A Brief Introduction to Securitization & Its Application in the Global Capital Markets

Transcription

1 Securitization Colloquium Kellogg Graduate School of Management A Brief Introduction to Securitization & Its Application in the Global Capital Markets Financial Markets S. Sean Chen, Executive Director May 2003

2 Disclaimer This presentation was prepared by ABN AMRO. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by ABN AMRO. The presentation is proprietary to ABN AMRO and may not be disclosed to any third party or used for any other purpose without the prior written consent of ABN AMRO. The information in this presentation is based upon management forecasts and reflects prevailing conditions and our views as of this date, which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. 2

3 Table of Contents A A Brief History of Securitization B Current State of Global Securitization U.S. Europe Asia C Examples Export Financing Virtual Securitization Future Flow D ABN AMRO s Global Securitization Credentials 3

4 A. A Brief History of Securitization 4

5 HISTORY OF SECURITIZATION U.S. Capital Markets Private and Public Debt Outstanding includes: municipal, treasury, mortgage-related, U.S. corporate, Federal agencies, money market, asset-backed Debt Outstanding vs. Equity Market Capitalization NYSE Market Value is mostly comprised of U.S. corporations but does not include other U.S. stock markets (i.e. Nasdaq, Amex, etc.) $ Billion Private and Public Debt Outstanding NYSE Market Value Source: The Bond Market Association, NYSE 5

6 HISTORY OF SECURITIZATION Demand of Capital Bank Loans vs. Corporate Debt $ Billions Commercial & Industrial Loans Corporate Bonds Outstanding Source: Federal Reserve 6

7 HISTORY OF SECURITIZATION Supply of Capital Total Deposits vs. Mutual Funds $ Billions Total Deposits Mutual Funds (not including variable annuities from life insurance) Source: Federal Reserve 7

8 HISTORY OF SECURITIZATION ABS Explosive Growth 8

9 HISTORY OF SECURITIZATION ABS as a Major Funding Instrument 9

10 HISTORY OF SECURITIZATION ABS Wide Applications & Investor Comfort 10

11 B. Current State of Global Securitization 11

12 CURRENT STATE OF SECURITIZATION Global ABS Issuance ABS Issuance Volume by Region $ Billions Asia Latin America U.S. Europe Source: Bloomberg, MCM, Goldman Sachs and JP Morgan Chase 12

13 The U.S. Markets 13

14 CURRENT STATE OF SECURITIZATION - U.S. Worldwide Securitization Volume 2002 ABS Issuance Breakdown 2002 Market 2001 Market Issuance Share Issuance Share (US$Mil.) (%) (US$Mil.) (%) U.S. Public ABS $369, % $278, % U.S. Rule-144A ABS $39, % $46, % U.S. Private ABS $1, % $7, % Non-U.S. $115, % $115, % TOTAL: $526, % $446, % Source: Asset-Backed Alert (as of 122/31/02) 14

15 CURRENT STATE OF SECURITIZATION - U.S. Growth of Securitization Markets Total asset-backed market was $2 trillion outstanding as of the latest year end $1,400 $1,200 $1,240 $1,258 Total asset-backed market has increased 28.5% based on a CAGR since 1993 US $ billions $1,000 $800 $600 $514 $633 $520 $744 $642 $804 $745 $715 $400 $200 $150 $58 $71 $186 $107 $292 $147 $388 $256 $382 $ ABCP outstandings US term ABS outstandings (public) Sources: Federal Reserve and Goldman Sachs 15

16 CURRENT STATE OF SECURITIZATION - U.S. U.S. Public ABS Issuance Breakdown by Asset Type* 2001 Issuance 2002 Issuance 4% 13% 26% 5% 5% 2% 1% 1% 24% 3% 3% 18% 29% 22% 44% Auto Home Equity Credit Cards Manufactured Housing Auto Home Equity Credit Cards Manufactured Housing Equipment Other Student Loans Equipment Global RMBS Student Loans Other * as of December 31, 2002 ** Other category includes Dealer Floorplan, Stranded Asset, RV, Boat, Consumer, EETC, and Small Business Loan 16

17 CURRENT STATE OF SECURITIZATION - U.S. ABS Issuance Originating from United States ABS Volume in United States $ Millions Source: Federal Reserve and Goldman Sachs 17

