Method, software program, and system for isolating risk in a financial transaction

• US 7,266,524 B1
• Filed: 11/28/2000
• Issued: 09/04/2007
• Est. Priority Date: 11/28/2000
• Status: Expired due to Fees

• Current Assignee: The BondFactor Company LLC
• Original Assignee: Goldman Sachs & Company (Goldman Sachs Group Incorporated)
• Inventors: Butcher, III, George H.
• Primary Examiner(s): Dass, Harish T.
• Application Number:
  US09/724,039
• Time in Patent Office: 2,471 Days
• Field of Search: 705/36, 705 38- 39, 705/35, 705/8
• US Class Current: 705/38
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 40/12 Accounting

Abstract

A method, software program, and system for isolating risk in a financial transaction. More particularly, in one embodiment, a method, software program, and system for isolating risk among different bonds.

Claims

1. A method implemented by a programmed computer system for isolating risk in a financial transaction, comprising:

utilizing the programmed computer system to store data relating to the allocation, to a transaction pool, of a first credit having an obligation to make specified payments and a second credit having an obligation to make specified payments, each of the first credit and second credit being in a non-default state when a respective obligation is met and being in a default state when a respective obligation is not met;

utilizing the programmed computer system to store data relating to the association of a first senior holder and a first subordinate holder with the first credit using;

a) a respective first senior holder financial instrument through which payments from the first credit flow to the first senior holder; and

b) a respective first subordinate holder financial instrument through which payments from the first credit flow to the first subordinate holder;

utilizing the programmed computer system to store data relating to the association of a second senior holder and a second subordinate holder with the second credit using;

a) a respective second senior holder financial instrument through which payments from the second credit flow to the second senior holder; and

b) a respective second subordinate holder financial instrument through which payments from the second credit flow to the second subordinate holder;

utilizing the programmed computer system to store data relating to the structuring of the first senior holder financial instrument and the first subordinate holder financial instrument to give priority to payments due the first senior holder prior to payments due the first subordinate holder in the event the first credit enters the default state;

utilizing the programmed computer system to facilitate the making of payments obligated by the second subordinate holder financial instrument to perform the obligation of the first credit for the benefit of the first senior holder to the extent that the first credit enters the default state and payments due the first senior holder are not available; and

utilizing the programmed computer system to facilitate the provision to the second subordinate holder the benefit of the obligation of the first credit to the extent that payments due the second subordinate holder were used to perform the obligation of the first credit and to the extent that any benefit remains in the obligation of the first credit to the first senior holder.

2. The method of claim 1, further comprising:

utilizing the programmed computer system to store data relating to the structuring of the second senior holder financial instrument and the second subordinate holder financial instrument to give priority to payments due the second senior holder prior to payments due the second subordinate holder in the event the second credit enters the default state;

utilizing the programmed computer system to facilitate the making of payments obligated by the first subordinate holder financial instrument to perform the obligation of the second credit for the benefit of the second senior holder to the extent that the second credit enters the default state and payments due the second senior holder are not available; and

utilizing the programmed computer system to facilitate the provision to the first subordinate holder the benefit of the obligation of the second credit to the extent that payments due the first subordinate holder were used to perform the obligation of the second credit and to the extent that any benefit remains in the obligation of the second credit to the second senior holder.

3. The method of claim 2, wherein at least one of the first senior holder financial instrument, the second senior holder financial instrument, the first subordinate holder financial instrument, the second subordinate holder financial instrument, the first credit, and the second credit includes a bond.

4. The method of claim 3, wherein at least one of the first credit and second credit includes a credit of the type selected from a municipal credit, a tax-exempt hospital credit, an industrial credit, and a high-yield credit.

5. The method of claim 4, wherein at least one of:

a) the step of utilizing the programmed computer system to facilitate the provision to the second subordinate holder the benefit of the obligation of the first credit to the extent that payments due the second subordinate holder were used to perform the obligation of the first credit is carried out by providing an assignment; and

b) the step of utilizing the programmed computer system to facilitate the provision to the first subordinate holder the benefit of the obligation of the second credit to the extent that payments due the first subordinate holder were used to perform the obligation of the second credit is carried out by providing an assignment.

6. The method of claim 4, wherein at least one of:

a) the step of utilizing the programmed computer system to facilitate the provision to the second subordinate holder the benefit of the obligation of the first credit to the extent that payments due the second subordinate holder were used to perform the obligation of the first credit is carried out by providing a subrogation between the second subordinate holder and the first senior holder; and

b) the step of utilizing the programmed computer system to facilitate the provision to the first subordinate holder the benefit of the obligation of the second credit to the extent that payments due the first subordinate holder were used to perform the obligation of the second credit is carried out by providing a subrogation between the first subordinate holder and the second senior holder.

