Asset Securitisation Securitization A process by which a single asset or a pool of assets are transferred from the balance sheet of the originator (bank) to a bankruptcy remote SPV (trust) in return for an immediate cash payment. Special Purpose Vehicle (SPV) An entity which may be a trust, company or other entity constituted or established by a ‘Deed’ or ‘Agreement’ for a specific purpose. Bankruptcy remote The legal position with reference to the creation of the SPV should be such that the SPV and its assets would not be touched in case the originator of the securitization goes bankrupt and its assets are liquidated. Credit enhancement These are the facilities offered to an SPV to cover the probable losses from the pool of securitized assets. It is a credit risk cover given by the originator or a third party and meant for the investors in any securitization process. Custodian An entity, usually a bank that actually holds the receivables as agent and bailee of the trustee. First loss facility First level of credit enhancement offered to an SPV as part of the process in bringing the securities issued by SPV to investment grade. Second loss facility Credit enhancement providing the second or subsequent tier of protection to an SPV against potential losses. Value at Risk (VAR) VAR is a single number (currency amount) which estimates the maximum expected loss of a portfolio over a given time horizon (the holding period) and at a given confidence level. VaR is defined as an estimate of potential loss in a position or asset/liability or portfolio of assets/liabilities over a given holding period at a given level of certainty. The following are the three main methodologies used to calculate VaR: Parametric Estimates – Estimates VaR using parameters such as volatility and correlation. Accurate for traditional assets and linear derivatives, but less accurate for non linear derivatives. Monte Carlo simulation- Estimates VaR by simulating random scenarios and revaluing positions in the portfolio. Appropriate for all types of instruments, linear and nonlinear. Historical simulation- Estimates VaR by reliving history; takes actual historical rates and revalues positions for each change in the market Commercial real estate commercial real estate is defined as “fund based and non-fund based exposures secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction etc.)”
Posted on: Sat, 17 Aug 2013 03:21:56 +0000
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