Documentation by a document (English: Securitization) means the creation of tradable securities (English: Securities) from demands (= future payment stream) or vested titles in the broadest sense.

Examples of confirmed by a document rights are ate Backed Commercial PAPER (ABCP), Mortgage Backed Securities (MBS) and forderungsbesicherte securities (CDO).

In the last years an increasing trend is to be observed for the documentation by a document from also exotic vested titles to the extension of the financing possibilities of the emitter (Originators).

The documentation by a document happens by means of so-called SPV's (Special PUR-float Vehicles), societies their only purpose the emission of these securities is frequent and their active from the vested titles brought into this society exists.

In such a way confirmed by a document rights can be subdivided and acted further on the basis of risk criteria. See also: Credit default Swap

Function

In a documentation transaction the salesman (Originator) sells future payment stream to a buyer (SPV). The buyer refinances this purchase by the emission of securities on the capital market. Since it usually concerns with the buyer so-called a purpose companies, the entire process is accompanied structuring by third (Arranger) advisory and above all.

In order to make the complexity of the which are the basis payment stream for the investors seizable into the securities, purchase criteria are to be specified, which ensure that the Abverkauf of the payment stream is insolvency-legally safe above all. For this reason frequently many legal questions for a transaction are to be clarified.

The moreover one always whole Portfolion is sold by payment stream and Rating agencies to ensure by different criteria and characteristic numbers (threshold values), which can be kept, for the fact that the risk profile of the Portfolios remains in first agreed upon borders. If these threshold values are broken through, the transaction can be usually terminated without substantial losses for the investors.

Since a typical Portfolio does not correspond usually to the risk profile of the too emmittierenden abs securities, to reach a Risikominderung with so-called Credit Enhancements imported around this. This can be for example a consumption credit insurance for demands from supply and achievement.

The Risikominderung and the if necessary punctual time limitation of a transaction make this instrument very attractive for investors. Indeed the attainable interest is usually clearly higher than with other securities with comparable Rating despite the complexity of the transactions.

Success factors

For a abs transaction the following substantial points are to attention:

1. Controlled compilation of the Portfolios which can be purchased according to the and limit rules. These are defined due to historical demand performance.
2. Implementation of the necessary Risikominderung by suitable Credit Enhancements.
3. Definition of suitable risk characteristic numbers and escalation measures
4. Continuous reporting around point 1. to supervise, 2. and 3.
5. Contractual documentation in the points of the 1. , 2. , 3. and 4. fixed basic conditions for the purchases and the Servicing of the payment stream.
6. Expiration-safe completion of the transaction.

If the number of the payment stream administered in the Portfolio becomes large (>100), this transaction with a suitable documentation software must be administered. This is usually with ABCP transactions with medium-size commercial debts the case. There several ten thousand demands per transaction are confirmed by a document often weekly or daily. A close coupling of the documentation software with the financial accounting of the Originators is inevitable.

Related links

• Acrys Consults documentation on technological aspects with abs transactions (Securitization Technologies)

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