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Nicholas S Souleles - One of the best experts on this subject based on the ideXlab platform.
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special purpose vehicles and Securitization
Social Science Research Network, 2005Co-Authors: Gary Gorton, Nicholas S SoulelesAbstract:This paper analyzes Securitization and more generally "special purpose vehicles" (SPVs), which are now pervasive in corporate finance. The first part of the paper provides an overview of the institutional features of SPVs and Securitization. The second part provides a model to analyze the motivations for using SPVs and the conditions under which SPVs are sustainable. We argue that a key source of value to using SPVs is that they help reduce bankruptcy costs. Off-balance sheet financing involves transferring assets to SPVs, which reduces the amount of assets that are subject to bankruptcy costs, since SPVs are carefully designed to avoid bankruptcy. Off-balance sheet financing is most advantageous for sponsoring firms that are risky or face large bankruptcy costs. SPVs become sustainable in a repeated SPV game, because firms can implicitly "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments, despite legal and accounting restrictions to the contrary. The third part of the paper tests two key implications of the model using unique data on credit card Securitizations. First, riskier firms should securitize more, ceteris paribus. Second, since investors know that SPV sponsors can bail out their SPVs if there is a need, in pricing the debt of the SPV investors will care about the risk of the sponsor defaulting, above and beyond the risk of the SPVs assets. We find evidence consistent with these implications.
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special purpose vehicles and Securitization
Research Papers in Economics, 2005Co-Authors: Gary Gorton, Nicholas S SoulelesAbstract:This paper analyzes Securitization and more generally ?special purpose vehicles? (SPVs), which are now pervasive in corporate finance. The first part of the paper provides an overview of the institutional features of SPVs and Securitization. The second part provides a model to analyze the motivations for using SPVs and the conditions under which SPVs are sustainable. The authors argue that a key source of value to using SPVs is that they help reduce bankruptcy costs. Off-balance sheet financing involves transferring assets to SPVs, which reduces the amount of assets that are subject to bankruptcy costs, since SPVs are carefully designed to avoid bankruptcy. Off-balance sheet financing is most advantageous for sponsoring firms that are risky or face large bankruptcy costs. SPVs become sustainable in a repeated SPV game, because firms can implicitly ?commit? to subsidize or ?bail out? their SPVs when the SPV would otherwise not honor its debt commitments, despite legal and accounting restrictions to the contrary. The third part of the paper tests two key implications of the model using unique data on credit card Securitizations. First, riskier firms should securitize more, ceteris paribus. Second, since investors know that SPV sponsors can bail out their SPVs if there is a need, in pricing the debt of the SPV investors will care about the risk of the sponsor defaulting, above and beyond the risk of the SPVs assets. The authors find evidence consistent with these implications. ; Also issued as Payment Cards Center Discussion Paper No. 05-13
Steven L. Schwarcz - One of the best experts on this subject based on the ideXlab platform.
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Securitization and Structured Finance
Handbook of Key Global Financial Markets Institutions and Infrastructure, 2013Co-Authors: Steven L. SchwarczAbstract:This chapter (1) explains Securitization and how it works; (2) examines the benefits of Securitization, including its ability to achieve bankruptcy remoteness and reduce information asymmetry; (3) discusses rating agencies, credit ratings, and how securities issued in Securitization transactions are rated; (4) critiques the economics of Securitization; (5) examines the potential abuses of Securitization, including those relating to the recent financial crisis; and (6) explores the future of Securitization, including the relationship between Securitization and covered bond transactions.
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Leverhulme Lecture: The Future of Securitization
SSRN Electronic Journal, 2010Co-Authors: Steven L. SchwarczAbstract:The Securitization of subprime mortgage loans is widely viewed as a root cause of the financial crisis. This lecture balances the costs and benefits of Securitization, focusing on what went wrong and on what needs to be fixed to curtail Securitization's abuses and make it viable again as an important financing tool. Finally, the lecture examines alternatives to Securitization, focusing on covered bonds and comparing and contrasting covered bonds and Securitization.
