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Secur i t i za t ion Courses for Secur i t i za t ion Profess ionals

STRUCTURING AND MODELLING FOR AUTO ABS E-CARAT 6

W H O S H O UL D

A TT E N D

Securitization

Professionals

Sales & Trading

Portfolio Managers

Investment

Analysts

Risk Management

Rating Agents

Quantitative

Analysts

5 E A S Y W A Y S T O RE GIS T E R

Post this form to:. Luke Mellor Register on Facebook: Creative Capital Partners

Creative Capital Partners

Engelbrektsgatan 25 Telephone us on: +46 73 645 9936

Stockholm S-114 32

Sweden

Fax this form to: +44 705 341 9219 email us: luke.mellor@creative-cap.com

2 Day Excel Based Practical Programme Sandton, 25-26 February, 2016

This programme will teach you how to become the complete securitization professional with the soup-to-

nuts agenda covering structuring and modelling the 2014 Auto-ABS E-CARAT 6

Learning how to find the key stress information from the rating agency (Standard & Poor’s and

Fitch Ratings) New Issue Reports as well as Moody’s Lognormal Approach.

Building zero prepayment/zero default amortization curves from the offering circular

Using a principal deficiency ledger as a means of recognizing losses on the assets together with

recording principal amounts used for liquidity.

How the rating agencies account for the additional risks posed by Balloon Loans even where

there is no buy-back obligation.

C o u r s e D i r e c t o r : L u k e M e l l o r F o u n d i n g P ar tn e r – C r e a t i v e C a p i t a l P ar t n er s

E -CARAT 6 Case Study for 2015

Social Media: Search for “Creative Capital Partners” for details all our courses worldwide Don’t forget : any of our courses can be run “in house”, no matter where you are.

17 Years Securitization

Training 1999-2016

REGISTRATION FEES:

Standard Course Fees: EUR 1,000 plus VAT (where applicable) per person for the 2-day course. Fee includes tuition, lunch,

refreshments and teaching materials. Hotel accommodation is not included in the course fee. VAT will be charged on the invoice for (i)

Swedish persons or entities or (ii) entities or persons not registered for VAT in other domiciles.

INVOICE:

An invoice will be sent upon receipt of registration form. Please note that payment must be received prior to the course.

TEAM DISCOUNT

When three or more colleagues from one institution attend the same course, there is a 10% discount available on the second and

additional bookings.

CANCELLATION POLICY:

A full refund less an administration fee of EUR 100 will be given for cancellation requests received up to 10 working days before the

event. Cancellations must be made by email before the 10 working days deadline. Delegates who cancel less than 10 days before the

event, or who don't attend, are liable to pay the full course fee and no refunds can be given. However, if you have paid your course fee in

full, you may wish to attend the next course, as an alternative. Of course, a replacement delegate is always welcome.

LAPTOPS:

Delegates must bring their own laptops complete with a version of Excel 2007 (or later) and Adobe Acrobat together with an active USB

Port. All other materials will be supplied.

P E RS O NA L DE TA IL S

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P A Y M E NT D E T A IL S

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MONEY TRANSFER please remit the

payments to SEB, ST BV, 106 40, Stockholm,

Sweden Swift Code: ESSESESS,

IBAN: SE28 5000 0000 0593 6825 9704

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made payable to CREATIVE CAPITAL PARTNER

PAYPAL to CREATIVE CAPITAL PARTNERS

S E C U R IT I ZA T I O N C O U RS E S T H E WO RL D O V E R I N 2 0 16

Rating and Cash Flow Modelling Auto ABS (Frankfurt 18-19 January 2016) Understanding and Structuring Leveraged Loan CLOs (London 1-3 February 2016) Structuring and Cash Flow Modelling for South African RMBS (Sandton 22-24 February 2016) Structuring and Cash Flow Modelling Auto ABS (Sandton 25-26 February 2016) Structuring and Cash Flow Modelling for Dutch RMBS (Amsterdam 9-11 March 2016) Structuring and Cash Flow Modelling for UK RMBS (London 11-13 April 2016) New Course for 2016. Securitisation and Structuring ABS Backed by ABS Loans (Europe 26-27 April 2016)

Each delegate will receive a prestigious Certificate of Completion together with free copies of all the software used.

Information Hotline: +46 73 645 9936 luke.mellor@creative-cap.com

COURSE BACKGROUND Securitization is now back after 5 years in

the wilderness. Investors are demanding

more robust structures that go beyond

the rating agencies. Key to those

demands is the intricacies of structuring

together with understanding how the

available cash flows and the external

facilities shape the capital structure.

COURSE OBJECTIVES

This two-day core course in Auto-ABS

securitization offers delegates the

opportunity to gain confidence in

understanding and programming their

own Auto-ABS cash flow models.

The course begins by offering a primer

on the building blocks of Auto-ABS as

they relate to structures. The course then

develops the delegates understanding

into the rating agencies’ programming

requirements and outputs (“first dollar

loss” vs “expected loss”). Lastly, by

examining the offering circular, pre-sale

and investor reports from the 2014 E-

CARAT 6 Auto-ABS, the delegates will

reverse engineer a rating agency

compliant cash flow Excel programme for

the purpose of calculating the capital

structure.

BUILDING A 2014 AUTO-ABS CASH FLOW MODEL : E-CARAT 6

RE GI S T RA TI O N O N DA Y O NE I S A T 8 :3 0 A M – T HE C O U RS E S T A RT S A T 9 :0 0 A M U N TIL 5 :0 0 P M

DA Y O NE - CA S H FL O W P RI M E R

The delegates compare the differences in approach

between Fitch/S&P and Moody’s and how this impacts

the model outputs. We then move on to examine the

“cash-in” “cash-out” elements for a typical ABS using

separate waterfalls. By contrasting synthetic and cash

flow deals, the module examines which factors

(prepayments, interest rate & default timing) influence the

availability of excess spread for credit enhancement.

