Operation principle of asset securitization
(1) Participants in the process of asset securitization As a new financial tool, asset securitization has developed rapidly in recent years because of its economic advantages over traditional financing methods. There are more and more kinds of financial assets being securitized, and the organizational structure of securitization transactions is becoming more and more complicated. Generally speaking, the main participants in the process of asset securitization are sponsors, special trust institutions (SPV), underwriters, investment banks, credit improvement institutions, credit rating agencies and so on. The basic structure of asset securitization is shown in figure 1. Figure 1 reveals the basic structure of asset securitization: the initiator completely separates the traded financial asset portfolio from the initiator and hands it over to a special trust institution for operation. The trust institution issues asset-backed securities in the capital market after the financial assets have passed the credit rating, so as to ensure that the cash flow income of related assets can still flow smoothly to investors under unsatisfactory circumstances.
(B) the operation steps of asset securitization
The basic operating procedures of asset securitization mainly include the following steps:
1 Determine the goal of asset securitization and form an asset pool. Sponsors are generally financial institutions that issue loans. First of all, they analyze their own financing needs for asset securitization, determine the borrower's credit and mortgage value of mortgage-guaranteed loans according to procedures such as liquidation, estimation and credit evaluation, combine receivable and foreseeable cash flow assets, determine the number of assets according to the securitization objectives, and finally pool these assets.
2. Set up a special trust institution (SPV) to realize the real sale. Ad hoc trust institutions are independent trust entities with the sole purpose of asset securitization. The activities of registered ad hoc trust institutions must be strictly restricted by law, and all their funds come from the income from issuing securities. After the establishment of the ad hoc trust institution, it will sign a sales contract with the initiator, and the initiator will sell the assets in the asset pool to the ad hoc trust institution (SPV). This transaction must be conducted in the form of TrueSale, that is, the sold assets will not participate in the liquidation as legal property when the sponsors go bankrupt, and the asset pool will not be included in the liquidation scope, thus achieving the purpose of "bankruptcy isolation". Bankruptcy isolation separates the quality of the asset pool from the sponsor's own credit level, so investors will no longer be affected by the sponsor's credit risk.
3. Improve the transaction structure and carry out credit enhancement. In order to attract more investors and improve the issuance conditions, ad hoc trust institutions must improve the credit rating of asset-backed securities so that the interests of investors can be effectively protected and realized. Because the default, default or debt repayment period of the asset debtor does not match the repayment period of the asset securities arranged by SVP, it will bring losses to investors, so credit enhancement technology represents the business level of investment banks and becomes one of the keys to the success of asset securitization.
4 rating of asset securitization. The rating of asset-backed securities provides investors with the basis for securities selection and constitutes another important link of asset securitization. The rating of asset securitization is similar to that of general bonds, but it has its own characteristics. Credit rating is carried out by professional rating agencies at the request of asset securities promoters or investment banks. The rating consideration does not include the market risk caused by interest rate changes and other factors, but mainly considers the credit risk of assets. The rated assets must be separated from the credit risk of the sponsors. In general, the credit rating of asset-backed securities will be higher than that of the sponsoring institution, because the assets sold have been upgraded. The rating of asset securities ensures the security of securities, which is an important factor that makes asset securitization more attractive.
Arrange securities sales and pay the purchase price to the sponsor. After announcing the credit enhancement and rating results to investors, investment banks are responsible for selling asset-backed securities (ABS) to investors, which can be underwriting or consignment. Special credit institutions (SPV) obtain securities issuance income from investment banks, and then pay most of the issuance income to the sponsors at the purchase price agreed in the asset sales contract.
6. Listing and trading of securities, after-sales management and service of assets. After the issuance of asset-backed securities, they apply to the stock exchange for listing, so as to realize the purpose of liquidity of credit assets of financial institutions. However, the work of asset securitization has not been completely completed. The promoters shall designate an asset pool management company or personally manage the asset pool, be responsible for collecting and recording the cash income generated by the asset pool, and deposit all the income into the collection account of the custodian bank. The custodian bank establishes the accumulation fund according to the agreement, and hands it over to a special trust institution, which will manage the assets of the accumulation fund to repay the principal and interest to the investors at maturity. After the asset-backed securities expire, they will also pay professional service fees to various institutions they employ. After paying the principal and interest and various service fees, if the income generated by the asset pool is surplus, it will be distributed between the sponsor and SPV according to the agreement, and the whole asset securitization process will end.
