Method of securitizing a portfolio of at least 30% distressed commercial loans

Abstract

A platform and a securitization methodology that provides lenders with an opportunity to maximize the returns on their distressed commercial credit facilities and overcomes the obstacles that have historically precluded the securitization of distressed commercial loans. The present invention is based upon an underlying portfolio of at least 30% distressed commercial loans for securitization that emulates the predictability and regularity of the cash flow and recovery characteristics of a portfolio of generally performing commercial loans, thus eliminating crucial historical barriers to securitization of such distressed commercial loans, such as the absence of predictable and regular cash flows and predictable recoveries. The methodology of the present invention takes a specific mix of distinct classifications of distressed commercial loans with specified characteristics in confluence with structural specifications, such as specific reserves and safeguards, to create a synthetic asset class that emulates the characteristics of a portfolio of performing loans.

1 . A securitization method, comprising the steps of:
 (a) selecting a portfolio of loans of one or more institutions, each loan having a corresponding borrower and involving at least one obligation of the corresponding borrower to make a payment to the lending institution, wherein the portfolio of loans includes at least 30% distressed commercial loans and wherein the loans are selected so that the portfolio meets predetermined criteria of one or more selected credit rating agencies:   (b) establishing a bankruptcy remote special purpose entity (“SPE”) as an investment vehicle;   (c) designing a capital structure for the SPE configured so that all of the securities above the equity or equity-like tranches issued by the SPE upon closing of the transaction are eligible to receive investment grade credit ratings from said one or more selected credit rating agencies; and   (d) arranging for the conveyance of the portfolio that includes the distressed commercial loans to the SPE so that a synthetic asset pool including the distressed commercial loans is created in the SPE backing its securities, the synthetic asset pool emulating the cash flow and recovery characteristics of a portfolio of performing credit facilities.