610:
bonds a credit enhancement. As a result, it is possible for defaults to occur in repayment of the underlying assets without affecting payments to holders of the senior bonds. Also, many deals, typically those involving riskier collateral, such as subprime and Alt-A mortgages, use over-collateralization as well as subordination. In over-collateralization, the balance of the underlying assets (e.g., loans) is greater than the balance of the bonds, thus creating excess interest in the deal which acts as a "cushion" against reduction in value of the underlying assets. Excess interest can be used to offset collateral losses before losses are allocated to bondholders, thus providing another credit enhancement. A further credit enhancement involves the use of derivatives such as swap transactions, which effectively provide insurance, for a set fee, against a decrease in value.
38:
520:
609:
is key in creating a security that has a higher rating than the underlying asset pool. Credit enhancement can be created, for example, by issuing subordinate bonds. The subordinate bonds are allocated any losses from the collateral before losses are allocated to the senior bonds, thus giving senior
691:
or asset-backed securities, into a pool, which is then divided into various tranches. Many CDOs are collateralized by various types of mortgage-backed securities and other mortgage-related assets. An extension of these CDOs are "synthetic" CDOs which are collateralized by credit default swaps and
613:
Monoline insurers play a critical role in modern-day Credit
Enhancements; they are more effective in (a) off-balance-sheet models creating synthetic collateral, (b) sovereign ratings' enhancement with built-in asset derivatives and (c) cross border loans with receivables and counterparties in the
584:
refers to the creation of different classes of securities (typically with different credit ratings) from the same pool of assets. It is an important concept, because it is the system used to create different investment classes for the securities. Tranching allows the cash flow from the underlying
593:
explains tranching as follows: "A key goal of the tranching process is to create at least one class of securities whose rating is higher than the average rating of the underlying collateral pool or to create rated securities from a pool of unrated assets. This is accomplished through the use of
489:
With more than 370 member institutions, the
Structured Finance Association (SFA) is the leading trade association for the structured finance industry. SFA’s purpose is to help its members and public policymakers grow credit availability and the real economy in a responsible manner.
485:
Securitization provides $ 15.6 trillion in financing and funded more than 50% of U.S. household debt last year. Through securitization and structured finance, more families, individuals, and businesses have access to essential credit, seamlessly and at a lower price.
614:
domain and jurisdiction of the monoline insurer. The decision whether to use a monoline insurer or not often depends upon the cost of such cover vis-a-vis the improvement in pricing for the loan or bond issue by virtue of such credit enhancement.
707:
617:
Ratings play an important role in structured finance for instruments that are meant to be sold to investors. Many mutual funds, governments, and private investors only buy instruments that have been rated by a known
493:
ISDA conducted market surveys of its
Primary Membership to provide a summary of the notional amount outstanding of interest rate, credit, and equity derivatives, until 2010. The ISDA
1105:
695:
570:
to pool assets, creating novel financial instruments to enable better use of available capital or serve as a cheaper source of funding, especially for lower-rated originators
738:
are risk transfer instruments linked to insurance losses due to catastrophic events, which are generally seen as uncorrelated to traditional financial markets.
573:
Other uses include alternative funding (ture), reducing credit concentration and for risk transfer and risk management interest rates and liquidity.
718:
are contracts to transfer the risk of the total return on a credit asset falling below an agreed level, without transfer of the underlying asset.
966:
884:
958:
1009:
450:
661:
are asset-backed securities, the cash flows from which are backed by the principal and interest payments of a set of mortgage loans.
590:
482:. Strategies may involve legal and corporate restructuring, off balance sheet accounting, or the use of financial instruments.
172:
679:
are securitizations of mortgage-backed securities, typically involving multiple classes with differing levels of seniority.
664:
655:
are bonds or notes based on pools of assets or collateralized by the cash flows from a specific pool of underlying assets.
497:
is also conducted annually to examine the state of collateral use and management among derivatives dealers and end-users.
670:
1099:
676:
586:
735:
1002:
770:
443:
1117:
1111:
1093:
721:
701:
684:
99:
54:
498:
494:
1149:
995:
1034:
436:
298:
74:
1076:
888:
658:
94:
414:
710:
are collateralized debt obligations backed primarily by commercial real estate loans and bonds.