18 CURRENT STATE OF SECURITIZATION - U.S. ABCP Trading Level Analysis - Second Half Spread to Libor (b.p.) GM & Ford put on Negative Watch (8/17) Fed cuts rates by 50 pts. Fed Funds at 3.0% (Monday, 9/17) WTC Attack Sept Month LIBOR reflects Jan maturity.. Fed cuts rates by 50 pts. Fed Funds at 2.50% (10/2) Enron files for bankruptcy protection (12/2) Fed cuts rates by 25 pts. Fed Funds at 3.50% (8/27) Debt Markets Reopen (9/13) Markets Price in Rate Cuts Fed cuts rates by 50 pts. Fed Funds at 2.0% (11/6) Fed cuts rates by 25 pts. Fed Funds at 1.75% (12/11) 7/1/2001 7/27/2001 8/22/2001 9/17/ /13/ /8/ /4/ /30/2001 ABCP (A-1+/P-1) A-2 Rated (30 Day) A-1+ Rated (30 Day) Source: Bloomberg Financial Market Indices of average issuer postings. 18

19 CURRENT STATE OF SECURITIZATION - U.S. ABCP Trading Level Analysis April March 2003 Spread to LIBOR (b.p.) WorldCom files for bankruptcy protection (7/21). Benchmark Fed rate lowered 50 bps to 1.25% (11/6). US and Coalition forces start military campaign against Iraq Apr 01-May 31-May 03-Jul 02-Aug 04-Sep 03-Oct 04-Nov 05-Dec 08-Jan 07-Feb 05-Mar 31-Mar A-1+/P-1 ABCP A-1+/P-1 Corp. CP 2-Rated Corp. CP Source: Bloomberg Financial Market Indices of average issuer postings, Merrill Lynch CP Market Update. 19

20 The European Markets 20

21 CURRENT STATE OF SECURITIZATION - EUROPE ABS Issuance Originating from Europe ABS Volume in Europe $ Billions Source: Bloomberg, MCM, and JP Morgan Chase 21

22 CURRENT STATE OF SECURITIZATION - EUROPE 2002 European Public ABS Issuance Breakdown* Collateral Type Country of Origin 7% 7% 3% 6% 4% 9% 3% 5% 24% 15% 41% 20% 2% 10% 6% 6% Auto RMBS Credit Cards CMBS UK France Germany Equipment Consumer CDO Sov/Ag Italy Holland Spain * as of December 31, 2002 Whole Bus. Other ** Other category includes non-performing loans, future flow, and trade receivables 22

23 CURRENT STATE OF SECURITIZATION - EUROPE Issuance By Country 23

24 CURRENT STATE OF SECURITIZATION - EUROPE Issuance By Asset Class 24

25 The Asian Markets 25

26 CURRENT STATE OF SECURITIZATION - ASIA Issuance By Country 26

27 CURRENT STATE OF SECURITIZATION - ASIA ABS Issuance Originating from Asia ABS Volume in Asia $ Millions Source: Bloomberg, MCM, and JP Morgan Chase 27

28 CURRENT STATE OF SECURITIZATION - ASIA 2002 Asian Public ABS Issuance Breakdown* Collateral Type Country of Origin 9% 4% 5% 22% 1%1% 13% 0% 1% 36% 12% 15% 14% 0% 48% 19% Cards Other Australia US RMBS CDO Hong Kong Japan CMBS Equip. Singapore South Korea Consumer Auto Philippines Malaysia * as of December 31, 2002 ** Other category includes non-performing loans, future flow, franchise, shop credit, small business loans and trade receivables 28

29 C. Examples 29

30 Example I: Export Finance 30

31 CASE STUDIES I - EXPORT FINANCE Structural Diagram - Export Trade Goods Buyers Payments Sellers Country 1 Sellers Country 2 A/R ABN AMRO Bank Cash Management Servicing Financing ABN AMRO Originate & Service Credit Insurance (Optional) Payments Off-Shore SPC Subordinated Interest Senior Interest Enhancement Provider ABS Market Cash Cash Sellers Country 3... On-Line Credit Scoring Services Senior Interest Cash ABCP Conduit ( Purchaser ) CP Notes CP Back-up Facilities CP Investors 31

32 Example II: Virtual Securitization 32

33 CASE STUDIES II - VIRTUAL SECURITIZATION Classic Structure Pros: - Maintain existing dynamics - Maintain economics - Achieve off balance sheet Cons: - Lack legal infrastructure in PRC - Complex cross border issues - Questionable execution Originator/Servicer Receivables U.S. Company Seller U.S. QSPE Cash Payments Products Payments Notes Cash PRC Border Obligors/Debtors Facility Agent ABN AMRO Bank Shanghai Payments Notes Cash Note Investors 33

34 CASE STUDIES II - VIRTUAL SECURITIZATION Virtual Structure Pros: - Maintain transaction substance - Reduce DSO to zero - Side step legal and regulatory complexity - Ease of execution - No cross border issues Cons: - Maybe too much disintermediation - Maybe shifting bargaining power to PRC foundries Exporter U.S. Company Loan Proceeds Collateral Agent ABN AMRO Bank Shanghai PRC Border ST Loans Payments Products Obligors/Debtors Payments Notes Loan Proceeds Note Investors 34

