Suleman Baig & Moorad Choudhry 
The Mechanics of Securitization 
A Practical Guide to Structuring and Closing Asset-Backed Security Transactions

A step-by-step guide to implementing and closing securitization
transactions

Securitization is still in wide use despite the reduction in
transactions. The reality is that investors and institutions
continue to use this vehicle for raising funds and the demand for
their use will continue to rise as the world’s capital needs
increase.

The Mechanics of Securitization specifically analyzes and
describes the process by which a bank successfully implements and
closes a securitization transaction in the post subprime era. This
book begins with an introduction to asset-backed securities and
takes you through the historical impact of these transactions
including the implications of the recent credit crisis and how the
market has changed.

* Discusses, in great detail, rating agency reviews, liaising
with third parties, marketing the deals, and securing
investors

* Reviews due diligence and cash flow analysis techniques

* Examines credit and cash considerations as well as how to list
and close deals

* Describes the process by which a bank will structure and
implement the deal, and how the process is project managed and
tested across internal bank departments

While securitization transactions have been taking place for
over twenty-five years, there is still a lack of information on
exactly how they are processed successfully. This book will put you
in a better position to understand how it all happens, and show you
how to effectively implement an ABS transaction yourself.

Table of Content

Foreword xi

Preface xv

Part One Introduction to Securitization 1

Chapter 1 Introduction to Securitization and Asset-Backed Securities 3

The Concept of Securitization 4

The Process of Securitization 7

Securitizing Mortgages 14

ABS Structures: A Primer on Performance Metrics and Test Measures 18

Securitization: Features of the 2007-2008 Financial Crisis 24

Summary and Conclusions 33

References 34

Chapter 2 The Securitization Market Post-2007 35

Market Observation 35

Impact on Rating Agencies 40

Summary and Conclusions 42

Part Two Guide to Closing a Securitization Transaction 45

Chapter 3 Structuring and Execution of a Transaction 47

A Securitization Process 47

Summary and Conclusions 69

Chapter 4 The Rating Agency Process and Legal Review 71

Select Rating Agencies 71

Undertaking Legal Due Diligence 73

Begin Drafting Documents 78

Set Up the SPV 82

Modeling the Transaction 85

Determine Capital Structure/Trigger Levels 90

Prepare Marketing Materials 96

Pricing, Close, and Settlement 98

Summary and Conclusions 99

Chapter 5 Static Synthetic CDO Cash Flow Waterfall Model 101

Summary and Conclusions 107

Part Three Transaction Closing Templates and Checklists 111

Chapter 6 Transaction Templates and Checklists 113

Red Sea Master Series Limited Structure Diagram 113

Underlying Asset Pool 113

Draft Term Sheet 120

Closing Process 126

Structuring Notes 127

Rating Agency Preparation and Questionnaire 129

Loan-Level Data: Rating Agency Checklist 138

Agenda for Rating Agency Site Visit 140

Legal Counsel Review 140

Form of Transfer Certificate 144

Investor and Rating Agency Presentation Template 147

In-House Credit Rating Mapping Chart: Lower and Upper Values 149

Rating Agency Presentation: Corporate Bank Origination Processes 149

Loan Transfer Schedule of Tasks 154

Loan Transfers, Accounting Movements 158

Sign-Off Document: Securitization Project 160

Securitization Testing: Finance Department 161

Accounting Process on Closing 166

EUR Junior Tranche Trade Ticket 167

Senior Tranche Trade Ticket 168

Internal Transfer Booking Process 169

Questions from Trustee, Paying Agent, and Services Provider 169

Summary and Conclusions 172

About the Authors 173

Index 175

About the author

SULEMAN BAIG works with the credit structuring team at Deutsche Bank AG in London. He has extensive experience dealing with first-time issuers and has structured a number of securitization transactions (both agency and principal) in a variety of asset classes and jurisdictions. Suleman graduated with a degree in mathematics from the London School of Economics.

MOORAD CHOUDHRY is Treasurer, Corporate Banking Division at the Royal Bank of Scotland, and visiting professor in the Department of Mathematical Sciences, Brunel University. He is on the editorial board of the Journal of Structured Finance and a member of the editorial advisory board of American Securitization.