The Role of Investment Banks in the Securitization Process

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The Role of Investment Banks in the
Securitization Process

• Russian Securitization Forum
• New York, September 2007

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Table of Content

• 1. Evolution of Securitization in LatAm vs. EMEA
• 2. Asset-Backed Securities from the Investment
  Banker Perspective
• 3. Benefits to Clients (Issuers)
• 4. Securitization Transaction Participants

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Section 1

• 1. Evolution of Securitization in the Emerging
  Markets
• 2. Asset-Backed Securities from the Investment
  Banker Perspective
• 3. Benefits to Clients (Issuers)
• 4. Securitization Transaction Participants

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Evolution of LatAm Market Securitization

• Future Flow Beginning. In the beginning, the
  structured finance market was dominated by future
  flow transactions secured by assets denominated
  in foreign currencies. Given the relatively low
  ratings of most Emerging Market sovereigns, this
  form of financing was only available to the
  biggest, most creditworthy originators within
  each country. The main assets securitized in
  this fashion were
• receivables backed by future exports
• Financial future flows generated by credit card
  vouchers or payment rights
• Growth of Local Markets. As the Latin American
  structure finance market has progressed, we have
  witnessed the emergence and increased issuance of
  existing asset securitizations in local
  currencies placed within their domestic capital
  markets and, more recently, in the international
  capital markets. This has allowed less
  creditworthy originators to achieve relatively
  low-cost financing through securitization

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Evolution of Emerging Market SecuritizationLatin
America (LatAm)
2004 Latin American Securitization(total
issuance US10.9 billion)
2005 Latin American Securitization(total
issuance US14.5 billion)
2006 Latin American Securitization(total
issuance US15.3 billion)
Source Moodys Investors Service
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Evolution of Emerging Market SecuritizationEurope
, Middle East and Africa (EMEA)
2006 EMEA Securitization(total issuance US10.9
billion)
1st Half 2007 EMEA Securitization(total
issuance US5.8 billion)
South Africa and Israel have been excluded due
to their relatively more developed structured
finance market
Source Moodys Investors Service
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The EMEA Structured Transaction Market
1st Half 2007 Securitization by Country(total
issuance US5.8 billion)
1st half 2007 Securitization by Asset Type(total
issuance US5.8 billion)
South Africa and Israel have been excluded due
to their relatively more developed structured
finance market
Source Moodys Investors Service
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EMEA Market 1st Half 2007 Structured Transactions

• The chart below displays the volume of EMEA
  Transactions in the first half of 2007(The chart
  includes both South Africa and Israel)

Issuance Volume (USD billions)
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The Latin American Domestic Market
2006 Domestic Securitization by Country(total
issuance US12.2 billion)
2006 Domestic Securitization by Asset Type(total
issuance US12.2 billion)
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Latin American Securitization

• The below chart displays the Annual Latin America
  Securitization from 2000-2006

Volume (USD billions)
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Investor Base

• Local Markets. As existing asset
  securitizations have taken a firm hold on the
  Emerging Market securitization market, the local
  capital markets have grown and become more
  sophisticated
• International Markets. Issuers from Emerging
  Market Countries have begun to seek international
  investors in their securitizations.
• Recent Development. More recently, Institutional
  investors have been buying senior tranche of
  local deals in local currency.

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Section 2

• 1. Evolution of Securitization in the Emerging
  Markets
• 2. Asset-Backed Securities from the Investment
  Banker Perspective
• 3. Benefits to Clients (Issuers)
• 4. Securitization Transaction Participants

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What makes assets securitizable?

• While new asset classes continue to emerge and
  the criteria to determine securitization
  suitability becomes more complex, the basic
  principles to assess whether or not an asset can
  be securitized remain constant
• Known loss rates In order to accurately assess
  a pools credit risk, there must be historical
  information on the loss rate of the type of asset
  being securitized
• Predictable cashflow Assets securitized to date
  have benefited from long histories of cashflow
  driven pool analysis allowing the rating agencies
  to model cashflows with a reasonable degree of
  confidence
• Collateral value Credit quality is impacted not
  only by the obligor credit quality and historical
  loss rates but also the realizable value of the
  underlying collateral. The ability to repossess
  defaulted collateral and resell the collateral
  quickly with consistent historical recovery rates
  is valuable when predicting cashflows
• Diversity Pool assets are less risky if they
  are diverse (i.e., an obligor pool living in the
  same region dependant on a single industry would
  be riskier than a diverse pool representing a
  cross section of the economy)
• Security interest transfer Security interest in
  collateral is transferred into the trust for the
  sole benefit of the note holders
• Supporting information systems infrastructure
  In order to execute a securitization, an issuer
  will develop infrastructure to designate those
  assets sold, track performance, and provide data
  on the securitized pool

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Asset Backed SecuritiesUnderwriters Role

• DBs ABS bankers would work with the issuer to
• prepare and format performance data to meet
  rating agency requirements
• arrange and participate in initial meetings
  between the issuer and the surety providers
• prepare comprehensive presentation materials for
  the surety providers
• arrange and participate in initial meetings
  between the issuer and the rating agencies
• prepare comprehensive rating agency presentation
  materials
• perform the cashflow modeling analysis

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Asset Backed SecuritiesUnderwriters Role
(continued)

• DBs ABS bankers would work with the issuer to
• negotiate credit enhancement and bond structure
  requirements
• work with counsel to draft the transaction and
  offering documents
• coordinate a targeted investor roadshow to market
  the transaction
• prepare investor roadshow presentation materials
• manage the marketing and syndication of the
  transaction
• assist the issuer with preparation of the
  investor reporting materials including a
  dedicated ABS website

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Rating Agency Negotiation

• Achieving the highest possible investment grade
  issuance level is likely to entail some degree of
  flexibility during the negotiating process,
  particularly in regard to structural changes.
• Extensive experience in originating and servicing
  the accounts warrants favorable enhancement
  levels on the part of the Rating Agencies.
• Choosing a lead manager with extensive experience
  in managing the rating agency process is very
  important for first time issuers.
• Credit enhancement is utilized to achieve higher
  ratings on securities issued. Typically, senior
  securities are structured to achieve triple-A
  ratings and subordinate securities are structured
  to achieve single-A or triple-B ratings.
• Transactions may be enhanced internally or via
  third parties

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Section 3

• 1. Evolution of Securitization in the Emerging
  Markets
• 2. Asset-Backed Securities from the Investment
  Banker Perspective
• 3. Benefits to Clients (Issuers)
• 4. Securitization Transaction Participants

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Benefits of Securitization
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Benefits of Securitization (continued)
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Section 4

• 1. Evolution of Securitization in the Emerging
  Markets
• 2. Asset-Backed Securities from the Investment
  Banker Perspective
• 3. Benefits to Clients (Issuers)
• 4. Securitization Transaction Participants

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Securitization Transaction ParticipantsManaging
the Transaction
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Contact Information

• Brigitte Posch
• Director
• Head of Latin American Securitization
• Deutsche Bank Securities Inc.
• Securitized Products Group
• Tel [phone]
• Email brigitte.posch_at_db.com