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Securitisation, with aid of rating agencies - Coggle Diagram
Securitisation
Benefits
Investors
best risk/yield profile
compared to Government bonds
Highly customized products
based on your needs
Diversify the portfolio
Economic system
Positive impact on credit access
More securitisation operations
more loans from banks
Lower consumer credit costs for borrowers
Originator
Release of supervisory capital
reduce allocated capital
reinvest cash obtained in other assets
Funding tool
turn illiquidity into available cash
additional demand satisfaction
credit risk diversification
rebalancing risk distribution between actors
Increase profitability
ROI
ROS
ROE
IB Operations
Subject
Company
Public Body
Bank
Called "Originator"
Give to third parties
its asset portfolio
with the goal
To receive future receipts by
Sale of assets
Collection Receivables
Operation Actors
Rating Agency
Rank bonds by class of bond
Class B
Class C
Class A
Credit Enhancement
Parachute
in case of debtor's default
Buy securities issued
Ex. Sponsor bank
Special Purpose Vehicle
Create tradable securities
Relying on a rating agency
After evaluation
issues bonds on the stock market
Investors
Buy SPV bonds
Originator (ex.bank)
Sells the credits to SPV for securitisation
Debtor
Requests a loan from the originator
Is divided in
Traditional
Originator
gives to an SPV
some assets
in return for instant liquitity
Special purpose vehicle
issues asset-based securities (ABS)
On the stock market
Investors
Underwrite bonds
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Take the risk
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To protect yourself
sells the bonds' interests
Credit Enhancement
acts as guarantor
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takes the risk
Synthetic
Originator
doesn't sell its portfolio assets
transfers only credit risk
CDS Award
Credit Default Swap
Payment of a premium for the risk taken
SPV
Gives the CDS award given to him by the originator
To super senior swap
for a guarantee
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Includes a promise to buy 85% of the portfolio in case of default
transfers risk to the market
issue of "Credit Linked Note" (CLN)
Mezzanine
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Junior
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Senior
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by assigning
revenues generated
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as a result of certain events
proceeds with indemnity payment
versus the bank
Disadvantages
Originator
Costs of various kinds
Administrative
Fees subscription and placement
Other costs
Legal costs
Accounting Costs
Rating agency fees
Credit enhancement fees
Risks
Credit risk
Debtor default
Reputational risk
bankruptcy
customer loss
Economic system
"Occult" risk
"Trash" stocks put on stock market
like fake class A ratings
Making an economic damage to the actors in the process
to the whole economic system
with aid of rating agencies