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SecuritizationMarket
By SokH.CordellSr.ManagingDirector

WhatIsSecuritization? Securitizationisthepoolingofcashflowsandtheissuanceofsecuritiesbackedby underlyingassets Therepaymentofsecuritiesissolelydependentontheperformanceoftheassets Securitizationdelinksthecreditriskoftheissuerfromthesecuritization transaction

Typesofsecuritization

CreditMarket Borrowers (Obligors)

Receivables

Originator (Bank/FI)
Cash SellReceivables

Loan

Liquidity Support

SPV
Securities Cash

Credit Enhancement

CMBS Securities

Investors

TypesofSecuritization Residentialmortgagebackedsecurities(MBS) Assetbackedsecurities(ABS) Collateralizeddebtobligations(CDO) Commercialmortgagebackedsecurities(CMBS) Futureflowsecuritization

RequirementsforSecuritization Legalenvironment Accountingenvironment Regulatoryenvironment Taxenvironment Backofficesystems/Informationsystem Stronginvestordemand

WhySecuritizeAssets? Efficientfunding Lowercost Alternativeinvestorbase Issuerscreditratingbecomesirrelevant Improvingbalancesheetstructure Improvescapitalutilization Releasescapital Arbitrage yieldandterm Enablesbetterutilizationofresources Riskmanagement Dressupaccountingprofitsiftruesalecriteriaissatisfied

BenefitstoInvestors Bettersecurity Greatermoralresponsibility Createinstrumentstomatchinvestmentobjectives Betterandmoreresilientcreditratings

RisksInSecuritization

Risk CreditRisk RecoveryRisk LiquidityRisk PrePayment&YieldRisk

RiskMitigant Tranching,Cashreserves over collateralization Tranching,Cashreserves overcollateralization LoantoValue(LTV)Asset DepreciationRates LiquiditySupport PortfolioSeasoning

SecuritizationinMars? Predominantlyusedforautoleases Notsecuritization,butAssetBackedLending Notruesale>OnBalanceSheetfinancing Thecreditratingofthetransactionislinkedtotheissuerscreditrating Cominglingriskofcashflows?

CurrentModelInMars

Borrowers (Obligors)

Receivables Loan

Originator (Bank/FI)
Cash Pledge Receipts

Credit Enhancement
Cash

Trust
Securities

Recourse

CMBSSecurities

CreditMarkets

RiskManagementThroughSecuritization SpreadingprofitsthroughvariousdifferentlevelofproductionofCMBS
Highest Commissionisthe fundingspread

Servicingislong termincome generation:5to10 years

Loan

8%

Service&Collection Funding Originate

1% 6% 1%

BasicCDOStructure

CDOSecurities
Coupons& principal

Credit Markets

Loans

Bank
Cash

SPV
Funds

SeniorNotes MezzanineNotes Equity

ImpacttoOriginator NotexposedtoCredit&InterestRaterisk Netincomewouldbeclose duetooriginating&servicingfeesaswellasthe excessspread Cashflowimprove Betterutilizationofcapitalinfrastructure ImprovesROA/ROE

ImpedimentsforSecuritizationinSriLanka FinanceLeasingAct ConcernsonthelossofParatePowers? TransactionCost RegistrationProcedure Poorinformationsystems Lackofeducation

PracticalIssuesinUndertakingSecuritization Greaterdisclosureofinformation Internalsystemsmaytaketimetogeneratetheinformationrequired Initialcostandtimeinvolvedinthefirsttransactionwillbehigherthanother formsoffinancing Lessflexiblecovenants

TheWayForward FinanceLeasingActneedstobeamendedtofacilitatesecuritization NewSecuritizationAct Transactioncost RegistrationProcedures Clearaccountingtreatmentforsecuritization

TheWayForward Cleartaxtreatmentforsecuritization Internalinformationsystemsneedtobemodified Investorsneedtogetusedtotakingontheriskofthesecuritizedassets Investorsneedtobepreparedtoacceptunscheduledcashflows RMBScouldbeundertakenundertheexistinglegalframework

2008&2009FinancialCrisis Sowherearewe? SecuritizationMarkethasshrunkfrom$280Bin2007to$44Bin2011 Sincethemarketreceivedsomanydefaultsandstructuralcollapseofthe wholecapitalmarkets,itwillbemanyyearsbeforethewereachthepeakof 2007. Manyofthetranchesarebeingbrokenupandrestructuredtochangethe ratingoftheloans,andtoday2012,JPMorganretranched defaultedloansas azerocouponCMBS. Soisthemarketgoingtobeefficientorarewestillwaitingforthecreditto thaw SincetheBankregulators,FDICandOCCarepressuringbankstocleanuptheir balancesheets,itisprettyclearthatwewillnotseethesamecreditmarkets foratleastadecade. Didlackofcreditcausetherecession,andwhatcycleareweinforthis decade?

Disclosures

The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. CH Capital Partners LLC a member of Cordell Financial Group is an equal opportunity lender. The solutions discussed may not be suitable for you, even if your personal situation is similar to the example presented. Investors must make their own decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this situation achieved any of the client's goals mentioned. This example is hypothetical and does not represent any specific clients, investments or strategies. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest. Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. Withdrawals from an Annuity before 59 1/2 may incur 10% tax penalty. All guarantees from an Annuity are based upon the claimspaying ability of the insurance company. CFG or any of its affiliates reserves the right to share information between various businesses that CFG is affiliated with. It will still concur with the privacy act.