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by HENRY A. DAVIS, MOORAD CHOUDHRY, FRANK J. FABOZZI
Introduction to Structured Finance
Cover Page
Title Page
Dedication
Copyright
Contents
Preface
About the Authors
CHAPTER 1: Introduction
DEFINITION OF STRUCTURED FINANCE
OTHER DEFINITIONS OF STRUCTURED FINANCE
CASE STUDY: HOW ENRON HAS AFFECTED THE BOUNDARIES OF STRUCTURED FINANCE
CONCLUSIONS
CHAPTER 2: Interest Rate Derivatives
INTEREST RATE FORWARD AND FUTURES CONTRACTS
FUTURES CONTRACTS
INTEREST RATE SWAPS
OPTIONS
CAPS AND FLOORS
CHAPTER 3: Credit Derivatives
DOCUMENTATION AND CREDIT DERIVATIVE TERMS
CREDIT DEFAULT SWAPS 2
CREDIT DEFAULT SWAP INDEX
BASKET DEFAULT SWAPS
ASSET SWAPS
TOTAL RETURN SWAPS
ECONOMICS OF A TOTAL RETURN SWAP
CHAPTER 4: Basic Principles of Securitization
WHAT IS A SECURITIZED TRANSACTION?
ILLUSTRATION OF A SECURITIZATION
REASONS WHY ENTITIES SECURITIZE ASSETS
BENEFITS OF SECURITIZATION TO INVESTORS
WHAT RATING AGENCIES LOOK AT IN RATING ASSET-BACKED SECURITIES
DESCRIPTION OF THE COLLATERAL
PREPAYMENTS MEASURES
DEFAULTS AND DELINQUENCIES
CHAPTER 5: Securitization Structures
USE OF INTEREST RATE DERIVATIVES IN SECURITIZATION TRANSACTIONS 1
CREDIT ENHANCEMENT
MORE DETAILED ILLUSTRATION OF A SECURITIZATION
CHAPTER 6: Cash Flow Collateralized Debt Obligations
FAMILY OF CDOS
BASIC STRUCTURE OF A CASH FLOW CDO
CDOS AND SPONSOR MOTIVATION
COMPLIANCE TESTS
CHAPTER 7: Synthetic Collateralized Debt Obligation Structures
MOTIVATIONS FOR SYNTHETIC CDOS
MECHANICS
FUNDING MECHANICS
INVESTOR RISKS IN SYNTHETIC TRANSACTIONS
VARIATIONS IN SYNTHETIC CDOS
THE SINGLE-TRANCHE SYNTHETIC CDO
SUMMARY OF THE ADVANTAGES OF SYNTHETIC STRUCTURES
FACTORS TO CONSIDER IN CDO ANALYSIS
CASE STUDY
CHAPTER 8: Securitized and Synthetic Funding Structures
COMMERICAL PAPER
ASSET-BACKED COMMERCIAL PAPER
SYNTHETIC FUNDING STRUCTURES
CHAPTER 9: Credit-Linked Notes
DESCRIPTION OF CLNS
ILLUSTRATION OF A CLN
INVESTOR MOTIVATION
SETTLEMENT
FORMS OF CREDIT LINKING
THE FIRST-TO-DEFAULT CREDIT-LINKED NOTE
CHAPTER 10: Structured Notes
STRUCTURED NOTES DEFINED
MOTIVATION FOR INVESTORS AND ISSUERS
ISSUANCE FORM AND ISSUERS
CREATING STRUCTURED NOTES
EXAMPLES OF STRUCTURED NOTES
CHAPTER 11: Large Ticket Leasing: Leasing Fundamentals
HOW LEASING WORKS
TYPES OF EQUIPMENT LEASES
FULL PAYOUT LEASES VERSUS OPERATING LEASES
REASONS FOR LEASING
TYPES OF LESSORS
LEASE BROKERS AND FINANCIAL ADVISERS
LEASE PROGRAMS
FINANCIAL REPORTING OF LEASE TRANSACTIONS BY LESSEES
FEDERAL INCOME TAX REQUIREMENTS FOR TRUE LEASE TRANSACTIONS
SYNTHETIC LEASES
VALUING A LEASE: THE LEASE OR BORROW-TO-BUY DECISION
CHAPTER 12: Leveraged Lease Fundamentals
PARTIES TO A LEVERAGED LEASE
STRUCTURE OF A LEVERAGED LEASE
CLOSING THE TRANSACTION
CASH FLOWS DURING THE LEASE
DEBT FOR LEVERAGED LEASES
FACILITY LEASES
CONSTRUCTION FINANCING
CREDIT EXPOSURE OF EQUITY PARTICIPANTS
TAX INDEMNIFICATION FOR FUTURE CHANGES IN TAX LAW
NEED FOR A FINANCIAL ADVISER
THE STEPS IN STRUCTURING, NEGOTIATING, AND CLOSING A LEVERAGED LEASE
CHAPTER 13: Project Financing
WHAT IS PROJECT FINANCING?
