2. Securitisation and corporate finance

3. Basic process of securitisation Originator Obligors SPV special purpose entity 2.Assigns Cash flow Investors 1. Cash flow before securitisation 4. Proceeds of issue of securities 3. Issues securities/ notes 5.Collection and servicing 6.Passes over to SPV, less fees Reinvestment 7. Reinvestment/liquidity buffer 8. Reinvestment proceeds/liquidity facility 9. Payments to investors 10. Originator’s residuary profit 4. Proceeds of sale of receivables Security trustee Class A Class B Class C

4. Essential securitisation process Bank Bank Mortgages Equity Public Savings Origination Credit enhancement Funding Servicing Bank Bank Mortgages Equity Bank Bank Mortgages Equity Bank Mortgages Equity Debt Mortgages Equity Bank Mortgages Equity Debt Public Savings Origination Credit enhancement Servicing SPVs Mortgage-backed Securities Traditional framework Securitisation framework Class A Class B Retained class Residual interest

9. ABS types based on collateral Securitisation Existing asset Future asset Risk Mortgage backed Asset backed Credit risk Insurance risk Operating revenues RMBS CMBS Retail assets CDOs

10. ABS types based on other parameters Securitisation Purpose Nature of asset transfer Term of paper Balance sheet Arbitrage Synthetic structures Commercial paper Cash structures Term paper True sale structure Secured loan structure

15. Securitisation and borrowing

16. Securitisation and borrowing - 2

21. Session 2 Principal structures in securitisation

23. Securitisation structures Securitisation Masterclass Sept 2006 Securitisation structures: Transaction features viewpoint Synthetic structures Cash structures True sale structure Secured loan structure Pass- through structure Collateral structure Simple pass- through Master trust

25. Securitisation Masterclass Sept 2006 Collect Interest (plus other revenue) Collect Actual Principal (Scheduled) Collect all Prepayment Deduct all Senior Expenses Is Actual Principal < Scheduled Principal? Debit Deliqnent Principal Ledger Pay Senior Coupon Excess Spread Principal Waterfall Transfer to Deliqnent Principal Is excess spread >delinquent Principal ? Pay Principal Pay Junior Coupon No Yes No Yes Graphics © Vinod Kothari Cash Flow Scheme of Securitisation

26. Session 3 Understanding cashflow structure of securitisations

48. Session 4 Prepayment and default risks in ABS

54. Bond Market Association forecast of prepayment rates Securitisation Masterclass Sept 2006