7. The method of claim 4, wherein at least one of:

a) the step of utilizing the programmed computer system to facilitate the provision to the second subordinate holder the benefit of the obligation of the first credit to the extent that payments due the second subordinate holder were used to perform the obligation of the first credit is carried by providing a recovery value associated with first credit; and

b) the step of utilizing the programmed computer system to facilitate the provision to the first subordinate holder the benefit of the obligation of the second credit to the extent that payments due the first subordinate holder were used to perform the obligation of the second credit is carried out by providing a recovery value associated with second credit.

8. The method of claim 4, wherein at least one of:

a) the step of utilizing the programmed computer system to facilitate the provision to the second subordinate holder the benefit of the obligation of the first credit to the extent that payments due the second subordinate holder were used to perform the obligation of the first credit is carried by providing a liquidation value associated with first credit; and

b) the step of utilizing the programmed computer system to facilitate the provision to the first subordinate holder the benefit of the obligation of the second credit to the extent that payments due the first subordinate holder were used to perform the obligation of the second credit is carried out by providing a liquidation value associated with second credit.

9. The method of claim 2, wherein at least one of a) the first senior financial instrument and the first subordinate financial instrument are included in a first master financial instrument and b) the second senior financial instrument and the second subordinate financial instrument are included in a second master financial instrument.

10. The method of claim 9, wherein at least one of the first master financial instrument and the second master financial instrument form a series of bonds having a senior/subordinate structure.

11. A method implemented by a programmed computer system for isolating risk in a financial transaction, comprising:

utilizing the programmed computer system to store data relating to the allocation, to a transaction pool, of n credits, each of the credits having an obligation to make specified payments and each of the credits being in a non-default state when a respective obligation is met and being in a default state when a respective obligation is not met;

utilizing the programmed computer system to store data relating to the association of a senior holder and a subordinate holder with each of the credits using;

a) a respective senior holder financial instrument through which payments from a respective credit flow to the senior holder; and

b) a respective subordinate holder financial instrument through which payments from a respective credit flow to the subordinate holder;

utilizing the programmed computer system to store data relating to the structuring of each senior holder financial instrument and each subordinate holder financial instrument to give priority to payments due each respective senior holder prior to payments due each respective subordinate holder in the event a respective credit enters the default state;

utilizing the programmed computer system to facilitate the making of payments obligated by at least one subordinate holder financial instrument associated with a credit in the non-default state to perform the obligation of a credit in the default state to the extent that payments due the senior holder associated with the credit in the default state are not available; and

utilizing the programmed computer system to facilitate the provision to each subordinate holder at least a portion of the benefit of the obligation of the credit in the default state to the extent that payments due each subordinate holder were used to perform the obligation of the credit in the default state and to the extent that any benefit remains in the obligation of the credit in the default state to the associated senior holder;

wherein n is an integer in the range of 1 to 1000.

12. A method implemented by a programmed computer system for isolating risk in a financial transaction, comprising:

utilizing the programmed computer system to store data relating to the allocation, to a transaction pool, of a first sub-pool containing a first credit having an obligation to make specified payments and a second credit having an obligation to make specified payments, each of the first credit and second credit being in a non-default state when a respective obligation is met and being in a default state when a respective obligation is not met;

utilizing the programmed computer system to store data relating to the allocation, to the transaction pool, of a second sub-pool containing a third credit having an obligation to make specified payments and a fourth credit having an obligation to make specified payments, each of the third credit and fourth credit being in a non-default state when a respective obligation is met and being in a default state when a respective obligation is not met;

utilizing the programmed computer system to store data relating to the association of a first senior holder and a first subordinate holder with the first credit using;

a) a respective first senior holder financial instrument through which payments from the first credit flow to the first senior holder; and

b) a respective first subordinate holder financial instrument through which payments from the first credit flow to the first subordinate holder;

utilizing the programmed computer system to store data relating to the association of a second senior holder and a second subordinate holder with the second credit using;

a) a respective second senior holder financial instrument through which payments from the second credit flow to the first senior holder; and

b) a respective second subordinate holder financial instrument through which payments from the second credit flow to the second subordinate holder;

utilizing the programmed computer system to store data relating to the association of a third senior holder and a third subordinate holder with the third credit using;

a) a respective third senior holder financial instrument through which payments from the third credit flow to the third senior holder; and

b) a respective third subordinate holder financial instrument through which payments from the third credit flow to the third subordinate holder;

utilizing the programmed computer system to store data relating to the association of a fourth senior holder and a fourth subordinate holder with the fourth credit using;

a) a respective fourth senior holder financial instrument through which payments from the fourth credit flow to the fourth senior holder; and