REASONS FOR JOINTLY OWNED OR SPONSORED PROJECTS
CREDIT EXPOSURES IN A PROJECT FINANCING
KEY ELEMENTS OF A SUCCESSFUL PROJECT FINANCING
CAUSES FOR PROJECT FAILURES
CREDIT IMPACT OBJECTIVE
ACCOUNTING CONSIDERATIONS
MEETING INTERNAL RETURN OBJECTIVES
OTHER BENEFITS OF A PROJECT FINANCING
TAX CONSIDERATIONS
DISINCENTIVES TO PROJECT FINANCING
RECENT TRENDS
APPENDIX A: The Basel II Framework and Securitization
BASEL RULES
IMPACT ON SECURITIZATION AND CREDIT DERIVATIVES
APPENDIX B: Synthetic Securitization: Case of Mortgage-Backed Securities
TRANSACTION DESCRIPTION
DEAL STRUCTURES
INVESTOR CONSIDERATIONS 3
APPENDIX C: Home Run! A Case Study of Financing the New Stadium for the St. Louis Cardinals
ENDNOTES
APPENDIX D: Municipal Future-Flow Bonds in Mexico: Lessons for Emerging Economies
MEXICO IN THE LATE 1990s
FUTURE-FLOW SECURITIZATION
APPLICABILITY TO MEXICO
ARGENTINA: AN EARLY TEST OF THE METHODOLOGY
IMPLEMENTATION IN MEXICO
CREDIT ENHANCEMENT FEATURES
VARIATIONS ON THE BASIC MODEL
COSTS AND RISKS
APPLICABILITY TO OTHER EMERGING ECONOMIES: THE CASE OF SOUTH AFRICA
CONCLUSION: BACK TO BASICS
REFERENCES
APPENDIX E: Crown Castle Towers LLC, Senior Secured Tower Revenue Notes, Series 2005-1
TRANSACTION OVERVIEW
ORGANIZATIONAL STRUCTURE OF CROWN CASTLE INTERNATIONAL CORP.
MOODY'S REVIEW AND CASH FLOW ANALYSIS
STRUCTURE AND CREDIT ENHANCEMENT
REPRESENTATIONS AND WARRANTIES
MANAGER
SERVICER
RATINGS
TRANSACTION SUMMARY
APPENDIX F: MVL FIlm Finance LLC
RATING SUMMARY
STRUCTURE SUMMARY
APPENDIX G: Presale: Honda Auto Receivables 2006-1 Owner Trust
APPENDIX H: Presale: ACG Trust III
ACG Trust III Notes Series 2005-1 Assigned Preliminary Ratings; Outlook Stable
APPENDIX I: CNH Equipment Trust 2006-A
APPENDIX J: CIT Equipment Collateral 2006-VT1
Index
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