Asset-Backed Financing: Asian Applications. Selected Asian Case Studies. Dah Sing Thai Cars Hong Kong Credit Cards

Transcription

1 Asian Applications/1 IBBM Financing with Asset-Backed Securities Asset-Backed Financing: Asian Applications Prof. Ian Giddy Stern School of Business New York University Selected Asian Case Studies Dah Sing Thai Cars Hong Kong Credit Cards Copyright 2002 Ian H. Giddy Asian Applications 2

2 Asian Applications/2 Hong Kong SAR Mortgage-Backed Securities (Dah Sing) Dah Sing Mortgage-Backed Securities The structure Terms of the notes The assets The risks to be evaluated by a rating agency Guarantees Motivation of seller/servicer Copyright 2002 Ian H. Giddy Asian Applications 4

3 Asian Applications/3 Dah Sing/Hong Kong SAR Dah Sing Seller/Servicer Mortgage portfolio Chase Cayman Is (Share Trustee) Currency Swaps 100% Hong Kong SAR Res Mort. Ltd Cayman Is. General Re 5.5% Sub Loan US$ FRN Dah Sing Investors Financial Guarantees ASIA Ltd CapMAc Copyright 2002 Ian H. Giddy Asian Applications 5 Dah Sing/Hong Kong SAR Servicing and excess servicing fees 5.5% Sub Loan Dah Sing Dah Sing Seller/Servicer Monthly HK$ payments Hong Kong SAR Res Mort. Ltd US$ Int & Prin. Investors Mortgagors Monthly HK$ payments Currency Swaps General Re Financial Guarantees ASIA Ltd CapMAc Copyright 2002 Ian H. Giddy Asian Applications 6

4 Asian Applications/4 Key Terms Issuer HK SAR Amount US$300mm Maturity 2.7 Ave., 7 Final Interest 1 mo Libor + Step-up Amortization: Monthly scheduled + prepayments Calls: 10% cleanup, etc Copyright 2002 Ian H. Giddy Asian Applications 7 The Assets? HK residential mortgages Monthly payments, semi-floating rate Prepayment characteristics Credit criteria? Loan-to-value ratio low Average rate 9.8% Owner-occupied Etc. Copyright 2002 Ian H. Giddy Asian Applications 8

5 Asian Applications/5 The Risks? Credit risks Liquidity risk Servicer performance risk Swap counterparty risk Guarantor risk Legal risks Sovereign risk Interest rate and currency risks Prepayment risks Copyright 2002 Ian H. Giddy Asian Applications 9 The Guarantees? ASIA 11% first loss CapMAC 100% Interest & Principal Swap performance guarantees Copyright 2002 Ian H. Giddy Asian Applications 10

6 Asian Applications/6 Benefits to the Seller? Capital requirement reduction Service fees Excess servicing fees, which depend on keeping default losses and other costs low Copyright 2002 Ian H. Giddy Asian Applications 11 Benefits to the Seller? Capital requirement reduction Service fees Excess servicing fees, which depend on keeping default losses and other costs low But...does the originator s asset quality deteriorate as a result of the asset securitization? Some of best assets sold Retained 5.5% of assets, subordinated Excess service fees depend on defaults Copyright 2002 Ian H. Giddy Asian Applications 12

7 Asian Applications/7 Thai Cars Auto Hire-Purchase Securitization: Thai Cars Tru-way and Tisco are Thai finance companies with car and truck HP receivables and leases Thailand has code law system, with no provision for SPV Thai Value-Added Tax on sale of assets and withholding tax on interest made conventional ABS difficult Investors wanted dollars, not baht. Copyright 2002 Ian H. Giddy Asian Applications 14

8 Asian Applications/8 Thai Cars: How it Should Be Investors US Dollars Thai Cars SPV Thai Baht Tru-Way/ Tisco Financial Guarantee MBIA Bankers Trust Currency Swap Thai Baht Car Owners Copyright 2002 Ian H. Giddy Asian Applications 15 Thai Cars How was the transfer of assets and funds structured? Where is the SPV, and what are its assets and liabilities? Show how the swaps worked. Copyright 2002 Ian H. Giddy Asian Applications 16

9 Asian Applications/9 Thai Cars: A Secured Loan, Not True Securitization The assets, the hire purchase loans and leases, remained in the possession of Tru Way and TISCO. These Thai baht assets were assigned to Tru Lease, another Thai company, which made a loan to Tru Way/Tisco Tru Lease sold the rights to the cash receipts to Thai Cars Limited, a special-purpose Bermuda company Thai Cars paid for these rights in Japanese yen, and issued floating-rate notes denominated in US dollars. Copyright 2002 Ian H. Giddy Asian Applications 17 Thai Cars: Initial Exchanges US Investors US$ Cash US$ Notes Thai Cars Ltd Issuer (Bermuda) Initial principal balance equal to yen equivalent of the initial principal balance of the notes Yen Loan Tru Lease (Thailand) Baht Cash Baht notes/loan Baht Cash Tru Way TISCO HP/Lease Agreements Car Buyers/ Lessors Copyright 2002 Ian H. Giddy Asian Applications 18

