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Desk
Structured & Asset Finance
Money lent against a defined pool or a single asset rather than against a company — receivables, aircraft, power stations, buildings.
The desk at a glance
Structured and asset finance lends against a defined pool of assets, or a single identified asset, rather than against a company. The borrower's own credit becomes almost irrelevant; what matters is whether the assets keep producing cash and whether they survive the failure of whoever created them.
That separation is the entire product. Loans are sold into a vehicle that exists for no other purpose, whose ability to go bankrupt is deliberately restricted, and whose cash is distributed by a contract rather than by a management decision. The waterfall is the instrument; the collateral is only its input. Cash arrives at the top and flows down through tests, and a breached test redirects money that would have gone to junior holders.
The other half of the desk is the opposite of a pool: one aircraft, one ship, one power station. There is no diversification at all, so everything depends on the asset's residual value and on the contract that generates its revenue. The lender is underwriting an asset and a counterparty, and the analysis has more in common with a lease than with a loan.
Who does what
The originator creates the assets — a bank making mortgages, a lender making car loans, a company generating invoices — and wants them off its balance sheet or funded more cheaply than it could fund itself. See the securitisation.
The issuing vehicle owns the assets and issues the notes. It has no employees, no other business and restricted powers, which is what makes it survive the originator's failure.
The servicer collects the money for years. Its importance is easy to miss and impossible to overstate: a structure with no credible replacement servicer has a single point of failure that no amount of subordination protects against.
The rating agencies model the pool and decide how much protection each tranche needs. The structure is built to those requirements, which is why deals within an asset class look so alike.
The trustee enforces the waterfall and holds the security for the noteholders.
The tranche buyers — different investors for different pieces, with very little overlap. A deal that cannot place its junior tranches does not print.
What decides whether this desk is busy
Six mechanisms, each with the direction it pushes in and the thing to watch. None of them is a forecast, and none is a number that goes out of date.
What
Which way it pushes
What to watch
The quality and the history of the pool
Data, not a credit opinion, sets the structure
A pool of thousands of small loans is analysed statistically: how many stopped paying, when, and in what conditions. The amount of protection each tranche needs comes out of that history, which is why an asset class with no history is expensive to fund.
Where the assets legally sit
Separation from the originator is the whole point
The structure exists so that the assets survive the failure of the company that created them. Whether that separation holds — true sale, bankruptcy remoteness, who services the loans afterwards — is the question the whole deal turns on.
The shape of the waterfall
Who is paid first, and what diverts the cash
Cash arrives at the top and flows down through tests. A breached test redirects money that would have gone to junior holders. The waterfall is the instrument; the collateral is only its input.
Capital treatment for the buyer
Regulation decides who can hold which tranche
Banks, insurers and funds face different capital charges on the same tranche. Demand for a given piece is therefore partly a regulatory fact rather than a credit one, and it moves when the rules do.
The single asset's own economics, in asset finance
One aircraft, one ship, one power station — no diversification at all
Where the pool is a single asset, everything depends on the asset's residual value and the contract that generates its revenue. The lender is underwriting an asset and a counterparty, not a portfolio.
Servicing
Somebody has to collect the money for years
The party that administers the loans is as important as the loans. A structure with no credible replacement servicer has a single point of failure that no amount of subordination protects against.
The calendar this business keeps
Every desk has a rhythm its regulars plan around and a newcomer discovers by being surprised by it.
When
What happens
Why it matters
The warehouse
Assets are accumulated on a temporary facility before the deal exists
The originator borrows short-term to build the pool, then refinances it in one transaction. If the term market shuts while the warehouse is full, the risk sits with whoever funded the warehouse.
Rating agency review
The structure is modelled and sized before it is marketed
How much subordination each tranche needs is an output of the agencies' models. The structure is built to those requirements, which is why deals within an asset class look alike.
Pricing and settlement
Tranches are sold to different buyers on the same day
The senior piece goes to one kind of investor and the junior piece to another, with very little overlap. A deal that cannot place its junior tranches does not print.