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Securitization Post-Enron
SSRN Electronic Journal, 2003Co-Authors: Steven L. SchwarczAbstract:This article has two objectives: To explain the threats to Securitization in the post-Enron economic and regulatory climate, and to explore, more normatively, whether the threats are justified. Because Securitization uses special-purpose vehicles and facilitates off-balance sheet financing, it has been tainted by Enron's abuses, which relied heavily on special-purpose entities and off-balance sheet financing. There are, however, very fundamental differences between Enron's deals and Securitization transactions. Securitization is normally used by companies to obtain lower-cost financing through removal of intermediaries between the company and the ultimate source of funds, the capital markets. This is markedly different from Enron's use of special-purpose vehicles for mere balance-sheet manipulation. Even where Securitization is used to keep debt off a company's balance sheet, it unambiguously transfers risk from the company to third parties. Perhaps the most fundamental difference, however, turns on conflicts of interest. The complexities of the Enron deals, and perhaps of certain Securitization transactions, make it difficult for corporate directors and shareholders under existing corporate-law procedures to knowledgeably approve the deals. In the face of complexity, they also must rely on the business judgment of the managers that structure the deals - a reliance that may be misplaced where, as in Enron, those managers have significant conflicts of interest. In contrast, management in Securitization transactions have been free of material conflicts. The absence of material conflicts may well explain why actual Securitization transactions have not raised any of the excesses found in Enron or other corporate scandals.The absence of excesses does not, however, mean that Securitization is desirable. I therefore next examine whether Securitization is efficient and fair, and conclude it is both. Securitization enables companies to obtain low-cost capital market financing, and provides liquidity for otherwise viable companies that need but cannot otherwise obtain financing. And it does this without prejudicing any third-parties, such as unsecured creditors. Moreover, the availability of Securitization as a financing option actually facilitates bankruptcy rehabilitation policy.
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The Universal Language of International Securitization
Duke Journal of Comparative and International Law, 2002Co-Authors: Steven L. SchwarczAbstract:This paper, written as an introduction to a forthcoming symposium issue on international Securitization and structured finance, explains the basic concepts of Securitization and then examines Securitization in a cross-border context. Securitization has an increasingly international focus because, among other reasons, companies that wish to raise capital market funding may not be located in countries with established capital markets. They therefore must structure deals that cross their national borders.Cross-border Securitization, however, can be daunting to the uninitiated, involving multiple legal systems with strange terms and sometimes even stranger rules. I argue that it is unnecessary for a Securitization lawyer who does not regularly practice in foreign jurisdictions to keep up with changes in foreign legal systems. All that is needed is a grasp of certain fundamental legal principles in order to ask the right questions of local counsel and understand the response and its implications. This article attempts to set forth those principles. The article also analyzes the United Nations Commission on International Trade Law's recently proposed Convention on the Assignment of Receivables in International Trade, designed to harmonize critical aspects of the laws applicable to cross-border Securitization and finance.
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The Universal Language of International Securitization
Duke Journal of Comparative and International Law, 2002Co-Authors: Steven L. SchwarczAbstract:On behalf of the Duke University Global Capital Markets Center, which is sponsoring this symposium, I am pleased to welcome readers to the symposium issue. The focus is on international Securitization, an increasingly important area of cross-border finance. This article introduces the reader to international Securitization, first by explaining the concepts of Securitization and then by examining Securitization in a cross-border context.
Gary Gorton - One of the best experts on this subject based on the ideXlab platform.
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special purpose vehicles and Securitization
Social Science Research Network, 2005Co-Authors: Gary Gorton, Nicholas S SoulelesAbstract:This paper analyzes Securitization and more generally "special purpose vehicles" (SPVs), which are now pervasive in corporate finance. The first part of the paper provides an overview of the institutional features of SPVs and Securitization. The second part provides a model to analyze the motivations for using SPVs and the conditions under which SPVs are sustainable. We argue that a key source of value to using SPVs is that they help reduce bankruptcy costs. Off-balance sheet financing involves transferring assets to SPVs, which reduces the amount of assets that are subject to bankruptcy costs, since SPVs are carefully designed to avoid bankruptcy. Off-balance sheet financing is most advantageous for sponsoring firms that are risky or face large bankruptcy costs. SPVs become sustainable in a repeated SPV game, because firms can implicitly "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments, despite legal and accounting restrictions to the contrary. The third part of the paper tests two key implications of the model using unique data on credit card Securitizations. First, riskier firms should securitize more, ceteris paribus. Second, since investors know that SPV sponsors can bail out their SPVs if there is a need, in pricing the debt of the SPV investors will care about the risk of the sponsor defaulting, above and beyond the risk of the SPVs assets. We find evidence consistent with these implications.