273:
120:
1070:
975:
Andy, (2016). "Working capital is a company’s current assets minus its current liabilities"
652:
631:
348:
213:
162:
150:
84:
541:
619:
424:
358:
243:
233:
203:
157:
135:
45:
634:. New rules in the U.S. and Europe have tightened the requirements for ratings agencies.
8:
1123:
1087:
409:
379:
328:
501:
are also conducted to collect information on usage of privately negotiated derivatives.
1128:
1039:
780:
643:
606:
475:
419:
248:
140:
89:
799:
1082:
1054:
760:
715:
404:
384:
308:
208:
193:
145:
104:
29:
967:
Goldstein, Matthew (2004). "Post-Enron, Structured
Finance Addiction Hasn't Ebbed"
1049:
974:
399:
293:
278:
263:
258:
238:
125:
69:
688:
394:
389:
343:
333:
313:
228:
218:
859:
1026:
765:
725:
567:
479:
253:
198:
188:
79:
1143:
982:
959:
Tergesen, Anne (2006). "Structured Notes: Quirkiest
Vehicle on the Street",
627:
471:
363:
338:
223:
59:
545:
303:
288:
268:
823:
353:
323:
318:
283:
20:
846:
698:
are collateralized debt obligations backed primarily by corporate bonds.
775:
729:
623:
37:
987:
534:
860:"The role of ratings in structured finance: issues and implications"
950:
704:
are collateralized debt obligations backed primarily by bank loans.
530:
64:
673:
are for commercial real estate, such as malls or office complexes.
1044:
581:
467:
130:
648:
There are several main types of structured finance instruments.
951:
Jobst, Andreas A. (2007). "A Primer on
Structured Finance"
708:
Commercial real estate collateralized debt obligations
750:
Revolving Credit
Financing (property or traded goods)
585:
asset to be diverted to various investor groups. The
687:
consolidate a group of fixed-income assets, such as
667:
deal with residential homes, usually single family.
865:. Bank for International Settlements. January 2005
1141:
16:Sector of finance that manages leverage and risk
1003:
444:
1010:
996:
451:
437:
912:, §§4:14 - 4:20 (Thomson West, 2014 ed.).
591:Committee on the Global Financial System
885:"Rating Agencies - European Commission"
1142:
1017:
953:Journal of Derivatives and Hedge Funds
665:Residential mortgage-backed securities
594:credit support (enhancement), such as
991:
847:http://www.artemis.bm/deal_directory/
671:Commercial mortgage-backed securities
601:
173:Valuation using discounted cash flows
513:
983:The Economics of Structured Finance
677:Collateralized mortgage obligations
13:
1100:Collateralized mortgage obligation
587:Bank for International Settlements
14:
1161:
944:
938:, §5:17 (Thomson West, 2014 ed.).
925:, §5:16 (Thomson West, 2014 ed.).
509:
518:
36:
771:Thomson Financial League Tables
722:Collateralized fund obligations
702:Collateralized loan obligations
696:Collateralized bond obligations
685:Collateralized debt obligations
1118:Collateralized fund obligation
1112:Collateralized loan obligation
1106:Collateralized bond obligation
1094:Collateralized debt obligation
928:
915:
902:
877:
852:
840:
828:Structured Finance Association
816:
804:Structured Finance Association
792:
533:format but may read better as
100:Strategic financial management
55:Asset and liability management
1:
786:
741:Partial guaranteed structures
598:to the different tranches."
576:
566:Structured finance utilizes
504:
7:
754:
736:Insurance linked securities
10:
1166:
1035:Securitization transaction
936:Mortgage-Backed Securities
923:Mortgage-Backed Securities
910:Mortgage-Backed Securities
659:Mortgage-backed securities
641:
596:prioritization of payments
75:Enterprise risk management
18:
1063:
1025:
1077:Mortgage-backed security
934:Lemke, Lins and Picard,
921:Lemke, Lins and Picard,
908:Lemke, Lins and Picard,
744:Future flow transactions
637:
95:Mergers and acquisitions
19:Not to be confused with
724:are securitizations of
653:Asset-backed securities
542:converting this section
415:Stress test (financial)
800:"About Securitization"
632:S&P Global Ratings
274:Investment performance
121:Balance sheet analysis
1071:Asset-backed security
642:Further information:
349:Too connected to fail
214:Cash conversion cycle
163:Management accounting
85:Investment management
977:structurefunding.com
620:credit rating agency
425:Supply chain finance
359:Volatility (finance)
244:Exchange traded fund
234:Economic value added
204:Capital appreciation
158:Fundamental analysis
46:Financial management
1124:Senior stretch loan
1088:Credit default swap
1064:Types of securities
692:other derivatives.
