. loans/bonds

3. "Substituting" pool

--allows substitution of new loans within defined credit parameters as org. loans pay down

--loan balances fixed

--principal does not amortise during substitution

--e.g. corporate bonds, some res. mortgages/consumer loans

Asset Originator/Sponsoring Entity

Underlying reference asset portfolio

For loan pool:

* credit transactions are complex, highly customised and individual procedures

* credits aremainly held by the issuing bank until the maturity date

* portfolio mgtm. is very difficult

Exhibit 36. Organisation of asset transfer

Basic Securitisation Structure (III)

1. Asset transfer from the originator/sponsor to the issuing vehicle:

--legal form: legal/equitable assignment, contingent perfection or sub-participation (should represent a "perfection of security interest" (true sale))

2. Considerations:

--assets should be immune from bankruptcy estate of seller (non-recourse financing)

--originator retains no legal interest in assets. though some economic benefit may be retained

--compliance with consumer protection laws 

--regulatory aspects specific to banks, consumer finance companies, etc.

3. Issuing vehicle is a "bankruptcy-remote" entity:

--arrangement to prevent issuer from incurring additional liabilities or expenses

--restrictive covenants: issuer must not pursue voluntary bankruptcy proceedings

--no "substantive consolidation", i.e. issuer's assets are not considered part of originator's assets

4. Issuer profiles and legal forms vary according to jurisdiction and asset type:

--master trust: pool of trusts or a pool of assets in one trust agreement

--owner trust: cash flows are tailored to create certain maturities of tranches (ref. investor targets)

--grantor trust: cash flows as passed directly through to investors w/o manipulation

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Exhibit 37. Structure of securitised debt issue.

Basic Securitisation Structure (IV)

1. Markets/Investors

--Euro

--Global

--U.S. Domestic

2. Cash Flow Profile

--fixed/floating rate coupons

--sequential/pro-rate tranches

--bullet, sinking fund or pass-through payment structure

--callable, extendable or putable

--"capped", "uncapped" or "available funds"

--"clean-up call" or "step-up coupon"

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Andreas A. Jobst

London School of Economics and Political Science (LSE) and J.W. Goethe Universitat Frankfurt am Main