Structured Finance Evaluation and Rating Criteria

Asset-backed securities allow issuers to raise cash by borrowing against assets and develop new sources of capital.  Thus, analysis of asset backed securities must involve the evaluation of the collateral used as security for the instrument, legal structure and basic credit and non-credit risks.

CRISP’s structure finance approach examines the sometimes intricate web of inter-related parties involved in the securitization process and nature of the assets presented as collateral to a debt issue.

The key objective of CRISP’s analysis of asset-backed securities is to determine how the proposed debt instrument is affected or not affected by the creditworthiness of the parties (originator, issuer, and servicer) involved  in the securitization deal.

Thus, CRISP’s credit rating methodology of an asset backed security examines the “insolvency protection” protection, non-credit risks, and legal structure risks to arrive at an overall credit opinion on the credit worthiness of a debt instrument.

CRISP does not assign weights to these analytical areas to come up with a rating.  Rather, CRISP uses them as inputs in developing an assessment of the risks associated with the proposed investment instrument.

CRISP’s evaluation focuses on the quality of assets used as collateral, like real estate properties, mortgages, credit cards, or automobile loans.

Depending on the structure of the securitization deal where an absolute sale/transfer to a special purpose vehicle is made, CRISP’s evaluation shall examine the profile and historical performance of the asset pool and any credit enhancements.  CRISP shall evaluate the impact of non-credit risk factors that may have impact on the instrument, if any, such as interest rate and currency rate fluctuations, prepayment, and liquidity. An analysis of the legal structure shall be performed to examine the provisions that guarantee the absolute sale or transfer of assets and any solvency protection clauses.