Illiquid Structured Assets

Does anyone have a good way to find comparatives for pricing MBS, ABS,CMBS assets that are illiquid in the market? My company is currently evaluating two secondary pricing vendors for this purpose. However, I would like to find a "simplified" approach to price checking on my own. I know the preferred method is to find a comparable liquid security, but what features are considered "comparable". IE if you have an ABS maturing on 1/1/2030, fixed rate of 6%, Not rated, how do you slim down the characteristics that count as "comparable?"

Comments (3)

Best Response
Dec 24, 2012 - 9:23pm
Sandhurst, what's your opinion? Comment below:

Look at the pool; i.e., what are the underlying assets, and how have cash flows performed? As for the deal itself, what are the terms? Is there any credit enhancement/tranching/OC? Any non-standard features?

You can think about the conceptual approach as (a) the "underlying," which drives the performance of the deal, and (b) the deal terms--structure, etc--which modulate the effects of (a). So if you can't find liquid securities with the same underlying assets, then you need to think about similar or comparable assets. E.g., truck leases and shipping container leases. Not exactly the same, but responsive to similar market conditions (in a very general sense).

As you alluded, a top down approach, looking at coupon, WAL, etc., is really only going to work if you can find similar deals. So if you can't, you need to find the next best thing, and go deeper into the deals themselves so that you can make the proper "adjustments" so as to impute some market-based price. Put differently, the performance of the underlying cash flows is almost always the most important factor when valuing any kind of securitization.

Edit: check this out and find the methodology sheet closest to whatever it is that you're dealing with. It should give you a broad sense of what matters with respect to performance (and pricing) of a securitization: http://www.moodys.com/researchandratings/rating-methodologies/003006001…

"There are three ways to make a living in this business: be first, be smarter, or cheat."
  • 4
Dec 25, 2012 - 8:15pm
ELDERPATNHER, what's your opinion? Comment below:

Awesome, I will dig into this tomorrow, assuming the underlying asset Cash Flows can be found under the asset description in Bloomberg. I spent the better part of last week reading hundreds of pages on pricing methodologies from vendors and I wanted to gouge my eyes out, it was brutal.

Mar 8, 2021 - 1:41am
yellow banana, what's your opinion? Comment below:

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