Securitization market evolves to new world
The securitization market has started to thaw, but many industry participants agreed that some of the more complex instruments, such as collateralized debt obligation squareds, might never return. Asset-backed securities from Lloyds Banking Group and Volkswagen were heralded as helping to reopen the market, but they were also considered to be "plain vanilla" deals. "We've gone from a time where everyone bought ABS and fought for every extra basis point through a knee-jerk period where you couldn't sell these deals at all. Now the debate about the future is becoming more reasoned and forward-looking," said Gareth Davies, JPMorgan Chase's head of European ABS research.
posted by Victor Lloyd Smith @ 11:04 PM
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The ABCDS of Securitisation Acronyms
●Asset Backed Securities The basic form of securitisation where debt is parcelled up and sold as securities backed by the repayments from those loans. The biggest sector is Mortgage Backed Securities, including Residential (RMBS) or Commercial (CMBS). Other popular ABS are backed by car and credit card loans.
●Asset-Backed Commercial Paper
Short-term debt, usually issued by investment vehicles who parcel up assets with cash flows such as consumer loans, then sell the new paper to investors.
●Credit Default Swaps A form of insurance against corporate default. Buyers of protection pay a premium for a set period to cover themselves against the risk a company goes bust.
●ABCDS CDS protection on ABS.
●Collateralised Debt Obligations Structured vehicles that pool different sorts of loans and bonds, funding themselves by issuing new bonds whose price and return depend on the level of risk taken. A synthetic CDO is a CDO of derivatives such as CDS.
●Constant Proportion Debt Obligations Essentially leveraged bets on a group of high-quality US and European companies. These vehicles issued securities and aimed to generate the funds they needed to pay out by selling protection on the two main indices of credit default swaps.
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