Global banks are increasingly using credit risk transfer (CRT) securitizations to help manage their regulatory capital requirements and risk exposures.
CRTs enable banks to offload part of an asset portfolio's credit risk to third-party investors, often synthetically through the issuance of credit-linked notes (CLNs).
Assessing the creditworthiness of synthetic transactions can differ from traditional cash securitizations depending on how credit events and recoveries are defined, whether and how synthetic excess spread is determined, and the transaction's legal and counterparty risk exposures.
Compared with traditional cash securitizations, our view of the creditworthiness of funded synthetic transactions depends more heavily on counterparties such as the originator (protection buyer), account bank, and temporary investments that collateralize the CLNs.
