Culp : Securitisation
3 important questions on Culp : Securitisation
Name six type of internal credit enhancement techniques
- Subordination
- Overcollateralisation
- Direct equity issue: issue less debt than amount of the collateral
- Holdback: SPV buys assets a discount: holdback = asset value - purchase price
- Cash collateral account: originator deposits cash into cash collateral account (CCA). Buffer against losses
- Excess spread: difference between interest earned on collateral assets and interest paid on debt liabilities of the SPV.
Name four kind of external credit enhancement techniques
- Insurance, wraps and guarantees: the SPV buys guarantee for the collateral assets. In case of a wrap, the wrapper guarantees to make up the difference if the underlying assets drop below a certain value.
- Letter of credit (LOC): SPV obtains a LOC from the bank where he can draw upon
- Credit default swap
- Put option of assets
What is, and how arises liquidity risk at securitisations?
Arises from:
- Deliquencies
- Structural liquidity mismatches
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