White Paper II

Structured Finance Transparency Gold Standard is Real Time Transparency 

Real Time Transparency is easily accessible and usable real time, standardized loan level detail on

the underlying collateral over the life of each structured finance deal

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Why is the real time transparency gold standard important?  It is the data needed by market participants to do fundamental data analysis on each structured finance deal and all of the securities that were issued as part of the deal.  It is the data presented in such a way that market participants can easily understand what is going on despite the complexity of any structured finance transaction.  It is precisely the data that regulators have focused on in several recent speechesand in the Presidential Working Group recommendations.  On July 16, 2008, the American Securitization Forum (ASF) endorsed the disclosure of this data and made it the centerpiece of Project Restart, the trade group's attempt to unfreeze the structured finance market.  Without this data, market participants must guess what the actual collateral performance has been to date when they value or rate each security.  With it, market participants can use all the relevant, knowable facts to value and rate each security.  Without it, market participants face an epidemic of worry about potential losses, and risk a spiraling loss of confidence in the firms they do business with.  With it, market participants can manage their risk by reference to objective performance data.  Without it, sellers don't know what price to ask for and buyers don't know what price to pay. 

TYI's transparency solution provides the individual account level performance information that is needed by market participants to value the securities with the analytic and pricing models of their choice.   

Ultimately, the transparency data is useless if market participants don't trust it.  TYI is free of the structural conflicts of interest that would be present if the company were a data distributor, analytic or pricing model vendor, Rating Service, Bond Insurer, Trustee, Loan Servicer or Investor. 

TYI's transparency solution:

  • Captures the individual asset level detail from the sponsor's accounting system throughout the life of each asset backed deal.  Getting the data this way preserves an exact one to one relationship with the information audited by the Sponsor's accounting firm.  It also allows market participants to know that the data has been verified and validated.  In addition, providing the data over the life of each deal insures that market participants will be able to analyze and value the deal as long as it is in the secondary market.  Finally, it safeguards the privacy of borrowers;
  • Standardizes this individual asset level detail across both a single Issuer's deals and across multiple Issuers' deals.  Where available, TYI uses industry trade group reporting standards.  Standardization maximizes the usability of the data by market participants.  It allows them to compare deals within a single Issuer or across multiple Issuers of the same asset type.  It allows them to analyze and compare CDOs which involve multiple different Issuers and asset types.  It is important to market participants whether evaluating an investment decision or tracking an investment portfolio;
  • Generates expanded pool performance and credit risk monitoring reports daily.  This improves portfolio monitoring, risk management and the timeliness of changes in credit ratings;
  • Disseminates the information to data distributors and end users.  Each end user will be able to get the data that they want.  For example, Rating Services might want all the data monthly while Investors might want a subset of the data daily.  In addition, in compliance with Sarbanes-Oxley, the data will be made available to all market participants at the same time each day.  Finally, Issuers will be able to control who has access to information on privately placed deals.  By limiting access, the Issuers can maintain the confidentiality of their proprietary deal structures.

The benefits provided by TYI's information service include:

  • Restores trust in pricing since market participants are able to combine its timely standardized objective data with the participant's choice of analytic and pricing models;
  • Creates primary market demand for Issuers' securities as Investors know they will be able to value and, as a result, trade these securities in a deep and liquid secondary market.  By providing TYI's transparency solution to Investors, Issuers gain market acceptance and, in addition, marketability and liquidity of Issuer's securities increases;
  • Saves Issuers money and reduces their funding costs on new deals.  It significantly minimizes or eliminates the opacity premium that Investors are now requiring.  There is a direct relationship between the size of the opacity premium and the Investors' ability to see and monitor the source of their interest and principal repayment.  A U.S. Government Bond has no opacity premium because Investors can see, measure and touch the source.  In contrast, a CDO squared security has a very large opacity premium because the view of the source is like looking at an object through a block of black marble.  In today's primary issuance market, the annual opacity premium paid by Issuers with deals backed by the best asset types is estimated to be more than one-quarter of one percent (0.25%).  The fee TYI charges for its transparency solution is a fraction of this opacity premium and is easily paid for by the savings from reducing or eliminating this premium;
  • Minimizes the significant information technology issues and costs involved in getting this information in a usable form to interested market participants.  For example, an Issuer could publish performance data in industry standard reporting formats on the Internet.  This data would still need to be collected, verified, validated (to confirm adherence to the industry standard definitions), analyzed, and disseminated to market participants before the Issuer would receive any of the benefits of transparency;
  • Improves Investors' and Rating Services' risk management and ratings timeliness by increasing the sensitivity to changes in credit fundamentals and the impact of these changes to different parts of the structured finance deal.  Each of the securities in a deal is ranked by its claim on the cash flow from the underlying collateral.  The securities with the first claim on the cash flow are insulated from default by the underlying collateral up to the point where credit losses wipe out the value of the securities in the deal that have a later claim on the cash flow.

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