Análisis de la Franja de Precios Agropecuarios

Dominion Bond Rating Service (www.dbrs.com) describes the risk analyses conducted in rating securitisation transactions. The approach requires three inputs:

− originator inputs (inputs established by the character of the originator and the underlying assets to be securitised);

− dynamic elements (those factors that can be changed to provide different levels of credit enhancement or change certain aspects of the transaction); and

− rating agency inputs (the parameters established during the rating process).

3.1 Evaluating the Originator

Securitisations are executed, amongst other reasons, to separate the credit risk of the assets from that of the originator, which makes it possible for the asset-backed securities to attain a higher rating than that of the originator. Despite this separation of risk, the financial health of the originator cannot be completely ignored. The ongoing viability of the originator is critical when revolving assets such as trade receivables or credit card receivables are securitised. In these transactions, new assets are purchased as old assets are repaid. Because of the continual replacement of assets, an element of risk is introduced. If the originator’s viability is diminished, the ability to generate new assets can be impaired. If a fixed value of asset-backed securities have been issued, there may be insufficient new assets generated to fully invest such funding, necessitating the investment of surplus cash in permitted investments that would most likely yield less than the cost of the securities. The resultant negative carry would diminish the excess spread and thus the transaction’s credit enhancement. Alternatively, the surplus cash could be used to make an early payout to investors. In the latter case, investors may be exposed to reinvestment risk if interest rates have declined and the proceeds from the early redemption of securities have had to be invested at lower interest rates.

In a revolving structure, reliance is placed on the originator to maintain credit granting standards, legal safeguards and sound collection procedures. When the financial health of the originator

deteriorates, there may be an incentive to loosen these standards or even to generate non-existent assets fraudulently. Fraud is the most worrisome and least controllable risk, and the potential for fraud could be expected to increase as the originator’s financial health decreases.

Credit granting standards, independent of the historical performance of the assets, have a profound impact on the rating agency’s assessment of the quality of the assets. Historical performance is a good indicator of credit granting standards, but not exclusively so. During periods of economic prosperity, the level of losses may generally be quite low. However, when the economy slows, the magnitude and volatility of losses for conservative originators should be less than that of more aggressive originators.

The extent that a suitably documented approach to credit granting or asset generation is in place, will increase the likelihood that assets of a consistent quality will be generated. Consistency gives the rating agency more confidence in setting credit enhancement levels, amortisation triggers and other numerical parameters required by a transaction. Also, with a formalised approach, any changes in credit granting standards are approved and documented, which provides the rating agency with a better understanding of the future impact of such changes.

Many originators that grant retail credit, e.g. credit card debt, make use of credit scoring systems. Such systems allocate a credit score, i.e. a measure of credit risk based upon demographic and behavioural criteria to an obligor. The use of credit scoring systems is viewed positively because these systems are based on objective criteria that remain relatively constant through time. The level of subjectivity is diminished and a higher level of deliberation is often involved in the setting of credit standards.

While it is difficult to capture an accurate assessment of the quality of management, an informal assessment of the capabilities of the originator’s management is important. Management is expected to be able to initiate and manage a securitisation transaction adequately, and to operate the business successfully with respect to asset generation, financial health and overall stability of operations.

A review of the competitive environment of the originator provides a background for the assessment of the future financial health and growth of the originator.

3.2 Evaluating the Assets to be Securitised

Valuation of an asset pool encompasses two elements: the value of the specific assets over time and the expected losses associated with such assets. The accounting or notional value of an asset pool is irrelevant because the rating agency must be satisfied that the fair market value of such assets is sufficient to repay any outstanding debt.

The liquidity of assets has an important implication in a situation where the transaction enters an early amortisation stage. If the performance of the securitisation transaction is below expectations and early amortisation triggers are breached, the transaction will go into early amortisation. In such a situation, the more quickly and more efficiently assets can be disposed of, the less likely it is that an investor will be subject to a loss. To the extent that assets require a period of time to liquidate in an orderly fashion, the rating agency will conduct stress tests to calculate the associated carrying cost.

The volatility of asset values, prepayments and losses can have a profound impact on the level of credit enhancement required for the transaction. Volatility implies uncertainty, which would lead to higher credit enhancement levels. Volatility is incorporated into stress test models in one of two methods.

− The first method uses either a multiple of a variable, for example losses, or determines a statistically significant confidence level (the number of standard deviations being dependent on the required rating. For example, a ‘AAA’ rating requires a higher confidence level than a ‘BBB’ rating, which is then used in the stress scenario.

− The second method is to incorporate the parameters (mean and standard deviation) of the variable directly into the model and to run the model a number of times to produce a number of results. This distribution should be representative of the expected outcomes associated with the transaction. Credit enhancement is then set at an appropriate level to eliminate a certain percentage of observations60_.

