The Role of Investment Banks in the

Securitization Process

Russian Securitization Forum

New York, September 2007
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
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
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
Evolution of Emerging Market Securitization
Latin America (LatAm)

2004 Latin American Securitization 2005 Latin American Securitization 2006 Latin American Securitization
(total issuance US$10.9 billion) (total issuance US$14.5 billion) (total issuance US$15.3 billion)

Domestic Market Domestic Market Domestic Market

72% 84% 89%

Cross-Border / Cross-Border / Cross-Border /

Future Flows Future Flows Future Flows
28% 16% 11%

Source: Moody‘s Investors Service

Evolution of Emerging Market Securitization
Europe, Middle East and Africa (EMEA)

2006 EMEA Securitization 1st Half 2007 EMEA Securitization

(total issuance* US$10.9 billion) (total issuance* US$5.8 billion)

Domestic Market Domestic Market

39% 47%

Cross-Border / Cross-Border /
Future Flows Future Flows
61% 53%

*South Africa and Israel have been excluded due to their

relatively more developed structured finance market

Source: Moody‘s Investors Service

The EMEA Structured Transaction Market

1st Half 2007 Securitization by Country 1st half 2007 Securitization by Asset Type
(total issuance* US$5.8 billion) (total issuance* US$5.8 billion)

Russia Vehicle Loans

33% 7% CMBS
Other 1%
Kazakhstan
15%
11%
Oman
7%

UAE
5%

Ukraine Future Flows

3% RMBS 54%
Tunisia 23%
Turkey 1%
40%
*South Africa and Israel have been excluded due to their relatively more developed
structured finance market

Source: Moody‘s Investors Service

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)

3.0
2.5
2.0
1.5
1.0
0.5
0.0

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a
ca

ey

an
si

si
ra

ai
rk

U
i

us

ni
fr

hs
Is

kr
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Tu
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The Latin American Domestic Market

2006 Domestic Securitization by Country 2006 Domestic Securitization by Asset Type

(total issuance US$12.2 billion) (total issuance US$12.2 billion)
Credit Card
Mexico Receivables
Vehicle Loans
32.5% Trade Receivables 4%
8% 16%

Take Out
Future Flows Securitizations
7% 3%
Argentina
18.7% Non-performing
Assets
1%
Chile Other
2.4% MBS 22%
21%
Columbia
Brazil 4.9%
40.6% Personal / Consumer Credit-linked
Costa Rica Peru Loans Obligations
.4% .5% 5% 13%
Latin American Securitization

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

Volume ($USD billions)

20

15 1.7
2.3

10 3.0

12.2 13.6
5 6.9 5.6
3.9 8.1
3.0
1.0 1.5 1.7 2.4
0
2000 2001 2002 2003 2004 2005 2006
Domestic Cross-Border Year
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.
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
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 pool’s 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
Asset Backed Securities
Underwriter’s Role

DB’s 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
Asset Backed Securities
Underwriter’s Role (continued)

DB’s 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
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:

Internal Enhancement External Enhancement

 Overcollateralization  Surety Policy
 Subordination  Reinsurance
 Reserve Account  Letter of Credit
 Excess Spread
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
Benefits of Securitization

Benefit Description

 Provides access to triple-A funding regardless of the credit rating of the seller/servicer
 Offers a cost competitive source of funds relative to many traditional debt alternatives
Efficient Means  Demonstrates an alternative source of funding assets to the rating agencies and the equity market
of Funding  Provides perfect match funding for the assets
 Values asset portfolios at market value as opposed to book value

 Often reduces capital requirements, enabling capital to be redeployed to fuel growth

Re-  Achieves greater borrowing capacity through the higher leverage obtained in selling assets through debt
capitalization financing

Purposes  Off-balance sheet financing may provide borrowing flexibility

 Increases balance sheet liquidity, facilitating future originations

 Generates risk-free fee income from continued servicing of assets

 Allows for the transfer of credit risk in the portfolio
Risk
 Provides match funding for amortizing assets as principal payments on the assets amortize the outstanding
Management securities
 Diversifies funding sources
Benefits of Securitization (continued)

Benefit Description

 Facilitates asset and capital management – the issuer would be positioned to either sell or retain assets
Operating  Allows for expansion of servicing volume at the margin thereby reducing per cost of servicing
Efficiencies  Provides increased control over asset pricing as a result of the market discipline provided by a securitization
program

 Demonstrates ability to access alternative liquidity

 May provide for capital preservation
Rating
 Initiates rating agency discussions beyond the corporate ratings group
Agencies

 May constitute a sale of assets for financial reporting purposes

Management of  Facilitates acceleration of income, if strategically desired
Financial  May improve net interest margin of on-balance sheet assets
Statements  Improves financial ratios (i.e., ROA, ROE ) related to balance sheet assets
 May constitute debt treatment of receivables financing for tax purposes
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
Securitization Transaction Participants
Managing the Transaction

Issuer /
Originator

Guarantor

Trustee

Investment Rating
Obligors Banker Agencies

Counsel
Accountant

Investors
Contact Information

Brigitte Posch
Director
Head of Latin American Securitization
Deutsche Bank Securities Inc.
Securitized Products Group
Tel: (212) 250-4551
Email: brigitte.posch@db.com