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20 Cards in this Set
- Front
- Back
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What is a special purpose vehicle or a special purpose corporation?
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an entity that separates the assets used as collateral from the corporation that is seeking financing; allows corporation to create asset-backed securities with better credit ratings
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What are amortizing assets?
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loans in which the borrower's periodic payment consists of scheduled principal and interest payments over the life of the loan; mortgage loans, auto loans, home equity loans
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What are nonamortizing assets?
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borrower must make a minimum periodic payment; no schedule of principal payments; no concept of prepayment; credit card receivables
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What is credit enhancement?
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support is provided for one or more of the bondholders in the structure
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What are external credit enhancements?
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come from 3rd party guarantees that provide protection against a loss; examples: corporate guarantee, a letter of credit from a bank, bond insurance
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What are the 3 most common forms of internal credit enhancement?
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reserve funds, overcollateralization, and senior/subordinated structures
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What are reserve funds?
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either:
cash reserve funds- straight deposits of cash generated from issuance proceeds; part of the underwriting profits from deal are deposited into a fund, usually put into money market 2. excess servicing spread accounts- allocated excess spread after paying out net coupon, servicing fee, and others expenses into a separate reserve account to be used to cover possible future losses |
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What is overcollateralization?
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if the amount of the collateral exceeds the amount of the liability of the structure, the deal is overcollateralized
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What is the senior-subordinated structure?
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divided into a senior tranche and a subordinated tranche; subordinated tranche absorbs losses upto to its total value; protects senior tranche
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What is the pass-through structure?
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each certificate holder is entitled to a pro rata share of the cash flow from the underlying pool of loans or receivables
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What are close-end home equity loans?
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has a fixed maturity and the payments are structured to fully amortize the loan by the maturity date
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What are manufactured housing-backed securities?
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backed by loans for manufactured homes- aka mobile homes, built in factory then transported; fully amortized loans; loans small, credit quality poor, home depreciates fast- makes refinancing difficult so prepayment risk is less; maturity 15-20yrs
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Who issues auto loan-backed securities?
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financial subsidiaries of auto manufacturers, commercial banks, independent and small financial companies; maturity 3-6 years
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What is absolute prepayment speed (ABS)?
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how prepayments are measured for auto loan-backed securities; monthly prepayment expressed as a percentage of the original collateral amount
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What are credit card receivable-backed securities?
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securities backed by credit card receivables issued by banks, retailers or travel and entertainment companies; nonamortizing security
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What is the lockout or revolving period?
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the principle payments made by credit card borrowers comprising the pool are retained by the trustee and reinvested in additional receivables to maintain the size of the pool; during the period, the cash flow that is paid out to security holders is based on finance charges collected and fees
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What does the cash flow of credit card receivables consist of?
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finance charges collected, fees and principal
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What is the principal amortization period?
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after the lockout period when the principal is no longer reinvested but paid out to investors
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What is early amortization?
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repayment of the principal prior to the end of the lockout period
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What are collateralized bond obligations (CBOs)?
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asset-backed security backed by a diversified pool of: noninvestment grade corporate bonds, emerging market bonds, bank loans to corporate entities
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