In the complex world of structured finance, the successful operation and performance of a securitization transaction hinge on one factor above all others: effective credit risk management. As financial markets evolve, the ability to accurately assess, model, and mitigate the underlying credit risks of an asset pool is a non-negotiable skill for professionals. This mastery allows institutions to optimize their capital, create stable investment products, and navigate potential market downturns with confidence. A deep, practical understanding of these methodologies is crucial for anyone involved in structuring, rating, or investing in securitized products, providing a significant competitive edge and a foundation for sound financial decision-making.

This intensive 10-day training course is meticulously designed to provide participants with a robust framework for managing credit risk in securitization. We will move beyond the basics of waterfall structures to focus on the granular details of risk analysis, credit enhancement, and regulatory compliance. Through a blend of theoretical instruction, hands-on modeling exercises in Excel, and practical case studies, you will develop the expertise to identify, quantify, and report on the credit risks inherent in securitization. By the end, you will possess a comprehensive skill set to protect your transactions and portfolios from adverse credit events, cementing your role as a valuable expert in the field.

Duration: 10 days

Target Audience:

• Credit Analysts
• Risk Managers
• Portfolio Managers
• Structured Finance Associates
• Financial Regulators
• Quantitative Analysts
• Investment Banking Professionals
• Treasury and ALM Professionals

Objectives:

• Understand the sources and types of credit risk in securitization.
• Analyze asset pool data to forecast default and loss rates.
• Evaluate and model various credit enhancement mechanisms.
• Perform effective stress testing and scenario analysis on deal structures.
• Grasp the regulatory landscape and its impact on risk management.
• Model cash flows to assess the creditworthiness of different tranches.
• Understand the role of rating agencies and their methodologies.
• Develop a framework for ongoing surveillance and performance monitoring.

Course Modules:

Module 1: Foundations of Credit Risk in Securitization

• Introduction to the securitization process
• The concept of the asset pool and its underlying risks
• Identifying and distinguishing between different types of credit risk
• The relationship between credit risk and deal performance
• An overview of the securitization market and its key players

Module 2: Securitization Structures and Cash Flow Waterfalls

• Understanding the role of the Special Purpose Vehicle (SPV)
• Mechanics of a basic cash flow waterfall
• Seniority and subordination: the tranche structure
• Analyzing the distribution of principal and interest
• How credit events impact the waterfall and tranche payments

Module 3: Credit Enhancement Techniques

• Introduction to internal and external credit enhancements
• The role of subordination and overcollateralization
• Understanding cash reserve accounts and excess spread
• The use of third-party guarantees and letters of credit
• Modeling the impact of enhancements on tranche ratings

Module 4: Modeling Credit Losses and Default Rates

• Analyzing historical data and default curves
• The concept of loss given default (LGD) and its calculation
• Building a basic model to project cumulative defaults
• Understanding the impact of macroeconomic factors on defaults
• Using cohort and vintage analysis to assess pool performance

Module 5: Data Analytics for Loan Pool Assessment

• Key metrics for analyzing an asset pool (FICO scores, LTV, seasoning)
• How to identify and filter relevant loan-level data
• Using statistical techniques to identify riskier segments of the pool
• Data integrity and the importance of a clean data set
• The role of data in informing deal structure and pricing

Module 6: Assessing Prepayment Risk

• Understanding why and when borrowers prepay their loans
• The concept of Conditional Prepayment Rate (CPR)
• Modeling the impact of prepayment on deal cash flows
• The relationship between interest rates and prepayment rates
• How prepayment can affect the duration and yield of tranches

Module 7: Stress Testing and Scenario Analysis

• The purpose of stress testing in risk management
• Developing severe but plausible stress scenarios
• Modeling the impact of a recessionary environment on the asset pool
• Performing sensitivity analysis on key variables like default and prepayment
• The use of stress tests to determine the robustness of a deal structure

Module 8: The Role of Rating Agencies

• The function of a credit rating in securitization
• Rating agency methodologies and criteria
• The process of rating a securitization transaction
• Understanding the difference between initial and surveillance ratings
• How rating agency models inform deal structure and credit enhancement levels

Module 9: Regulatory Framework and Compliance

• An overview of key regulations affecting securitization
• Understanding risk retention rules and their implications
• The impact of Basel III on capital treatment for securitized assets
• The role of regulators in overseeing the securitization market
• Key compliance considerations for issuers and investors

Module 10: Due Diligence and Auditing

• The importance of due diligence in securitization
• Conducting a loan-level file review
• The role of third-party auditors and legal counsel
• Verifying the accuracy of collateral data
• Red flags and common pitfalls in due diligence

Module 11: Servicer and Performance Monitoring

• The servicer's role in collecting payments and managing delinquencies
• Analyzing servicer reports and key performance indicators
• Understanding deal triggers and covenants
• The process for handling a servicer transition
• The importance of ongoing surveillance for risk management

Module 12: Modeling with Excel for Credit Risk

• Building a simplified securitization model in Excel
• Using data tables to test the impact of default and prepayment assumptions
• Constructing a dynamic waterfall that responds to credit events
• Visualizing the credit enhancement depletion over time
• Analyzing tranche-level performance under different scenarios

Module 13: Automation with Python

• Introduction to using Pandas for large-scale data analysis
• Replicating key Excel modeling logic in Python
• Developing functions to simulate default and loss curves
• Using Python to automate the generation of performance reports
• The benefits of a hybrid Excel-Python workflow for scalability

Module 14: Credit Risk in Synthetic Securitization

• The core differences in credit risk for synthetic transactions
• Understanding counterparty risk from the credit protection seller
• The concept of basis risk and its management
• Modeling credit events and their impact in a synthetic deal
• Risk management considerations for unfunded vs. funded deals

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.