410:Statistical finance
380:Factoring (finance)
329:Sustainable finance
1150:Structured finance
1129:Structured product
1040:Credit enhancement
1019:Structured finance
781:Structured product
716:Credit derivatives
644:Structured product
607:Credit enhancement
602:Credit enhancement
544:, if appropriate.
464:Structured finance
420:Structured product
249:Financial analysis
168:Structured finance
90:Managerial finance
1137:
1136:
1083:Credit derivative
761:Pooled investment
563:
562:
461:
460:
405:Position of trust
385:Financial analyst
309:Return on capital
209:Capital structure
105:Wealth management
30:Corporate finance
1157:
1050:Orphan structure
1012:
1005:
998:
989:
988:
939:
932:
926:
919:
913:
906:
900:
899:
897:
896:
887:. Archived from
881:
875:
874:
872:
870:
864:
856:
850:
844:
838:
837:
835:
834:
820:
814:
813:
811:
810:
796:
558:
555:
549:
540:You can help by
522:
521:
514:
499:End-User Surveys
453:
446:
439:
400:Investor profile
299:Over-the-counter
279:Investor profile
264:Growth investing
259:Financial system
239:Equity (finance)
126:Enterprise value
70:Corporate action
40:
26:
25:
1165:
1164:
1160:
1159:
1158:
1156:
1155:
1154:
1140:
1139:
1138:
1133:
1059:
1021:
1016:
947:
942:
933:
929:
920:
916:
907:
903:
894:
892:
883:
882:
878:
868:
866:
862:
858:
857:
853:
845:
841:
832:
830:
822:
821:
817:
808:
806:
798:
797:
793:
789:
757:
689:high-yield debt
646:
640:
604:
579:
565:
559:
553:
550:
539:
523:
519:
512:
507:
474:— that manages
470:— specifically
466:is a sector of
457:
390:Financial asset
344:Too big to fail
334:Systematic risk
229:Economic bubble
219:Cost of capital
24:
17:
12:
11:
5:
1163:
1153:
1152:
1135:
1134:
1132:
1131:
1126:
1121:
1115:
1109:
1103:
1097:
1091:
1085:
1080:
1074:
1067:
1065:
1061:
1060:
1058:
1057:
1052:
1047:
1042:
1037:
1031:
1029:
1027:Securitization
1023:
1022:
1015:
1014:
1007:
1000:
992:
986:
985:
980:
972:
964:
956:
946:
945:External links
943:
941:
940:
927:
914:
901:
876:
851:
839:
815:
790:
788:
785:
784:
783:
778:
773:
768:
766:Securitization
763:
756:
753:
752:
751:
748:
747:Loan sell offs
745:
742:
739:
733:
726:private equity
719:
713:
712:
711:
705:
699:
682:
681:
680:
674:
668:
656:
639:
636:
603:
600:
578:
575:
568:securitization
561:
560:
526:
524:
517:
511:
510:Securitization
508:
506:
503:
459:
458:
456:
455:
448:
441:
433:
430:
429:
428:
427:
422:
417:
412:
407:
402:
397:
392:
387:
382:
374:
373:
372:Related topics
369:
368:
367:
366:
361:
356:
351:
346:
341:
336:
331:
326:
321:
316:
311:
306:
301:
296:
291:
286:
281:
276:
271:
266:
261:
256:
254:Financial risk
251:
246:
241:
236:
231:
226:
221:
216:
211:
206:
201:
199:Bond (finance)
196:
191:
189:Angel investor
183:
182:
178:
177:
176:
175:
170:
165:
160:
155:
154:
153:
148:
143:
138:
128:
123:
115:
114:
110:
109:
108:
107:
102:
97:
92:
87:
82:
80:Financial plan
77:
72:
67:
62:
57:
49:
48:
42:
41:
33:
32:
15:
9:
6:
4:
3:
2:
1162:
1151:
1148:
1147:
1145:
1130:
1127:
1125:
1122:
1119:
1116:
1113:
1110:
1107:
1104:
1101:
1098:
1095:
1092:
1089:
1086:
1084:
1081:
1078:
1075:
1072:
1069:
1068:
1066:
1062:
1056:
1055:Shell company
1053:
1051:
1048:
1046:
1043:
1041:
1038:
1036:
1033:
1032:
1030:
1028:
1024:
1020:
1013:
1008:
1006:
1001:
999:
994:
993:
990:
984:
981:
979:
978:
973:
971:
970:
969:TheStreet.com
965:
963:
962:
961:Business Week
957:
955:
954:
949:
948:
937:
931:
924:
918:
911:
905:
891:on 2013-10-14
890:
886:
880:
861:
855:
848:
843:
829:
825:
819:
805:
801:
795:
791:
782:
779:
777:
774:
772:
769:
767:
764:
762:
759:
758:
749:
746:
743:
740:
737:
734:
731:
727:
723:
720:
717:
714:
709:
706:
703:
700:
697:
694:
693:
690:
686:
683:
678:
675:
672:
669:
666:
663:
662:
660:
657:
654:
651:
650:
649:
645:
635:
633:
629:
625:
621:
615:
611:
608:
599:
597:
592:
588:
583:
574:
571:
569:
557:
548:is available.