10 Asian Applications/10 Thai Cars: Ongoing Flows US Investors US$ L+.22 Thai Cars Ltd Issuer (Bermuda) Principal payments equal to US$ equivalent of principal payments of Yen Loan on quarterly payment date Yen L+? Tru Lease (Thailand) Yen equivalent of the baht principal repayments Baht interest Baht principal Tru Way TISCO Baht interest and principal Car Buyers/ Lessors Copyright 2002 Ian H. Giddy Asian Applications 19 Thai Cars: Swap Initial Exchanges Swap US$/Yen Swap Baht/Yen Bankers Trust Bankers Trust Amount in Yen equal to the initial principal balance of the Yen Loan (Yen equivalent at spot of $250M) Amount in US$ equal to gross proceeds of the issue of the notes ($250M) Amount of Baht equal to the Baht Notes purchase price (equivalent of $250M) Amount in Yen equal to the principal balance of the Yen Loan US$250M Thai Cars Ltd (Issuer) Loan in Yen Tru Lease Copyright 2002 Ian H. Giddy Asian Applications 20

11 Asian Applications/11 Thai Cars: Swap Ongoing Payments Swap US$/Yen Swap Baht/Yen Bankers Trust Bankers Trust Amount in US$ equal to the principal and interest to be paid on the notes (LIBOR+0.22%) Amount in Yen equal to the principal and interest on the Yen Loan (*%) Amount in Yen equal to the principal and interest to be paid on the Yen Loan Amount in Baht equal to the principal and interest on the Baht Notes/Loan (weekly payment date) 9.25% Dollar principal and interest LIBOR+0.22% Thai Cars Ltd (Issuer) Yen principal and interest Tru Lease Copyright 2002 Ian H. Giddy Asian Applications 21 New Thai Law Facilitates Securitization Special purpose vehicles authorized Banktuptcy remoteness Transfers of claims without notification Usury ceiling waived Securities and Exchange Commission to supervise Tax and accounting issues to be resolved Copyright 2002 Ian H. Giddy Asian Applications 22

12 Asian Applications/12 Case Study: Hong Kong Card Master Trust Case Study: Hong Kong Card Master Trust What is the relationship among the parties in this deal? (Draw a diagram) How are investors protected? And FSA? How are the interest rate and currency risks managed? Can you quantify the costs and benefits to Chase? Copyright 2002 Ian H. Giddy Asian Applications 25

13 Asian Applications/13 Chase Manhattan Hong Kong: Summary Credit Card Agreement (HK$) Hong Kong Credit Card Obligors Chase 100% Manhattan Card Co.Ltd. (Servicer) Bankers Trust FSA Receivables Purchase Agreement (HK$) Pooling & Servicing Agreement (HK$ Payments) Trustee Financial Guaranty Manhattan Card Funding Corp. (Seller/Cayman Island SPV) Hong Kong Card Master Trust (US Based Issuer) Investors US$ Swap Payments US$ Principal/Interest Payments Spread Account Chase Manhattan Bank N.A. (Swap Bank/Back-up Servicer) Copyright 2002 Ian H. Giddy Asian Applications 30 HK$ HK$ Swap Payments Excess Spread (HK$) after losses Summary of Terms Issuer Hong Kong Card Master Trust Amount US$200mm Paydown 4-7 years Calls 5% Clean-up Rate Libor+0.25% Collateral $255mm HK credit card receivables pool Rating AAA/Aaa (FSA guarantee) Copyright 2002 Ian H. Giddy Asian Applications 31

14 Asian Applications/14 The Assets: Credit Card Receivables What is the credit quality of the assets? Diversified: 281,352 accounts Charge-offs (0.74%-2.70%) Delinquencies (2.2%-4.0%) Balance/Limit ratio 47% Age: 43% over 3 years Fraud: partial insurance from Visa/MC 25% overcollateralization Servicing: high quality Copyright 2002 Ian H. Giddy Asian Applications 32 Paydown Structure 225 Seller interest 200 June 1999 (princ. Commencement) 10 Clean-up call Nov 1994 Jan 2000 (exp. Final) Nov 2001 (Final) Copyright 2002 Ian H. Giddy Asian Applications 33

15 Asian Applications/15 Other Risks Currency risk Interest rate risk Sovereign risk Legal risks Payment timing risks Swap counterparty risk Guarantor risk Copyright 2002 Ian H. Giddy Asian Applications 34 The Economics Average revenue yield HK$ 25.25% Less charge-offs HK$ -1.50% (2xaverage) Less rate paid US$ -5.31% (Libor+0.25%) Other costs (est.) -2.50% Net revenue (est.) +/-16.00% Copyright 2002 Ian H. Giddy Asian Applications 35

16 Asian Applications/16 ABSresearch.com Ian H. Giddy Stern School of Business New York University 44 West 4th Street, New York, NY 10012, USA Copyright 2002 Ian H. Giddy Asian Applications 37