CFA L1 / FI / M17. Securitization
Module 17 · Fixed Income

Fixed-Income Securitization

EN: SPV structure, tranching, credit enhancement.
VN: Cấu trúc SPV, tranching, tăng cường tín nhiệm.

1. Securitization Process Concept

About: Originator pools assets → sells to bankruptcy-remote SPV → SPV issues tranches → servicer collects/distributes. Transforms illiquid loans into liquid bonds.Tóm tắt: Originator pool → SPV (cách ly phá sản) → tranches → servicer thu hộ. Biến nợ khó bán thành TP.
  • 1. Originator pools financial assets (loans, receivables).
  • 2. Sells the pool to a Special Purpose Vehicle (SPV) — bankruptcy-remote.
  • 3. SPV issues tranches of bonds/notes backed by the pool's cash flows.
  • 4. Servicer collects payments and passes to investors.

2. Tranching & Waterfall Concept

About: Senior (highest priority, lowest yield) → mezzanine → equity (first-loss). Waterfall pays interest down the stack; principal usually too. Equity absorbs first defaults.Tóm tắt: Senior → mezzanine → equity. Waterfall trả từ trên xuống. Equity chịu loss trước.
  • Senior Highest priority, lowest yield — first to receive interest/principal.
  • Mezzanine Mid-priority, mid-yield.
  • Equity / Subordinate Last in priority; absorbs first losses, highest expected yield.

3. Credit Enhancement Concept

About: Internal: subordination, overcollateralization, excess spread, reserve fund. External: surety, LoC. Boost senior tranche to investment grade.Tóm tắt: Internal: subordination, OC, excess spread, reserve. External: surety, LoC. Đẩy senior lên IG.

Internal

  • Subordination Loss waterfall protects senior tranches.
  • Overcollateralization Pool value > bonds outstanding.
  • Excess spread Pool yield > bond yield + servicing fees.
  • Reserve fund Cash buffer for shortfalls.

External

  • Surety bond Insurance company guarantee.
  • LoC Bank letter of credit.

Practice problem Practice

Practice problem

An ABS structure has $100M senior tranche, $20M mezzanine, $5M equity. The pool experiences $7M in losses. How are losses absorbed?

Show solution
Equity tranche absorbs first $5M of losses (fully wiped out).
Remaining $2M absorbed by mezzanine ($20M tranche → reduced to $18M).
Senior tranche: untouched.
Equity: −$5M (gone). Mezz: −$2M (now $18M). Senior: untouched.