547:
543:
537:
536:
532:
527:This section
525:
516:
515:
502:
500:
496:
495:Margin Survey
491:
487:
483:
481:
477:
473:
472:financial law
469:
465:
454:
449:
447:
442:
440:
435:
434:
432:
431:
426:
423:
421:
418:
416:
413:
411:
408:
406:
403:
401:
398:
396:
393:
391:
388:
386:
383:
381:
378:
377:
376:
375:
371:
370:
365:
364:Watered stock
362:
360:
357:
355:
352:
350:
347:
345:
342:
340:
339:Systemic risk
337:
335:
332:
330:
327:
325:
322:
320:
317:
315:
312:
310:
307:
305:
302:
300:
297:
295:
292:
290:
287:
285:
282:
280:
277:
275:
272:
270:
267:
265:
262:
260:
257:
255:
252:
250:
247:
245:
242:
240:
237:
235:
232:
230:
227:
225:
224:Eco-investing
222:
220:
217:
215:
212:
210:
207:
205:
202:
200:
197:
195:
192:
190:
187:
186:
185:
184:
180:
179:
174:
171:
169:
166:
164:
161:
159:
156:
152:
149:
147:
144:
142:
139:
137:
134:
133:
132:
129:
127:
124:
122:
119:
118:
117:
116:
112:
111:
106:
103:
101:
98:
96:
93:
91:
88:
86:
83:
81:
78:
76:
73:
71:
68:
66:
63:
61:
60:Business plan
58:
56:
53:
52:
51:
50:
47:
44:
43:
39:
35:
34:
31:
28:
27:
22:
1018:
976:
968:
960:
952:
935:
930:
922:
917:
909:
904:
893:. Retrieved
889:the original
879:
867:. Retrieved
854:
842:
831:. Retrieved
827:
818:
807:. Retrieved
803:
794:
647:
616:
612:
605:
595:
580:
572:
564:
551:
546:Editing help
528:
492:
488:
484:
463:
462:
304:Pension fund
289:Market trend
269:Growth stock
167:
869:November 5,
849:Artemis.com
354:Toxic asset
324:Super angel
319:Speculation
284:Market risk
151:engineering
21:Structuring
895:2013-10-08
833:2022-01-04
824:"About Us"
809:2022-01-04
787:References
776:Structurer
730:hedge fund
554:March 2017
181:Investment
136:accounting
113:Accounting
582:Tranching
577:Tranching
505:Structure
131:Financial
1144:Category
755:See also
476:leverage
141:analysis
65:Clawback
1045:Tranche
732:assets.
624:Moody's
622:, like
468:finance
146:analyst
529:is in
314:Shares
294:Option
1120:(CFO)
1114:(CLO)
1108:(CBO)
1102:(CMO)
1096:(CDO)
1090:(CDS)
1079:(MBS)
1073:(ABS)
863:(PDF)
638:Types
628:Fitch
535:prose
395:Hedge
194:Asset
871:2008
728:and
531:list
480:risk
478:and
630:or
589:'s
1146::
826:.
802:.
626:,
1011:e
1004:t
997:v
898:.
873:.
836:.
812:.
556:)
552:(
538:.
452:e
445:t
438:v
23:.
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.