60_{In the distribution of losses produced by the model, an ‘AAA’ rating corresponds, for example, with no more than a}

0.2% chance of loss, which is equal to one observation in 500. Assume the largest loss in the results is R500, occurring only once, with the next largest loss being R460, also only occurring once. Therefore, credit enhancement needs to be set so that the R460 loss would be covered, but not covering the one in 500 chance of a R500 loss. Credit enhancement would thus be set at a minimum of R460.

For revolving structures, in particular, eligibility criteria act as a filter for assets not satisfying particular criteria. Setting appropriate criteria, e.g. assets should not currently be in arrears or in default, ensures some consistency in the quality and performance of assets. Associated with the eligibility criteria are a representation and warranty from the originator that the transfer satisfies the eligibility criteria. If by error, or fraud, an asset is subsequently determined to be ineligible, the originator would typically substitute it with an eligible asset and reimburse any associated costs.

Having adequate assets for the protection of investors in asset-backed securities is insufficient, if legal protection is inadequate. Security is only effective if, firstly, security holders have a legal right to enforce that security and, secondly, the security interest represents a first charge that will not be compromised in any meaningful fashion. The first claim to the security must be legally registered to ensure that other creditors are not favoured by registering a senior claim and to ensure that, if the security has to be realised, it may be realised without undue legal delays or challenges. When registering security, it is necessary to ensure that there are no prior or competing claims against the same assets. Failure to ensure a clean asset may result in a compromised ability to recover on such assets.

For a once-off purchase of assets by the SPV, e.g. the purchase of a home loan pool, it is possible to conduct a title deed search and register all security agreements as necessary. However, for revolving assets reliance must be placed on the process the originator uses to register and search title. To the extent that losses occur due to faulty registration, the SPV would have recourse against the originator under the legal covenants.

Where there are legal considerations in the transaction that are new or unique, the rating agency relies on its council to have an adequate understanding of the potential benefits and pitfalls of various legal avenues or structures. Only after the rating agency has considered the risks associated with the legal issues, does it indicate whether they are appropriate for the transaction.

3.3 Servicing of the Assets

Typically, the originator is also the servicer of the portfolio of securitised assets. In its role as servicer, it will be responsible for the collections of the cash flows emanating from the asset pool.

Assets are only regarded as such if the contractual cash flows that should be generated are actually collected, and the value of the assets is directly dependent on the extent of collections. Collection

procedures, including repossession and sale of collateral, are an important element of the servicing function, as it is ultimately the collections that repay the outstanding asset-backed securities. While ongoing servicing is a consideration, it is the efficiency and effectiveness of the collection of non- performing accounts that are particularly important. It is during the deterioration of portfolio quality that the collections effort becomes one of the key determinants of loss levels.

It is usually a rating agency’s policy to require that a standby backup servicer be appointed for securitisation transactions involving a non-investment grade originator, unless it can be demonstrated that a suitable servicer can be obtained on short notice with little disruption in the servicing function (i.e., it must be demonstrated that the cost of appointing a standby servicer at the time of the transaction outweighs the potential benefits of such appointment). The backup servicer must be able to demonstrate that the delay in collections due to the transition will be minimised. This extends to records transfer and systems compatibility.

The rating agency reviews the originator’s management information systems as it relates to the servicing function. The rating agency reviews the computer and manual systems to ensure that, should disaster strike, the company has the ability to recreate records and restart systems on a timely basis. Only once the rating agency is satisfied with the feasibility of the disaster recovery plan will the originator’s servicing role be approved.

3.4 Evaluating the Securitisation Structure

The structural elements of a securitisation transaction are the variable elements that are combined in various permutations to achieve the desired accounting, legal, regulatory and economic effect. Certain structural elements and risks can be identified and these are considered below.

3.4.1 Credit Enhancement

The level of credit enhancement is perhaps the most important focus of attention in securitisation transactions. There is an implicit cost associated with credit enhancement in whatever form it is used and an originator has a desire to reduce these costs. However, this is contrary to the interests of investors. The rating agency ensures that the desire of the originator to reduce credit enhancement levels does not compromise the level of protection afforded to investors. Of the various forms of credit enhancement, rating agencies typically prefer cash reserve accounts because cash is liquid, has a known value, is not subject to legal ambiguity and has no associated credit risk. The cost, however,

of providing credit enhancement in the form of cash is generally higher than any other form of credit enhancement. Cash reserve accounts are therefore usually limited to a small percentage of securitisation transactions, and are used when liquidity requirements are paramount. Liquidity requirements for term securitisation transactions are lower at inception and more important towards the end of the transaction. Cash reserve accounts are normally set as a percentage of the asset pool, but with a minimum floor amount. This allows the reserve account to decline as the pool amortises, limited by the floor amount, effectively increasing liquidity at the end of the transaction when it is most needed.

3.4.2 Revolving versus Amortising Structures

In the case of an amortising pool, the composition of assets is fixed and subject only to the collection of contractual cash flows. In the case of a revolving pool, there is the added complexity of dealing with new assets, which can have serious implications for the performance of the pool, either due to changing origination standards or to different characteristics of the new assets. In revolving pools, the potential for fraud is higher because there is no explicit check on the assets with each purchase. Amortising pools do have an explicit check on the assets when they are purchased.