(C) Analysis of the benefits and risks of asset securitization
1 Analysis of the benefits of asset securitization to participants
(1) Sponsor: The sponsors of asset securitization are usually financial institutions or other types of companies. Asset securitization can provide sponsors with lower financing costs, lower operating leverage, immediately available capital for expansion and reinvestment, diversified sources of funds to better manage assets and liabilities, and enable financial institutions to make full use of their existing capabilities to achieve economies of scale. By selling securitized assets in the open market, financial institutions can quickly obtain liquidity.
(2) Special Trust (SPV): A special trust is an intermediary that purchases the original credit products of the promoters, integrates them, and then sells the packaged securities. SPV buys credit assets at a certain price, increases the value of credit assets by packaging them into commodities traded in the market, and then sells them at a higher price. Through purchase, securitization and sale, SPV distributes almost all credit risks to investors, which makes SPV reduce the cost of owner's equity, because these assets will no longer appear in the balance sheet.
(3) Credit promotion agencies: Credit promotion agencies can be parent companies, subsidiaries or other financial institutions, and can be guarantee companies or insurance companies. As a third-party entity, it is more suitable to make such transactions "real sales". Credit enhancement agencies usually charge a certain service fee in proportion, such as 0.5 of the guarantee amount.
(4) Investment bank: Asset securitization has opened up new business for investment banks. Investment banks act as underwriters in the process of asset securitization to obtain its issuance income.
(5) Investors: The securitization process provides investors with a high-quality market investment choice opportunity. Because most portfolio assets are composed of many microfinance assets, it promotes the diversification of the portfolio, even if one or two of the loans default, it will not have a qualitative impact on the whole portfolio. In addition, many portfolio assets are geographically dispersed. Therefore, the low-speed economic development in a certain region will not profoundly or rapidly affect the performance of the whole portfolio assets, and investors can avoid the risks brought by regional and industry concentration by purchasing some securities of different portfolio assets. Because the credit rating is conducted by a third party and then the rating is published, investors do not have to analyze the credit status of each sponsor themselves, which is an advantage to attract investors compared with the off-balance sheet processing of the accounting elements table 1.
2 Risk analysis of asset securitization
Because asset securitization is very complicated, there are still some risks in every transaction, no matter how well structured, thoroughly studied and accurately recorded. Common risks of asset securitization are as follows:
(1) Fraud risk: From the securities markets of the United States and other countries, we can know that there are many cases in which investors are harmed by fraud. Statements, letters of guarantee, legal opinions, unqualified opinions of accountants and other similar documents are still insufficient to control the occurrence of fraud risks.
(2) Legal risk: Although the original intention of legal letters and legal opinions is to eliminate external risk factors, sometimes the ambiguity of the law and the change of the terms themselves often become risk factors in the whole transaction process. In fact, in the process of asset securitization, legal risks always accompany and play a key role.
(3) Financial risk: Asset securitization is the peak of financial development, representing the perfect balance of performance, technology and structural skills. If any one factor fails, the whole transaction may be at risk. We call this kind of risk financial management risk, which mainly includes participants' failure to trade according to the agreement and equipment's failure to operate according to the requirements, such as computer failure and trading mechanism failure.
(4) Risk of downgrade: It has been confirmed from the existing examples of securitization that asset securitization is particularly vulnerable to downgrade, because the basis of asset securitization transactions contains many complex and diverse factors. If one of the factors deteriorates, the whole level of securities issuance will be in danger, which will have a huge impact on the market.
In addition to the above risks, there are some other risks, such as policy risks, property and accident risks, invalidation of contract agreements or securities, dependence on experts, etc. All these risks are not independent of each other, but interrelated. The influence and possibility of these securitization risks vary with different transactions. Therefore, investors must identify these risks, analyze their scale, study methods to reduce risks, and correctly estimate the effectiveness of those methods to reduce risks. In any asset securitization process, investors should read the statements, guarantees and compensation documents provided in asset-backed securities transactions, understand the scope of their responsibilities, and check whether there are legal opinions issued by legal consultants and unqualified opinions issued by certified public accountants. To prevent a large number of risks in the securitization structure, the most important thing is to look at the means of credit enhancement, and whether there is a reputable bank or insurance company to provide 100% guarantee.