35 Example III: Future Flow 35

36 CASE STUDIES III - FUTURE FLOW Structural Diagram: Future Flow Obligators Country 1 ABC Co. Originate & Service Surety Bond Provider Goods & Services Emerging Market Financial Guarantee Obligators Country 2 Payments Off-Shore Trustee ABC Off-Shore SPC Senior Interest ABS Market Senior Interest ABCP Conduit Obligators Country 3... Cash CP Notes ABCP Market 36

37 D. ABN AMRO s Global Securitization Credentials 37

38 ABN AMRO CREDENTIALS ABN AMRO s Asset Securitization Programs as of Mar-03 Term ABS Chicago CP/ECP programs Chicago Term ABS London CP/ECP programs Amsterdam Term ABS Singapore CP/ECP programs Singapore Term ABS Sydney CP/ECP programs Melbourne Windmill Amsterdam Grand Funding Funding Funding II CP/ECP CP/ECP CP/ECP A-1+/P-1 A-1/P-1 A-2/P-2 $8,387 mln O/S $10,599 mln Comm. $7,593 mln O/S $10,407 mln Comm. * Tulip includes Tulip Euro Funding Corp. Ltd $286 mln O/S Tulip Funding CP/ECP A-1+/P-1 $9,131 mln O/S $300 mln Comm. $11,500 mln Comm. Amstel Funding CP/ECP A-1+/P-1 $22,914 mln O/S $24,556 mln Comm. Orchid Tasman Abel Funding Funding Funding CP/ECP CP/ECP AUCP/ECP P-1/F-1 A-1+/P-1 A-1+/P-1 $257 mln O/S $300 mln Comm. $1,513 mln O/S $1,618 mln Comm. 38

39 ABN AMRO CREDENTIALS Conduit Information 20 largest ABCP Program Administrators Rnk Sponsor % Market share $ Millions 1 Citibank 9.9% $73,641 2 ABN AMRO 6.6% $49,262 3 Bank One 5.3% $39,545 4 General Electric Capital 4.7% $34,842 5 Bank of America 4.3% $32,007 6 Westdeutshe Landesbank Girozentrale 3.7% $27,759 7 Liberty Hampshire 3.7% $27,591 8 JPMorgan Chase Bank 3.3% $24,322 9 Barclays Bank PLC 2.7% $20, Rabbobank Nederland 2.7% $20, Bayerische Hypo-und Vereinsbank 2.5% $18, Dresdner Bank 2.3% $16, Ford Motor Credit Company 2.3% $16, Bayerische Landesbank Girozentale 2.2% $16, Deutsche Bank 2.2% $16, Bank of Tokyo-Mitsubishi 2.2% $16, Societe Generale 2.2% $16, Firstar Bank, N.A. 2.0% $15, Canadian Imperial Bank of Commerce 1.9% $14, Wachovia Bank 1.8% $13,683 Top 20 Outstandings 68.5% $510,601 Average 3Q02 ABCP Outstandings 100.0% $745,124 Source: Moody s as of (2/03/03) 39

40 ABN AMRO CREDENTIALS Top European ABS Underwriters 2002 Ranking of Lead Managers: European ABS 2002 Issuance # of Market 2001 Issuance # of Market Rnk Underwriter ($MM) Deals Share (%) ($MM) Deals Share (%) 1 Salomon Smith Barney $11, % $24, % 2 Deutsche Bank $11, % $9, % 3 J.P. Morgan $11, % $6, % 4 Morgan Stanley $10, % $11, % 5 Barclays Capital $9, % $4, % 6 ABN AMRO $9, % $11, % 7 Credit Suisse First Boston $5, % $13, % 8 Leham Brothers $5, % $4, % 9 BNP Paribas $4, % $5, % 10 Societe Generale $4, % $ % 11 WestLB $3, % $ % 12 HypoVereinsbank $3, % $1, % 13 UBS Warburg $3, % $5, % 14 Commerzbank $3, % $1, % 15 Merrill Lynch $3, % $8, % 16 Bear Stearns $3, % $ % 17 Royal Bank of Scotland $3, % $3, % 18 Dresdner Kleinwort $2, % $2, % 19 Fortis Bank $2, % $1, % 20 Credit Agricole Indosuez $1, % $1, % 21 Banca Nationale del Lavoro $1, % $ % 22 Rabobank $1, % $1, % 23 Unicredit Banca Mobiliare $1, % $1, % 24 Goldman Sachs $1, % $1, % 25 Banca IMI $1, % $1, % OTHERS $13, % $14, % TOTAL $134, % $137, % Source: Asset-Backed Alert 40