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

  • US 6,654,727 B2
  • Filed: 01/18/2002
  • Issued: 11/25/2003
  • Est. Priority Date: 11/29/2001
  • Status: Expired due to Term
First Claim
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1. A securitization method, comprising the steps of:

  • (a) selecting loans meeting predetermined performance criteria from a group of commercial loans of one or more lending institutions, each loan having a corresponding borrower and involving at least one obligation of the corresponding borrower to make a payment to the corresponding lending institution;

    (b) further selecting loans from among the group of loans selected in step (a) to create a portfolio in which loans comprising at least 30% of (i) the portfolio market value, (ii) the portfolio outstanding principal balance, or (iii) the portfolio commitment amount, are distressed loans which;

    (i) have a payment default, or (ii) where payment default is considered likely, by the corresponding institution, said further selecting step analyzing at least one of;

    (i) unsecured credit facilities, (ii) borrower diversity, and (iii) loan commitment diversity, of the group of loans selected in step (a);

    (c) creating a computerized database model for evaluating the loans in said portfolio individually, in order to provide tabulated information including;

    (i) recovery rate information comprising borrower cash flow, projected net payments, and related collateral; and

    at least one of the following;

    (ii) borrower cash flow information, (iii) loan information including principal amount, interest rate, unfunded commitment amounts, credit information, and amortization information, (iv) loan pricing parameters, (v) loan cash pay rate information, (vi) loan collateral value, (vii) workout parameters including borrower debt capacity and liquidation information, and (viii) loan discounted cash flow valuation;

    (d) providing the tabulated information for said portfolio to one or more credit agencies in such form so that said one or more credit agencies independently (i) examines each loan and its corresponding recovery rate information, and (ii) determines the projected performance of the portfolio;

    (e) establishing a bankruptcy remote special purpose entity (SPE) as an investment vehicle for said portfolio;

    (f) determining a price to be paid to a lending institution for its loans within said portfolio, said price being determined in accordance with the tabulated information from the computerized database model for said portfolio;

    (g) providing the tabulated information from the computerized database model for said portfolio to said lending institution; and

    (h) forming a capital structure for the SPE for said portfolio, said capital structure including a source of funds and an enforcement mechanism;

    (i) modeling cash flows of said capital structure, and providing the modeled cash flows and said tabulated information to said one or more credit agencies in such a form that said one or more credit agencies provides investment grade credit ratings to all of the securities, other than equity or equity-like tranches, issued by the SPE upon completing the creation of the securitization; and

    (j) completing the creation of the securitization by (i) the SPE paying the one or more lending institutions the price calculated in step (f) for the lending institution to transfer the portfolio to the SPE, and (ii) the SPE issuing its securities.

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