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special purpose vehicles and Securitization
Research Papers in Economics, 2005Co-Authors: Gary Gorton, Nicholas S SoulelesAbstract:This paper analyzes Securitization and more generally ?special purpose vehicles? (SPVs), which are now pervasive in corporate finance. The first part of the paper provides an overview of the institutional features of SPVs and Securitization. The second part provides a model to analyze the motivations for using SPVs and the conditions under which SPVs are sustainable. The authors argue that a key source of value to using SPVs is that they help reduce bankruptcy costs. Off-balance sheet financing involves transferring assets to SPVs, which reduces the amount of assets that are subject to bankruptcy costs, since SPVs are carefully designed to avoid bankruptcy. Off-balance sheet financing is most advantageous for sponsoring firms that are risky or face large bankruptcy costs. SPVs become sustainable in a repeated SPV game, because firms can implicitly ?commit? to subsidize or ?bail out? their SPVs when the SPV would otherwise not honor its debt commitments, despite legal and accounting restrictions to the contrary. The third part of the paper tests two key implications of the model using unique data on credit card Securitizations. First, riskier firms should securitize more, ceteris paribus. Second, since investors know that SPV sponsors can bail out their SPVs if there is a need, in pricing the debt of the SPV investors will care about the risk of the sponsor defaulting, above and beyond the risk of the SPVs assets. The authors find evidence consistent with these implications. ; Also issued as Payment Cards Center Discussion Paper No. 05-13
Andreas Jobst - One of the best experts on this subject based on the ideXlab platform.
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sovereign Securitization in emerging markets
The Journal of Structured Finance, 2006Co-Authors: Andreas JobstAbstract:Over many years, Securitization has proven to be an expedient and highly flexible refinancing tool for corporations and public-sector entities that seek a more accurate capital-market based valuation of asset performance. After successful Securitization by public-sector entities in advanced countries, sovereigns in emerging economies are also becoming adept at Securitization as an efficient means of asset-liability management. This article critically surveys the recent developments of sovereign Securitization in emerging markets and informs a more specific debate about the attendant infrastructural, legal, and regulatory challenges. Amid higher risk premia in a changing interest rate cycle, the current trend of greater investor differentiation in emerging markets creates a benign environment for sovereign Securitization to accommodate continued demand for highly rated debt by institutional investors.
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sovereign Securitization in emerging markets
Social Science Research Network, 2006Co-Authors: Andreas JobstAbstract:Over many years, Securitization has proven to be an expedient and highly flexible refinancing tool for corporates and public sector entities that seek a more accurate capital-market based valuation of asset performance. After successful Securitization by public sector entities in advanced countries, also sovereigns in emerging economies are becoming adept at Securitization as an efficient means of asset-liability management. The following article critically surveys the recent developments of sovereign Securitization in emerging markets and informs a more specific debate about the attendant infrastructural, legal and regulatory challenges. Amid lower risk premia in a changing interest rate cycle, the current trend of greater investor differentiation in emerging markets creates a benign environment for sovereign Securitization to accommodate continued institutional investor demand for highly rated debt.
Rita Taureck - One of the best experts on this subject based on the ideXlab platform.
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Securitization theory and Securitization studies
Journal of International Relations and Development, 2006Co-Authors: Rita TaureckAbstract:Opposed to the recently fashionable 'moral and ethical' criticism levelled against Ole Waever's Securitization theory this article argues that such criticism fundamentally misconceives the analytical goal of Securitization theory, which is namely to offer a tool for practical security analysis. In arguing that being political (critical) on the part of the analyst has no bearing on the type of practical security analysis that can be done using Securitization theory, this article proposes that the analytical goal of such criticism and that of Securitization theory are incommensurable; in the process rendering obsolete this kind of criticism of Securitization theory. By way of reconciling Securitization theory with its critics, however, this article takes up Waever's suggestion of wider Securitization studies in which moral and ethical criticism, as well as being political, can play a supplementary role in the analysis of Securitization theory.
