compiled by
Prof. Ian Giddy
New York University

Asset Securitization

Asset-backed securities constitute a growing segment of the European and global capital markets. The asset securitization technique, while complex, has won a secure place in corporate financing and investment portfolios because it can, paradoxically, offer originators a cheaper source of funding and investors a superior return. Not only does securitization transform illiquid assets into tradable securities, but it also manages to transform risk by means of the separation of good financial assets from a company or financial institution with little loss of revenue. The assets, once separated from the originator, are employed as backing for high-quality securities designed to appeal to investors.

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Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 30+ countries abroad for the past two decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in the U.S. and abroad. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide.

Prof Ian Giddy
Stern School of Business
New York University
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    Article: An Asian CBO

TWC GEM V Collateralized Bond Obligation
Source: DBS Bank
Date: September 2000

DBS Asset Management has been appointed Investment Advisor to TCW GEM V CBO. The US$285-million TCW GEM V CBO will be backed primarily by emerging markets fixed income cash flows. The fund brings together TCW Asset Management Company, as collateral manager to the fund, and DBS Asset Management, a subsidiary of DBS Bank, as Investment Advisor to the Issuer. 

The CBO presents to the market 4 classes of investments: US$203 million Class A-1 floating rate notes which are fully guaranteed by Ambac Assurance Corporation and rated Aaa/AAA by Moody’s and S&P respectively, US$6 million of Class A-2 floating rate notes rated Baa2/BBB-, US$25 million Class M fixed rate notes rated Ba2/BB- by Moody’s and S&P respectively, and 51 thousand of unrated preference shares. The stated maturity of the notes is 2012 and the preference shares are scheduled to be redeemed in 2012. The deal was sold into the public and private markets in Europe, the United States, and Asia and was well subscribed. 

The collateral portfolio consists of no less than 60% of sovereign debt securities, up to 25% of corporate debt securities, and up to 10% of U.S. and European high yield securities. The portfolio is expected to have 73 different issues from 28 different countries. Approximately 60% of the initial portfolio is split evenly between Eastern Europe and Latin America, 21% is from Asia, 12% is from Africa, 5% is from the U.S., and 2% is from the Caribbean. 

The portfolio will have a weighted average rating of approximately Ba3/BB- from Moody’s and Standard & Poor’s. 

"DBS Asset Management is committed to introducing a comprehensive range of investment products to both our retail and institutional clients. We are pleased to be collaborating with TCW Asset Management Company in this product. TCW is a reputable portfolio manager whose track record speaks for itself. Through this alliance, we bring to the market a superior product offering excellent returns. This will be the first in a pipeline of such investment products DBS Asset Management is planning to introduce," said Patrick Tan, Managing Director of DBS Asset Management. 

Nathan Sandler, senior Emerging Markets portfolio manager at TCW said, "TCW welcomes the significant participation of DBS in TCW GEM V CBO. In this alliance, we are seeking to leverage the unique institutional strengths of our respective organisations to achieve the strongest investment results for the fund. It is our hope that other strategic initiatives will develop from this collaboration." 

DBS Asset Management manages Singapore’s longest running fixed income fund, the Shenton Income Fund, which has won numerous industry awards. TCW is a U.S. company established in 1971. It presently manages assets of about US$82 billion for its 1,300 clients. 

PaineWebber Incorporated is the Structuring Agent and exclusive Placement Agent for the Senior Notes, Mezzanine Notes, and Preference Shares of the CBO. 

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