Monthly or quarterly reporting
Performance is published for the life of the deal
Unlike a corporate bond, an asset-backed deal publishes what its collateral is actually doing on a regular cycle. This is the most transparent corner of credit and the least read.
The call date, or the end of reinvestment
The structure's behaviour changes on a known date
Many deals may be redeemed early, or stop reinvesting cash and begin repaying. Either changes the maturity profile of every tranche without any change in the collateral.
How this desk reaches the rest of the site
The deals and the instruments are one subject. These are the corridors — each one a mechanism, not a resemblance.
The senior tranches end up held as high-grade bonds by investors who never look at the collateral.
What the client is actually paying for
Three costs, and only one of them is a fee:
The arrangement fee — for structuring the vehicle, negotiating the documents and taking the deal through the agencies. Large in absolute terms because the work is legal and one-off.
The spread on each tranche — the ongoing cost of the money, different for each layer because each layer bears a different amount of risk.
The retained piece. Regulation in most jurisdictions requires the originator to keep a slice of the risk, so that whoever created the assets still cares how they perform. This is the response to a specific failure and it is the most consequential rule on the desk.
Whether the whole exercise is worth doing comes down to one comparison: the blended cost of the tranches against what the originator would pay to borrow unsecured. When its own credit is weak and the assets are good, the gap is large and the structure pays for itself several times over. When its credit is strong, it usually does not — which is also the answer to why a bank would keep the assets and sell only the risk.
The warehouse facility — a temporary loan used to accumulate the pool before the term deal exists. If the term market shuts while the warehouse is full, the risk sits with whoever funded it.
The sale agreement — how the assets move to the vehicle, and whether that transfer is a true sale that survives the originator's insolvency. The whole structure rests on this one question.
The servicing agreement — who collects, on what standard, for what fee, and who takes over if they stop.
The offering circular — the disclosure, including the pool description and the historical performance data the sizing was based on.
The priority of payments — the waterfall itself, in both its normal and its post-enforcement forms. Reading the second one is how you find out what the notes are actually worth.
The investor report — published monthly or quarterly for the life of the deal. The most transparent corner of credit and the least read.
Run the numbers
Interactive: the borrowing base, and what is left of the ledgerMedium
Asset-backed lending in one line. The collateral is not what the sales ledger says: ineligible invoices come out first, a dilution reserve comes out next, and only then does the advance rate apply to what is left.
Eligible receivables
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Dilution reserve
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Borrowing base
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Headroom
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Financeable share of the ledger
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Annual interest
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Cost per collection cycle
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Reading
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What counts as ineligible — a concentration limit, an overdue bucket, a disputed invoice, a related party, a debtor in the wrong country — is defined in the facility agreement, and that definition moves this number far more than the advance rate does. Information and education only. Not advice, not a valuation, and not a quote for anything.
How a deal dies here
The junior tranches do not place. The senior piece is easy and the equity is the deal; no buyer for the bottom means no transaction.
The true sale is not clean in one of the jurisdictions the assets sit in, and the separation the whole structure depends on cannot be given.
There is not enough performance history to size the protection. A new asset class is expensive to fund for exactly this reason.
The pool underperforms in the warehouse, and the deal that was modelled is not the deal that can be sold.
A capital rule changes and the natural buyer of a tranche stops being allowed to hold it.
Concepts to master
Tranching does not remove risk; it moves it. The senior notes are safer because the junior ones absorb losses first — see the instrument and the mechanism.
Correlation is what tranching cannot survive. Subordination sized on the assumption that losses are independent is sized wrongly when they are not.
Excess spread is the first line of defence, before subordination is touched at all — and it disappears quietly, which is why the investor report matters.
The call date changes the instrument without changing the collateral. A note that may be redeemed early has a maturity nobody controls.
Collateralised loan obligations are the organised buyer of leveraged loans, which makes this desk the funder of that one. See the CLO and the instrument.