A simple step to boost leasing by increasing confidence
in asset-backed securitisations.
Go deeper with GlobalData
More asset-backed securitisations will allow existing asset
finance portfolios to be taken off lenders’ balance sheets –
freeing up capital so they can write new leases.
There are some simple steps that
issuers of asset-backed securities can take to improve investor
confidence in securitisations and which ratings agencies are
encouraging issuers of asset-backed securities to adopt.
One key confidence boosting step is
the introduction of ‘standby servicers’. This ensures that payments
on the loans which underlie the bonds still get collected even if
the original provider of the asset finance becomes insolvent.
Investors in securitised leases or
asset-backed bonds see the insolvency of the original asset finance
provider as a big risk. If they become insolvent then payments
might not be properly collected and the asset-backed bonds would
rapidly lose value.
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By GlobalDataStandby servicers are
organisations, like LPMO, that can step in and start collecting the
payments on a loan if the original servicer of those payments
becomes insolvent or is downgraded by the ratings agency. The
ratings agencies are saying that if you want an AAA rating then you
may need a standby servicer in place. And a higher rating means
lower borrowing costs for everyone. The wider use of standby
servicers means that investors who buy securitised loans can be
much more certain of the continuous collection of payments, even if
the servicer which originated the loan becomes insolvent or is
downgraded.
The disruption that would otherwise
happen can be a real fear for investors in securitised loans.
Standby servicers are increasingly expected to be deployed on a
‘warm’ basis – which means there is an obligation to provide a
regular feed of data and information regarding the portfolio from
the primary servicer. This means that should the standby servicer
be invoked and required to step in to the management of the
portfolio, then the transition is much smoother and therefore
significantly faster. This will reduce the possibility of
disruption to the flow of payments to those who hold the
securitised loans.
The next step is for securitisation
deals to be done with standby servicers acting on a ‘hot’ basis.
That means they take real-time feeds of data from the existing
servicer so that any risks of payment disruption are reduced even
further.
With the ratings agencies now
implying the importance of the standby, we expect that the use of
standby servicing to become increasingly widespread.
Ian Dennis is business development manager at LPM
Outsourcing
