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CRMM-3-the-structuring-process.html
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<!doctype html>
<html lang="en">
<head>
<meta charset="utf-8">
<title>Credit Risk Measurement and Management | Chapter 3 | The Structuring Process</title>
<meta name="description" content="Financial Risk Manager Part 2 Study Materials">
<meta name="author" content="MacLane Wilkison">
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<section>
<h1>Chapter 3</h1>
<h3>The Structuring Process</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">Alchemists Academy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Structured Finance</h2>
<p><em>Definition: The process by which firms raise funds in a nontraditional way, altering the firm's risk profile in the process</em></p>
<ul>
<li>Enables firms to raise funds independent of their fundamental creditworthiness</li>
</ul>
</section>
<section>
<h2>Types of Structured Financial Solutions</h2>
<ol>
<li>Securing specific liabilities with specific assets</li>
<li>Asset securitization</li>
<li>Ring-fencing assets</li>
<li>Venture capital formation</li>
<li>Funded risk transfer or risk finance</li>
<li>Reducing agency costs among security holders</li>
<li>Meeting specific investor demands</li>
</ol>
<aside class="notes">
1. A firm can issue secured claims by setting aside specific assets as collateral to back the cash flows on the specific secured claims. 2. A form of structured finance in which certain real assets of the firm are sold. The payment for the acquisition of said assets by the purchasing firm is funded by the issuance of new securities whose principal and interest is backed by the assets. 3. This involves the segregation of selected assets into a separate legal entity.
</aside>
</section>
<section>
<h2>Structuring Process</h2>
<ol>
<li>Identify economic motivation</li>
<li>Prepare preliminary cash flow model</li>
<li>Appoint a structuring agent</li>
<li>Identify investor interest</li>
<li>Design institutional features of the structure</li>
<li>Design securities</li>
<li>Determine target ratings and enhancements</li>
<li>Execute the deal and ramp-up</li>
</ol>
<aside class="notes">
1. This ensures that costs are justified and that the structuring method is appropriate. 2. The model should clearly define per-period cash flows and conform to the appropriate project evaluation principles. 3. Agent should be capable at financial modeling with a complete understanding of the issuer's financials, credit markets, and structured finance principles. 4. Gauge demand. 5. May require the formation of a special purpose entity (SPE). 6. Needs to satisfy both the economic motivations of the issuer and meet investor demand/interest. 8. The ramp-up is the period of time during which any asset repackaging, sales, transfers, etc. occur.
</aside>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
</section>
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