b) a respective fourth subordinate holder financial instrument through which payments from the fourth credit flow to the fourth subordinate holder;

utilizing the programmed computer system to store data relating to the structuring of the first senior holder financial instrument and the first subordinate holder financial instrument to give priority to payments due the first senior holder prior to payments due the first subordinate holder in the event the first credit enters the default state;

utilizing the programmed computer system to store data relating to the structuring of the second senior holder financial instrument and the second subordinate holder financial instrument to give priority to payments due the second senior holder prior to payments due the second subordinate holder in the event the second credit enters the default state;

utilizing the programmed computer system to store data relating to the structuring of the third senior holder financial instrument and the third subordinate holder financial instrument to give priority to payments due the third senior holder prior to payments due the third subordinate holder in the event the third credit enters the default state;

utilizing the programmed computer system to store data relating to the structuring of the fourth senior holder financial instrument and the fourth subordinate holder financial instrument to give priority to payments due the fourth senior holder prior to payments due the fourth subordinate holder in the event the fourth credit enters the default state;

utilizing the programmed computer system to facilitate the making of payments obligated by the second subordinate holder financial instrument to perform the obligation of the first credit for the benefit of the first senior holder to the extent that the first credit enters the default state and payments due the first senior holder are not available;

utilizing the programmed computer system to facilitate the making of payments obligated by at least one of the third subordinate holder financial instrument and the fourth subordinate holder financial instrument to perform the obligation of the first credit for the benefit of the first senior holder to the extent that the payments of the second subordinate holder financial instrument used for the benefit of the first senior holder do not cover the obligation of the first credit;

utilizing the programmed computer system to facilitate the provision to each of the third subordinate holder and the fourth subordinate holder the benefit of the obligation of the first credit to the first senior holder to the extent that the payments of the third subordinate holder financial instrument and the fourth subordinate holder financial instrument are used for the benefit of the first senior holder and to the extent that any benefit remains in the obligation of the first credit to the first senior holder; and

utilizing the programmed computer system to facilitate the provision to the second subordinate holder the benefit of the obligation of the first credit to the first senior holder to the extent that payments of the second subordinate holder financial instrument were used to perform the obligation of the first credit and to the extent that a benefit exists after any benefit is provided the third subordinate holder and the fourth subordinate holder.

13. The method of claim 12, wherein all credits allocated to a particular sub-pool have a substantially similar risk of entering the default state.

14. The method of claim 13, wherein all credits allocated to a particular sub-pool are selected from one of a traditional municipal credit, a tax-exempt hospital credit, an industrial corporate credit, and a high-yield credit.

15. A method implemented by a programmed computer system for isolating risk in a financial transaction, comprising:

utilizing the programmed computer system to store data relating to the structuring of a transaction pool with n sub-pools;

utilizing the programmed computer system to store data relating to the allocation, to each of the sub-pools, between j and k credits, each credit having an obligation to make specified payments and each credit being in a non-default state when a respective obligation is met and being in a default state when a respective obligation is not met;

utilizing the programmed computer system to store data relating to the association of a senior holder and a subordinate holder with each of the credits using;

a) a respective senior holder financial instrument through which payments from the credit flow to the senior holder; and

b) a respective subordinate holder financial instrument through which payments from the credit flow to the subordinate holder;

utilizing the programmed computer system to store data relating to the structuring of each senior holder financial instrument and each subordinate holder financial instrument to give priority to payments due the respective senior holder prior to payments due the respective subordinate holder in the event the associated credit enters the default state;

utilizing the programmed computer system to facilitate the making of payments obligated by each subordinate holder financial instrument associated with credits within the same sub-pool as a defaulting credit to perform the obligation of the defaulting credit for the benefit of the associated senior holder to the extent that payments due the senior holder associated with the defaulting credit are not available;

utilizing the programmed computer system to facilitate the making of payments obligated by each subordinate holder financial instrument associated with credits outside the sub-pool containing the defaulting credit to perform the obligation of the defaulting credit for the benefit of the associated senior holder to the extent that the payments of each subordinate holder financial instrument associated with credits within the same the sub-pool as the defaulting credit which were used for the benefit of the senior holder do not cover the obligation of the first credit;

utilizing the programmed computer system to facilitate the provision to each subordinate holder associated with credits outside the sub-pool containing the defaulting credit the benefit of the obligation of the defaulting credit to the associated senior holder to the extent that the payments due each subordinate holder associated with credits outside the sub-pool containing the defaulting credit were used to perform the obligation of the defaulting credit and to the extent that any benefit remains in the obligation of the defaulting credit to the associated senior holder; and

utilizing the programmed computer system to facilitate the provision to each subordinate holder associated with credits within the same sub-pool as the defaulting credit the benefit of the obligation of the defaulting credit to the associated senior holder to the extent that payments due each subordinate holder associated with credits within the same sub-pool as the defaulting credit were used to perform the obligation of the defaulting credit and to the extent that a benefit exists after any benefit is provided each subordinate holder associated with credits outside the sub-pool containing the defaulting credit;

wherein n, j, and k are integers in the range of 1 to 1000.

