Almost all companies do have an effective debenture management nowadays. Nevertheless, it is not unusual for companies to have very high values in receivables. Especially for companies with a turnover of more than € 100 million the receivables grow to a value of € 10 million or more (IKB (2005), p.1). This capital is usually unavailable for the company; it may become available using Asset Securitisation to refinance the receivables. The influence of Basel II on the behaviour of credit institutions further reinforces the importance of Asset Securitisation as a tool for companies to improve the capital costs and the balance sheet rations as the investigation in this paper will point out. This again has implications for the rating of enterprises.
Due to the growing interest in Asset Securitisation, a lot of research has been done by the European financial institutions.
In the second part of this paper, the question of a definition and of the basic structure of an Asset Backed Security will be examined. Furthermore the requirements for an Asset Securitisation in respect to the portfolio of assets will be explained.
The third part of this paper is concerned with the possibilities of traditional ABS for companies, that are carried on by the advantages and disadvantages of Asset Securitisation for the participants.
Within structured finance the questions of adding value for the different participants within structured finance transactions is examined.
In the forth part the possible use of structured finance products for enterprises is described examining especially the question of where value is added.
Finally the last part gives an overview of the current situation of the European market for structured finance products and ABS and its projected development.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Asset Backed Security
- Definition of an Asset Backed Security
- Basic structure of an ABS transaction
- Features required of a receivables' portfolio
- Variations in traditional asset securitisation
- Number of originators
- Kind of assets
- Payment management
- Frequency of assets purchase
- ABS as possibility for companies to refinance
- Advantage of ABS
- Disadvantage of ABS
- Structured finance
- Definition
- Basic structure of SF products
- Features of the underlying assets
- Source of value within CDOs
- CDO - a structured finance product
- Tranching
- Market completion and segmentation
- Current market situation and development prediction
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to examine Asset Backed Securities (ABS) and structured finance, focusing on their use as refinancing tools for companies. It explores the structure and function of ABS, the advantages and disadvantages for participating entities, and the role of structured finance products, particularly Collateralized Debt Obligations (CDOs), in adding value. The paper also provides an overview of the current European market for these financial instruments and predicts future developments.
- Asset-backed securities as a refinancing tool
- Structure and function of ABS transactions
- Advantages and disadvantages of ABS for companies
- The role of structured finance and CDOs
- Current market situation and future predictions for ABS and structured finance in Europe
Zusammenfassung der Kapitel (Chapter Summaries)
Introduction: This introductory chapter establishes the context for the paper by highlighting the significant amounts of receivables held by many companies, particularly those with large turnovers. It introduces asset securitization as a means to unlock this capital, emphasizing the increasing importance of this method due to factors like Basel II regulations and their impact on credit institutions and company ratings. The chapter lays out the structure of the paper, previewing the upcoming sections on ABS definition, structure, advantages, disadvantages, structured finance, and market analysis.
Asset Backed Security: This section begins with a clear definition of an Asset Backed Security (ABS) as a security backed by a pool of assets, primarily used to remove receivables from a company's balance sheet. It then details the basic structure of an ABS transaction, explaining the role of the Special Purpose Vehicle (SPV) in purchasing the receivables and issuing the ABS. The section emphasizes the process of creating a diversified pool of assets, the inspection by banks and rating agencies, and the relationship between the cash flows generated by the assets and the interest/repayment of the ABS.
ABS as possibility for companies to refinance: This chapter analyzes the advantages and disadvantages of using ABS as a refinancing tool for companies. The advantages likely involve freeing up capital tied up in receivables, improving balance sheet ratios, and potentially lowering capital costs. The disadvantages could include complexities associated with structuring the transaction, potential conflicts of interest between parties, and the risks associated with the underlying assets. This section probably weighs the benefits against the costs, helping companies decide whether this type of refinancing is appropriate for their situation.
Structured finance: This section delves into the realm of structured finance, beginning with its definition and an explanation of the basic structure of structured finance products. It likely discusses the features of underlying assets crucial to such products and the sources of value within complex structures like Collateralized Debt Obligations (CDOs). The chapter might explore different types of CDOs and analyze how value is created and distributed among various participants in structured finance transactions.
Schlüsselwörter (Keywords)
Asset Backed Securities (ABS), Structured Finance, Securitization, Special Purpose Vehicle (SPV), Collateralized Debt Obligations (CDOs), Refinancing, Basel II, European Market, Capital Costs, Receivables.
Frequently Asked Questions: Asset Backed Securities and Structured Finance
What is the main topic of this paper?
This paper examines Asset Backed Securities (ABS) and structured finance, focusing on their use as refinancing tools for companies. It explores their structure, function, advantages, disadvantages, and the role of structured finance products, particularly Collateralized Debt Obligations (CDOs).
What are Asset Backed Securities (ABS)?
An ABS is a security backed by a pool of assets, primarily used to remove receivables from a company's balance sheet. The process involves a Special Purpose Vehicle (SPV) purchasing the receivables and issuing the ABS. The cash flows generated by the assets are linked to the interest/repayment of the ABS.
What is the basic structure of an ABS transaction?
An ABS transaction involves the originator (company with receivables), a Special Purpose Vehicle (SPV) which purchases the receivables, and investors who buy the ABS. The SPV isolates the receivables from the originator's balance sheet, and the cash flows from the receivables are used to repay the ABS investors.
What are the advantages of using ABS for company refinancing?
Advantages include freeing up capital tied up in receivables, improving balance sheet ratios, and potentially lowering capital costs.
What are the disadvantages of using ABS for company refinancing?
Disadvantages include complexities associated with structuring the transaction, potential conflicts of interest between parties, and risks associated with the underlying assets.
What is structured finance?
Structured finance involves creating complex financial products from pools of underlying assets. It often utilizes techniques like tranching to distribute risk and returns among different investors. Collateralized Debt Obligations (CDOs) are a key example of a structured finance product.
What are Collateralized Debt Obligations (CDOs)?
CDOs are structured finance products backed by a pool of debt obligations. They are designed to distribute risk and returns among various tranches (layers) of investors, with different levels of risk and return associated with each tranche.
What is the role of the Special Purpose Vehicle (SPV) in ABS transactions?
The SPV is a legally separate entity created to purchase the receivables from the originator. This isolates the receivables from the originator's balance sheet and reduces risk for investors.
What is the significance of Basel II regulations in the context of ABS?
Basel II regulations, and their impact on credit institutions and company ratings, have increased the importance of asset securitization as a means to manage capital and risk.
What is the current market situation and future prediction for ABS and structured finance in Europe?
The paper provides an overview of the current European market for these financial instruments and offers predictions for future developments (specific details are not included in this FAQ).
What are the key themes of the paper?
Key themes include asset-backed securities as a refinancing tool; the structure and function of ABS transactions; advantages and disadvantages of ABS for companies; the role of structured finance and CDOs; and the current market situation and future predictions for ABS and structured finance in Europe.
What are the key words associated with this paper?
Asset Backed Securities (ABS), Structured Finance, Securitization, Special Purpose Vehicle (SPV), Collateralized Debt Obligations (CDOs), Refinancing, Basel II, European Market, Capital Costs, Receivables.
- Arbeit zitieren
- Christian Strassburger (Autor:in), 2006, Asset backed securities and structured finance, München, GRIN Verlag, https://www.grin.com/document/70415
