Securitization is to securitize a group of assets, which are qualified as receivables providing a certain cash flow for the future in the statement, based on the pools where they are brought together into securities with higher credibility and negotiability and to sell them to a wider group of investors, thus providing funds. The new debt instruments which are created by means of securitization are also called Structured Financing or Asset Backed Securities (ABS). Structured financing is based on three characteristic properties of;

• Bringing the assets together and combining them (cash and/or synthetic assets), 

• Segmentation of asset backed liabilities (classic securitization), 

• Breaking the ties of the credit risk of the guaranteed assets from the credit risk of the originator (independent special purpose vehicle - SPV - with limited life).

Not all types of assets are subject to securitization. In order for the assets to be securitized; 

• Their maturity should be homogenous,

• They should be collected in installments and they should provide a constant cash input, 

• The debtors should be common, with determinable creditworthiness and low risk of reimbursement,

• Should have fixed interest, 

• And the cash flows should be sturdily predictable and have a well-defined reimbursement plan.

In this sense; because receivables like the credit card receivables, vehicle loans, consumers loans, receivables from financial lease, mortgages, factoring receivables, high risk yielding bonds (junk bonds), franchising payments, loans from developing countries, health loans, SME loans, receivables based on money order, export incomes, plane tickets receivables have the characteristics above, they are extremely suitable for securitization. The parties of the securitization process can be listed as follows;

• Debtors

• Originator

• Servicer

• Special Purpose Vehicle

• Credit Enhancements

• Investment Bankers

• Rating Agencies

• Trustee

• Investors

Structured financing can be defined as the financial mediation services based on securitization techniques. It includes the receivables based on the cash flows from the cash assets that investors brought together in the statement after the sales (mortgage loans, credit card receivables and bonds) or from synthetic risks (e.g. credit default risk – CDR). The securities are issued in many segments based on premium assets. The collateralized assets that are gathered, are separated from the originators’ balance sheet.

Structured financing; is a financing technique that has found a wide opportunity of use since the 1990’s and it generally means securitizations based on the fixed assets in the company’s balance sheet, establishment of financing structures based on export and similar foreign pecuniary claims and funding in low cost and suitable maturities pursuant to the existing or future cash flows and incomes.

The structured financing technique serves the purposes of reaching new and less costly sources of finance and effective managing of portfolio by lightening the burden of restrictions of legal regulations on banks and financial institutions. This financing technique is becoming more and more common worldwide as it diversifies investments and provides tempting income opportunities.
Structured financing has three fundamental properties today:

1. It includes using financial assets like loans, bonds and credit default swaps together.

2. It is a special purpose financing technique that includes the differentiation of the credit risk of the financial assets used in structured financing and the credit risk of the company or bank issuing these assets.

3. In this financing technique, the debts in the liabilities of the companies are compared and classified based on being backed with the assets in assets.

The key element of structured financing is to classify between the assets and liabilities of companies and create at least one asset backed security. The asset which backs this financial instrument is important in today’s financial markets will become a desired instrument in the future in our country as it generally has a higher rating than the company. This new financing technique provides cheap, fast and reliable ways of financing for the companies.

JCR ER provides valuation and rating services for interest rate, liquidity and compatibility of capital and interest payments with cash flows for bonds such as;

• Asset Backed Certificates

• Asset Backed Obligation

• Assed Backed Preferred Stock

• Assed Backed Commercial Papers

• Covered Bond

which companies and other financing institutions securitize and issue by means of pass-through, pay-though and asset backed bond methods based on the assets. Our analytical methodology in this area differs fundamentally from those applied for conventional debt securities. While the credibility of the issuer is examined in conventional debt securities, for asset backed securitizations, the asset pool which forms the basis of such securitization and the credit quality of this pool, the guarantees given and the functionality of these guarantee mechanisms, and data regarding the past experiences of the institution granting the loan become prominent.

In addition, our security examinations continue throughout the maturity of the security. During this monitoring period, changes in credit ratings of those giving credit guarantors and credit quality of the asset pool may result in a rating change for issues. Again during the monitoring period, it will be observed whether the cash flows from the assets in the receivables pool are transferred to the investors in time and on a regular basis.
In our examinations, we check matters such as the possibility of having difficulty of issuers while fulfilling their liabilities because of the inner dynamics of the asset pool, the fundamental structures of the guarantees and provisions, in case of bankruptcy the proportional status of the liability, legal issues.