3.4.3 Commingling Cash Flows

The originator usually collects cash on behalf of the securitisation SPV. This cash is often paid into the originator’s collections account before being transferred to the SPV’s transaction account. During the period that the cash is in the originator’s account, it is commingled with other collections of the originator outside of the securitisation transaction. The main concern with commingling is the possibility that cash belonging to the SPV may end up in curatorship upon the bankruptcy of the originator. Such a situation may entail either a prolonged period before the return of such funds or such cash being used to satisfy other creditors and potentially being wholly or partially unrecoverable. Commingling risk is thus a real concern with non-investment grade originators, and in such cases either all funds are deposited in a trust account, or obligors send their funds directly to the SPV. Cash not belonging to the SPV is then released to the originator.

3.4.4 Set-Off

Set-off risk is the potential for non-payment by an obligor as the result of the obligor having a competing claim. For example, an obligor may attempt to set-off a deposit with a bank as payment

for a loan granted by the bank to the obligor. If the set-off is successful, the obligor’s debt is discharged. If the loan has been securitised, the securitisation SPV will have no recourse to the obligor. To mitigate set-off risk, securitisation transactions usually preclude any opportunity for an obligor to set-off.

3.4.5 Liquidity

For asset-backed commercial paper conduits the rating agency requires that liquidity lines be provided covering at least 100% of outstanding commercial paper. Generally the term of liquidity lines is 364 days, which corresponds to the longest period for which commercial paper can be issued. The rating agency would insist that all commercial paper be covered by existing liquidity lines, by either limiting the maximum term of the commercial paper, or by having a covenant determining that commercial paper cannot be issued beyond the expiry date of the existing liquidity lines.

3.4.6 Concentration Risk

The securitisation of assets relies on a homogeneous pool of a large number of assets so that historical performance is statistically meaningful in predicting future results. However, if there are a few large obligors that represent a significant portion of the pool, the performance of the pool is more directly related to the performance of these few large obligors. As such, the credit risk profile of the pool would be similar to the credit risk profile of these large obligors. Therefore, to ensure that the pool is diversified sufficiently, the rating agency imposes concentration limits on the pool. The concentration limits are tailored to the individual circumstances associated with each transaction.

3.4.7 Material Adverse Change Clauses

The material adverse change (MAC) clause is included in the termination events of the transaction documents, and gives the trustee the power to terminate the securitisation transaction if there has been a material adverse change in the affairs of the originator that may affect the performance of the purchased assets. This clause is valuable in that it gives discretion in the determination of events that will terminate the transaction. The rating agency usually requires a material adverse clause for every transaction involving a non-investment grade originator. For investment grade originators, the financial strength of the originator, and also the characteristics of the underlying asset pool are evaluated to determine the need for a material adverse clause.

3.4.8 Amortisation Events

Amortisation events are triggers incorporated into the transaction that will terminate the purchases of new assets from the originator. Amortisation triggers are particularly critical for revolving asset pools and pay-through structures where cash is accumulated within the SPV during the intervals between payments to investors. For some structures, such as term securitisations, amortisation triggers are irrelevant because no commitment is made to purchase new assets, or because cash payments are paid to investors upon receipt, as is the case with pass-through structures.

Amortisation events are designed to be triggered prior to any investor loss. The rating agency desires triggers that have a sufficiently high threshold to prevent unnecessary termination of transactions, which will lead to the reinvestment risk being borne by the investors and potentially significant refinancing costs to the originator. At the same time, the triggers should not be set so high that the triggers are too late to act as a warning to prevent losses to investors.

Amortisation triggers can be tied to loss levels, delinquency levels, prepayment rates, the originator’s credit rating, the level of remaining credit enhancement and originator bankruptcy. The triggers can be spot or average ratios, and can be fixed or dynamic. Historical performance of the assets is monitored and stress testing incorporated in setting trigger levels61_.

3.4.9 Bankruptcy-Remote Opinions

Because of the pivotal role of bankruptcy-remoteness of the SPV in a securitisation, the rating agency’s council reviews all legal documentation with respect to true sale and bankruptcy-remote opinions.

3.4.10 Evaluating Basis Risk

Basis risk entails potential exposure as a result of differences in the pricing of assets and liabilities. A typical example would be the case where the assets yield a floating interest rate, whereas the liabilities pay a fixed interest rate. Generally, basis risk entails a fixed-floating exposure, but can also be an

61 _{Assume the results from stress testing indicate that loss levels of four times the historical loss rate can be absorbed on a}

sustained basis before losses materialise. Setting an amortisation trigger at, for example, two times the historical loss rate may be a good solution because, since it is twice the historic rate, the chances of an inadvertent trigger is low, and since it is only 50% of the rate that would cause losses to investors, there is only a slight possibility that investors would suffer a