Parties involved in securitisation transactions

Acting in a fiduciary capacity, the trustee is primarily concerned with preserving the rights of investors. The responsibilities of the trustee will vary from one case to the next and are described in a separate trust agreement. Generally, the trustee oversees the receipt and disbursement of cash flow as prescribed by the indenture or pooling and servicing agreement and monitors compliance with appropriate covenants by other parties to the agreement. If problems occur in the transaction (e.g. defaults), the trustee focuses particular attention on the obligations and performance of all parties associated with the securities issued, particularly the servicer and the credit enhancer. Throughout the life of the transaction, the trustee receives periodic financial information from the originator/servicer delineating amounts collected, amounts charged off, collateral values, etc. The trustee is responsible for reviewing this information and ensuring that the underlying assets produce adequate cash flow to serve the securities issued. The trustee is also responsible for declaring default or amortisation events.

Investment banks mainly perform structuring, underwriting and marketing of the securitisation transaction.

These advisers provide assistance on the accounting and tax implications of the proposed structure of the transaction. Usually, issuers aim to choose structures that will allow minimising the tax impact on the securities issued.

Usually, the securities issued are assessed by a rating agency to allocate a rating to them. A wide range of investors require a minimum rating of investment grade or higher. The rating process is currently dominated by the rating agencies: Standard & Poor's, Moody's, Fitch or Dominion Bond Rating Service. They use their accumulated expertise, data and modelling skills to assess the expected loss of debt securities issued by the securitisation vehicle. In general, rating agencies review the following factors:

• Quality of the pool of underlying assets in terms of repayment ability, maturity diversification, expected defaults and recovery rates;
• Abilities and strengths of the originator / servicer of the assets;
• Soundness of the transaction's overall structure, e.g. timing of cash flow (or mismatch) and impact of defaults;
• Analysis of legal risks in the structure, e.g. effectiveness of transfer of title to the assets;
• Ability of the asset manager to manage the portfolio;
• Quality of credit support, e.g. nature and levels of credit enhancements.

In Luxembourg the annual accounts of securitisation vehicles have to be audited by one or more independent auditors ("Réviseurs d'entreprises agréés").

This entity calculates the waterfall principal and interest payments due to creditors and investors.

Credit enhancement is used to improve the credit rating of the issued securities. Therefore, credit enhancement providers are third parties that agree to elevate the credit quality of another party or a pool of assets by making payments, usually up to a specified amount. This is done in the event that the other party defaults on its payment obligations or should the cash flow generated by the pool of assets be less than the amounts contractually required due to defaults of the underlying obligors.

As the legal structure and legal opinions are crucial to securitisation, considerable legal work goes into documentation. A typical transaction would involve numerous documents: sale and purchase agreements, offering documents, etc.

The paying agent is the bank that has agreed to settle the payments on the securities issued to investors. Payments are usually made via a clearing system.

In case original servicers default, the backup servicer replaces them. They take over all the responsibilities allocated to the servicer.

The custodian bank is responsible for the safekeeping of liquid assets and of transferable securities of the securitisation vehicle, including the pool of assets transferred in case of true sale transactions.

Asset managers are responsible for selecting underlying assets, monitoring the portfolio and, if foreseen, replacing underlying assets. They are common in CDO / Structured Credit transactions.