B A CK G R O U N D T O C A S E S T U DY

Using the 2014 E-CARAT 6 as our example, we start the

case study by analyzing how an Auto-ABS deal is rated

by the Standard & Poor’s and Fitch. Moreover, even

though the deal wasn’t rated by Moody’s, we take a look

at how they would have rated it on an “as if” basis.

RA TI N G A GE N C Y B A S E C A S E S

Both Standard & Poor’s and Fitch not only have a similar

rating approach (in terms of testing for default), but their

methodology for European ABS follow the same track.

Both rating agencies will derive a base case loss for the

portfolio based on historical evidence and their opinion of

where the assets are in the economic cycle. Furthermore,

the high levels (82%) of balloon loans in the portfolio,

means that, the base case losses will need to be adjusted

upwards to reflect the risk of default upon refinancing.

To understand securitization

is to understand cash flow models K E Y S T R U C T U RA L F E A T U RE S OF E - C A RA T 6

The cash flow programming commences by transferring the

structural features of the E-CARAT 6 deal into the

spreadsheet.

A S S UM P TI O N S – IS S U E R DE TA IL S

Using the offering circular, the key details of the bond issuer

are input. These include: the derivation of a synthetic

purchase through the discounting of the lease payments

together with the mixture of rated and unrated notes to

produce the sale proceeds.

The programme examines how both the Liquidity and the

Commingling Reserves are funded through the unrated

Subordinated Loan. Due to the interest rate mismatch

between the fixed rate assets and the floating rate notes, an

interest rate hedge needs to be programmed showing the

amounts paid under both legs of the swap as well as the

notional swap balance.

A S S UM P TI O N S – T HE A S S E TS

The offering circular of E-CARAT 6 provides the cash flow

modeler an excellent overview of the underlying assets.

Starting with the published portfolio amortization schedule,

the delegates will construct a “zero default/zero

prepayment” amortization curve, over which the stressed

defaults, delinquencies and prepayments will be overlaid.

Moreover, rep lines of the assets’ discount rate allow users

to programme the effects of adverse interest rate selection.

RA T I N G A GE N C Y – A D DI T IO NA L S T RE S S E S

Although the stressed loss rate and the recovery rates are the primary

drivers of credit enhancement, the rating agencies equally apply

secondary stresses on (i) prepayment rates (ii) adverse selection of the

higher yielding assets and (iii) interest rate direction to reduce the

availability of excess spread used for credit enhancement and liquidity.

E -CA R A T 6 : P RI N CIP A L D E F I C IE N C Y L E D GE R S

The principal deficiency ledgers are primarily used to record any

uncovered losses on the notes. Entries are made every time a

loss is recorded on the underlying assets. Moreover if principal

is used (in limited amounts) as means of providing liquidity in

the revenue waterfall (principal transfer mechanism), the PDL

will need to be similarly debited.

M O O DY ’ S L O G N O RM A L A PP RO A C H

Using the mean loss and its corresponding variance for similar

pools of assets, it is possible to derive a lognormal distribution

for E-CARAT 6, from which the Expected Loss can be derived

for the rated notes notwithstanding Moody’s lack of ratings.

COURSE DIRECTOR

Luke Mellor is the founder of

Creative Capital Partners, a training

and securitization consultancy

founded in 1999. Its clients include

SARS, the UK FCA, EIB as well as

other major banks worldwide.

Thousands of securitization

professionals have been taken his

modelling courses. Previously , Mr

Mellor was Global Head of

Securitization at ABN AMRO. He has

over 27 years experience in

securitization

TEACHING METHODS

Great emphasis is placed in

ensuring that all the delegates have

a thorough grounding in each

module, before its practical

session. Each of the modules will

start with a presentation explaining

the theory. This will be followed by a

practical session consisting of either

testing a completed model or

building a model from scratch

PRE-COURSE READING

Upon registration, each delegate

will be sent an email link to a Cloud

account where all the pre-course

material will be available. In

addition, to the background course

material , the Cloud account will

contain a short cheat sheet of

Excel functions that will ensure

even an Excel beginner will be

armed with the requisite

programming skills.

E X CE L CA S E S T U DY – T H E P RI O RIT Y OF P A Y M E NT S

Using a separate waterfall structure, the delegates will learn how to construct priority of

payments for both interest and principal cash flows (in that order). These will range from

simple senior expenses through the payment of coupons under the notes as well as using the

crediting of the principal deficiency sub-ledgers and showing the profit extraction methods.

E X CE L CA S E S T U DY – L E A R NI N G H O W T O S H O W T HE O U TP U TS

In the case of Fitch & S&P, the delegates will learn how to present “the failure to pay

principal & interest” on time and in full across a range of prepayment, interest rate and

default vector scenarios. For Moody’s, the delegates will learn how to construct a

lognormal distribution of defaults using the mean and expected loss. The distribution will

be used to weight the discounted cash flows and average lives on each note class to

back into the rating using Moody’s Expected Loss Table.

RA T I N G A GE N C Y S T RE S S M UL T IP L E S

Whilst Standard & Poor’s and Fitch derive different base case loss numbers (2.0% and 2.25%

respectively) the stress multiples for AAA are (6.7x and 4.7x respectively), almost negate the

differences between the two rating agencies. A similar approach is used for recoveries, where a base

case recovery rate is derived from observations and further haircuts are utilized for higher stresses.