From the point of view of the originator by highlighting the general risk profile of those in these positions the quality of the portfolio and the important characteristics of the portfolio, underwriting practices, the service provider (servicer) and the trustee are evaluated one by one and then special risks of the collaterals evaluated. Our examinations and evaluations require the reviewing of all of the details in terms of the parties below.

1. Originator

2. Servicer

3. SPV - Special Purpose Vehicle (Issuer)

4. Investment Bankers

5. Credit Enhancements

   1. Internal Credit Enhancements

   2. Senior Subordinated Structure

   3. Overcollateralization

   4. Reserve Account (Spread Account)

   5. External Credit Enhancements

   6. Standby Letter of Credit

   7. Recourse to Seller

   8. Surety Bond

   9. Pool Insurance

6. Trustee

The analysis of legal issues; are evaluated by testing the distraint possibilities of asset owners, seller and the servicer and testing the performance/reputation and their excellence in various fields in the event that such possibility is realized. In addition, not encountering tax and accounting problems of investors and all other parties, legal terms of contracts and similar processes are covered under this title.

In terms of the internal and external guarantee mechanisms (credit enhancements), the credit guarantees and credit guarantors are within the scope of detailed examination. Country rating does not constitute a cap rating for issues that are securitized for the duly structured financing types.

Matters such as the quality of the securitized asset pools of originators, whether the originators or on their behalf, the servicers have the organizational and operational substructure to provide service (monitoring, managing, maintaining of cash flow, reporting, etc.), whether the trustees have the adequate knowledge and experience in getting the data into the pool and checking them for conformance with service agreement, whether there is an limited purpose corporation aside from originators and whether the issuers are non-bankruptcy, the plans of the issuance sales with public listing or being sold to an investment banker, the adequateness of the funds created in the Spread Account, whether the payments which will be made in time and on a regular basis to the investors in the event that the institutions granting the loans go bankrupt or have financial difficulty, and forms that the securitization pass-through securities or asset-backed bonds are important criteria to take into consideration.

As is known in pass-through, the first step of securitization is selling receivables to the guarantor trustee. Risky assets are removed from the balance sheet of the institution selling the receivables and cash input is provided. The trustee issue certificates representing indivisible rights on the assets. These are the most common type of certificates. As for in pay-through, the asset pool which is the guarantee of the security stay in the balance sheet and the securities that are issued based on this pool are put down as debts in the financial statements of issuers. The parties gaining the tax-related advantage change for both methods.

Whether the Receivables Pool is directly related to the issued securities, whether the expected cash flow fits the predetermined schedule, the presence of well-defined payment plans, whether the incomes expected from the assets are predictable, the past performances of the mentioned assets in the period before being placed in the receivables pool, the homogeneity of the assets in the pool in terms of maturity and interest rates, the payment periods of the securities that are securitized and whether the pool incomes include a temporal difference are the factors that determine the credit quality of the Receivables Pool.

The allowed options and terms for the recalling of the securities are specifically examined in the contracts that are issued. In cases of early retirement, the mechanisms that allow the investors for payments before the original maturity of the securities and the procedures of preparation of the early retirement provisions as well as the matters of having capital/liquidity in accordance with this condition are included in this examination.

In terms of banks, the ability to exclude the securitization risks from the scope of the risk weighted assets calculation and whether they have fulfilled the operational conditions in the Basel II regulations in terms of both traditional and synthetic securitizations for the calls to reset in securitization will be checked. The full amounts of the credit risk that the banks have undertaken in terms of all payments for which they are the creditor will be considered. In addition, not only the ratings to be given to the securitization transactions for banks will be notified to the parties, but they will also be included in the transition matrix of JCR ER.

Credit guarantees provided with names such as security bonds, other financial guarantees, irrevocable/revocable support credits, surety bonds, pool insurances, etc. and their functionality are examined both in terms of guarantee and of those giving the guarantee. Also, the type and amount of these guarantees can be differentiated for each segment of securitization. The possibilities of loss and redeem for the first class and other subsequent segments are brought to the forefront. However, as JCR ER, the rating done for the first segment security certificates will not mean that they have been done for the other remaining segments.