"Embarking on the Synthetic Securitization Journey: A Guided Experience"

13.10.2023, by iconicchain

Navigating the intricacies of a synthetic securitization transaction demands not only expertise but also a collaborative approach. Working with customers across Europe, we’ve encountered five major steps and key aspects that we’d like to share, illustrating how we work together to achieve success.

Step 1. Data Integration: Fueling Informed Decisions

Our voyage begins with data integration, a critical step to fuel the engine of our operations. Our objective is clear: to feed essential data into the tool, enabling precise calculations. Our software relies on a specific set of data points essential for asset evaluation. But it doesn’t stop there; regulatory reporting requirements, including those mandated by ESMA, ECB, and COREP, must also be incorporated. Our meticulous approach ensures a seamless data feed while preserving data integrity. This foundational step equips us with the information needed for well-informed decision-making.

Step 2. Infrastructure Setup: The Bedrock of Operations

Building a robust infrastructure is pivotal to ensure the seamless operation of our software. We understand that each client has unique requirements, which is why we offer flexibility. Clients can opt to set up their infrastructure in-house or choose our SaaS option, delivered through a secure and reliable EU infrastructure. This choice allows clients to focus on their core competencies while entrusting us with the technical aspects, ensuring a stable and secure environment.

Step 3. Building Asset Pools and Setting Up Transactions: A Collective Effort

Synthetic securitization thrives on collaboration. In this phase, we closely collaborate with both the originator, arranger and investors to build pools of assets. Asset selection and pool eligibility requirements are carefully defined. The meticulous process requires configuring all elements of a securitization “term sheet,” including tranche structure, premium payment conditions, loss handling logic, and other essential details. This meticulous approach ensures that the transaction aligns precisely with the investment condition documents. Together, we lay the groundwork for a successful transaction.

Step 4. Run Forecasts (Optional): Peering into the Future

For those who opt for a more comprehensive view, we offer the option to run forecasts and “what if” simulations. Armed with integrated data, a robust infrastructure, and meticulously structured pools, we embark on comprehensive simulations and forecasts. Our goal is to anticipate potential outcomes accurately. Beyond the basics, we explore various scenarios and stress tests, including those defined by the EBA (European Banking Authority). These insights empower clients to make decisions grounded in a thorough understanding of the transaction’s potential performance.

Step 5. Run Waterfall Scenarios, generate Reports and test End to End: Ensuring Reliability

In the final leg of our journey, we subject our solution to rigorous testing. Running waterfall scenarios involves simulating different payout structures and conducting end-to-end testing. This meticulous analysis ensures equitable distribution of cash flows among tranches and parties involved. It’s an essential step to eliminate surprises and ensure the reliability of the entire process once the transaction goes live.

Throughout this journey, remember that it’s a joint effort. We’re here to support you every step of the way:

  • Synchronizing your data structure to ensure a seamless data feed to our tool. 
  • Assisting with asset and pool setup, along with in-depth analysis.
  • Guiding you through the transaction configuration. 
  • Providing transaction servicing expertise. 
  • Offering comprehensive training for your IT experts on tool installation and for your transaction experts to enable efficient work without external support.

As we close this chapter, we transition into the service support phase. Our commitment to your success doesn’t waver; we’ve streamlined the process for you to seek assistance throughout the contract’s lifecycle. We’ve been honored to be part of your synthetic securitization journey, and we look forward to continuing this partnership and making your financial endeavours efficient and successful.