Forensic Securitization Services

Forensic securitization is the terms used to describe the methods used in determining the course of events relating to securitizations. More often than not, forensic securitization relates to losses incurred by investors and the reasons behind them. These reasons may include:

• Sub-Performing Portfolios - this is the most common reason for investor losses and thus one that is cited in most disputes as the cause for complaint. However, the validity of a case may rest on the reason why losses have occurred. This is an area Creative Capital Partners can assist our clients:
  • Historical Data - if investors have made a judgement call based on normalised or steady state historic data, and the validity of that data is suspect, there is a high chance that when defaults and delinquencies are stressed to rated levels through multiples or standard deviations,  the credit enhancement levels will underestimate the level of losses capital structures can withstand. 
  • Servicing/Administration - Poor delinquencies and default levels are not simply a direct result of poor underwriting standards combined with stressed economic circumstances. Very often, the levels of losses can be exaggerated through poor or misled servicing. In general, most servicers are bound either to peer standards ("prudent servicer of loans") or to stated methods as outlined in procedure manuals.
  • Portfolio Management - in recent years, both investors and rating agencies have come to realise that different portfolio performances are related as much to the expertise or portfolio managers than to the portfolio composition. Many portfolio managers are exposed to inherent conflict of interests. For instance, in the area of Collateralised Loans Obligations, the originating bank may be in possession of market sensitive data relating to the credits in the portfolio. Alternatively, there may be a link, however faint, between a bank's syndication desk and its portfolio management.
• Conflicting Documentation - most securitisations have at least three levels of documentation. At its most basic there will be a term sheet or summary terms that will be included in any investor material. On a secondary level, there will be listing particulars such as the selling document - this will be a condensation of the underlying documentation, showing what is believed to be relevant for investment purposes. Not surprising, this three tier approach can lead to discrepancies  between the different levels. These discrepancies may lead to servicers/trustees/cash administrators undertaking tasks in an incorrect manner. Moreover, it is not unheard of for documentation to be ambiguous in its interpretation.
• Imperfect Modelling - straight off the bat "no financial model is perfect". Most financial models are constructed with one eye on reasonable levels of accuracy and one eye on cost and time employed. None the less, investors can and should expect financial models to operate within certain limits and if they operate outside generally accepted limits, this can lead to incorrect levels of credit enhancement being incorporated on closing.

Creative Capital Partners, have in the past and continue to, offer both claimants and defendants its services in the field of forensic securitisation on a confidential basis. These services include expertise in the following areas:

• Securitisation Unbundling - securitisation structures are usually far from simple in their execution. Creative Capital Partners can assist in the process of unbundling structures into their component parts so that they are far more transparent. This unbundling can either be through the use of a written analysis or through complex cash flow analysis that provides a "mark to market" approach to risk.
• Expert witness - we offer our services in the field of expert witness testimonials. Within this area our clients can expect: quick decisions regarding conflict of interest and qualifications in area of dispute; detailed and thorough analysis of case material in timely manner; preliminary oral reports on likely case outcome together conclusive written reports on case material.
• Independency - as a consultancy with no outside shareholders our clients appreciate our independent point of view.
• Case assistance - Creative Capital Partners can assist law practices in their preparation of securitisation related disputes. Our forensic skills cross a number of different areas including documentation and email evaluation as well as review of originator/servicer procedures manuals.
• Programme Analysis - We are well known throughout the securitisation world for our expertise in cash flow programming for securitization, and this expertise extends to the area of forensic securitization. We can both analyse and replicate cash flow programmes in a variety of programming languages to check whether they accurately reflect the bond documentation and the rating agency stress criteria

For further information please email: luke.mellor@creative-cap.com or click on Contacts