Synthetic securitization is an essential tool in modern finance, enabling banks to transfer credit risk without physically selling the underlying assets. This innovative technique allows financial institutions to manage their regulatory capital, optimize their balance sheets, and free up capital for new lending. In an increasingly complex global financial landscape, a deep understanding of these structures is not just an advantage—it's a necessity for professionals involved in risk management, capital markets, and structured finance. Mastering the mechanics, legal frameworks, and associated risks of synthetic deals is critical for maintaining a competitive edge and ensuring robust financial stability.

This comprehensive 10-day training course is crafted to provide participants with both the theoretical foundation and practical skills needed to navigate the world of synthetic securitization. We will delve into the core components, from credit default swaps and funded structures to the intricacies of capital relief and regulatory requirements. Through a combination of in-depth lectures, case studies, and practical exercises, you will learn to analyze, structure, and manage synthetic transactions effectively. By the end of this course, you will be well-equipped to assess the value and risks of these complex instruments, positioning yourself as a knowledgeable expert in this specialized field.

Duration: 10 days

Target Audience:

• Risk Management Professionals
• Capital Markets Analysts
• Structured Finance Specialists
• Treasury and ALM Professionals
• Credit Portfolio Managers
• Regulatory Compliance Officers
• Financial Regulators
• Quantitative Analysts

Objectives:

• Understand the core differences between synthetic and traditional securitization.
• Analyze the key components of a synthetic securitization structure.
• Evaluate the benefits and risks of using synthetic transactions for capital relief.
• Model the cash flows and credit events within a synthetic structure.
• Understand the regulatory framework governing synthetic deals.
• Perform risk management and monitoring of synthetic securitization portfolios.
• Analyze the role of different parties in a synthetic transaction.
• Identify key considerations for structuring a synthetic deal.

Course Modules:

Module 1: Introduction to Securitization and Credit Risk Transfer

• What is securitization and its purpose?
• The concept of credit risk and its management
• The rise of credit default swaps (CDS) and their role
• An overview of the securitization market
• Introduction to the key motivations for synthetic securitization

Module 2: The Foundations of Synthetic Securitization

• Defining synthetic securitization and its core components
• Comparison of traditional vs. synthetic structures
• Funded vs. unfunded synthetic transactions
• The role of the credit default swap (CDS) in a synthetic deal
• Key differences in legal and operational frameworks

Module 3: Structures of Synthetic Securitization

• Single-tranche synthetic CLOs
• The mechanics of a funded synthetic deal
• The mechanics of an unfunded synthetic deal
• The role of a special purpose vehicle (SPV) in funded deals
• A deep dive into the credit risk transfer mechanism

Module 4: The Role of Credit Default Swaps

• Basic principles of a credit default swap (CDS)
• How a CDS is used to transfer risk in a synthetic deal
• The protection buyer and protection seller
• Defining credit events and settlement mechanisms
• Valuing the CDS in the context of the deal

Module 5: Capital Relief and Regulatory Aspects

• How synthetic securitization provides regulatory capital relief
• The Basel III framework and its impact on securitization
• Understanding the risk-weighted assets (RWA) calculation
• The role of supervisory approval and regulatory scrutiny
• Case studies on regulatory treatment in different jurisdictions

Module 6: Modeling and Valuation of Synthetic Structures

• Key assumptions in modeling a synthetic transaction
• The use of statistical models for credit default probabilities
• Modeling the cash flows of a funded synthetic deal
• Valuing the different tranches and the CDS premium
• Performing sensitivity analysis on key model inputs

Module 7: Risk Management in Synthetic Deals

• Identifying and quantifying the risks in a synthetic structure
• The risk of the reference pool assets
• Basis risk and its management
• Counterparty risk of the CDS provider
• Monitoring and reporting of portfolio performance

Module 8: Triggers and Covenants

• Understanding performance triggers in synthetic deals
• The purpose of amortization and redemption events
• Defining a breach and its consequences
• The role of legal documentation in trigger definitions
• Analyzing how triggers affect the deal's lifecycle

Module 9: Legal and Documentation Framework

• The importance of the legal framework for synthetic deals
• Key legal agreements: CDS, swap confirmation, and trust deed
• The role of legal opinions and enforceability
• Understanding event of default clauses
• Navigating the ISDA master agreement

Module 10: Case Studies of Synthetic Transactions

• Analysis of successful synthetic securitization deals
• Examination of synthetic deals that faced challenges
• Lessons learned from the 2008 financial crisis
• A walk-through of a real-world deal structure
• Discussion of the motivations and outcomes for each case study

Module 11: The Investor Perspective

• Why do investors buy synthetic securitization tranches?
• The risk/return profile of different tranches
• The importance of due diligence and credit analysis
• The secondary market for synthetic securities
• Understanding investor concerns and deal covenants

Module 12: Advanced Modeling and Scenarios

• Building a full Monte Carlo simulation for synthetic deals
• Stress testing the portfolio under various economic scenarios
• Modeling the impact of correlation on the portfolio
• The use of copula functions for modeling dependencies
• Advanced techniques for pricing the CDS spread

Module 13: Synthetic Securitization Beyond the Basics

• Understanding bespoke synthetic transactions
• The use of unfunded synthetic securitization for banks
• The evolution of synthetic risk transfer in response to new regulations
• Discussion of other forms of credit risk transfer
• The future of the synthetic securitization market

Module 14: Practical Workshop: Structuring a Deal

• Participants are given a hypothetical asset pool and a capital relief objective
• Working in teams to design a synthetic securitization structure
• Sizing the tranches and the CDS
• Proposing a regulatory capital-efficient solution
• A presentation of the deal structure to the class

Training Approach

This course will be delivered by our skilled trainers who have vast knowledge and experience as expert professionals in the fields. The course is taught in English and through a mix of theory, practical activities, group discussion and case studies. Course manuals and additional training materials will be provided to the participants upon completion of the training.

Tailor-Made Course

This course can also be tailor-made to meet organization requirement. For further inquiries, please contact us on: Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Training Venue

The training will be held at our Skills for Africa Training Institute Training Centre. We also offer training for a group at requested location all over the world. The course fee covers the course tuition, training materials, two break refreshments, and buffet lunch.

Visa application, travel expenses, airport transfers, dinners, accommodation, insurance, and other personal expenses are catered by the participant

Certification

Participants will be issued with Skills for Africa Training Institute certificate upon completion of this course.

Airport Pickup and Accommodation

Airport pickup and accommodation is arranged upon request. For booking contact our Training Coordinator through Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Terms of Payment: Unless otherwise agreed between the two parties’ payment of the course fee should be done 7 working days before commencement of the training.