16. A method implemented by a programmed computer system for isolating risk in a financial transaction, comprising:

utilizing the programmed computer system to store data relating to the structuring of a transaction pool with n sub-pools, each of the sub-pools containing between j and k mini-pools;

utilizing the programmed computer system to store data relating to the allocation, to each of the mini-pools, between j and k credits and utilizing the programmed computer system to store data relating to the allocation, to each of the sub-pools, between j and k credits, each credit having an obligation to make specified payments and each credit being in a non-default state when a respective obligation is met and being in a default state when a respective obligation is not met;

utilizing the programmed computer system to store data relating to the association of a senior holder and a subordinate holder with each credit using a respective senior holder financial instrument through which payments from the credit flow to the senior holder and a respective subordinate holder financial instrument through which payments from the credit flow to the subordinate holder;

utilizing the programmed computer system to store data relating to the structuring of each senior holder financial instrument and each subordinate holder financial instrument to give priority to payments due the respective senior holder prior to payments due the respective subordinate holder in the event the associated credit enters the default state;

utilizing the programmed computer system to facilitate the making of payments obligated by each subordinate holder financial instrument associated with credits within the same mini-pool as the defaulting credit to perform the obligation of the senior holder financial instrument associated with the defaulting credit for the benefit of the senior holder to the extent that payments due the senior holder associated with the defaulting credit are not available;

utilizing the programmed computer system to facilitate the making of payments obligated by each subordinate holder financial instrument associated with credits outside the mini-pool with the defaulting credit but within the same sub-pool as the defaulting credit to perform the obligation of the senior holder financial instrument associated with the defaulting credit for the benefit of the senior holder to the extent that the payments of each subordinate holder financial instrument associated with credits within the same mini-pool as the defaulting credit which were used for the benefit of the senior holder do not cover the obligation of the defaulting credit;

utilizing the programmed computer system to facilitate the making of payments obligated by each subordinate holder financial instrument associated with credits outside the sub-pool containing the defaulting credit to perform the obligation of the senior holder financial instrument associated with the defaulting credit for the benefit of the senior holder to the extent that the payments of each subordinate holder financial instrument associated with credits within the same sub-pool as the defaulting credit which were used for the benefit of the senior holder do not cover the obligation of the defaulting credit;

utilizing the programmed computer system to facilitate the provision to each subordinate holder associated with credits outside the sub-pool containing the defaulting credit the benefit of the obligation of the defaulting credit to the associated senior holder to the extent that the payments due each subordinate holder associated with credits outside the sub-pool containing the defaulting credit were used to perform the obligation of the defaulting credit and to the extent that any benefit remains in the obligation of the defaulting credit to the associated senior holder;

utilizing the programmed computer system to facilitate the provision to each subordinate holder associated with credits within the same sub-pool as the defaulting credit the benefit of the obligation of the defaulting credit to the associated senior holder to the extent that payments due each subordinate holder associated with credits within the same sub-pool as the defaulting credit were used to perform the obligation of the defaulting credit and to the extent that a benefit exists after any benefit is provided each subordinate holder associated with credits outside the sub-pool containing the defaulting credit; and

utilizing the programmed computer system to facilitate the provision to each subordinate holder associated with credits within the same mini-pool as the defaulting credit the benefit of the obligation of the defaulting credit to the associated senior holder to the extent that payments due each subordinate holder associated with credits within the same mini-pool as the defaulting credit were used to perform the obligation of the defaulting credit and to the extent that a benefit exists after;

a) any benefit is provided each subordinate holder associated with credits outside the sub-pool containing the defaulting credit; and

b) after any benefit is provided each subordinate holder associated with credits outside the mini-pool containing the defaulting credit and within the sub-pool containing the defaulting credit;

wherein n, j, and k are integers in the range of 1 to 1000.

17. The method of claim 16, wherein all credits allocated to a particular sub-pool have a substantially similar risk of entering the default state.

18. The method of claim 17, wherein all credits allocated to a particular sub-pool are selected from one of a traditional municipal credit, a tax-exempt hospital credit, an industrial corporate credit, and a high-yield credit.

19. The method of claim 18, wherein all credits allocated to a particular mini-pool within a particular sub-pool are selected from a sub-category associated with the credits allocated to the particular sub-pool.