Structural / Legal Review

Having analyzed a securitization and its given tranches to identify where value may lie from a statistical perspective SCR strongly believes that our analysis should be augmented for selected bonds by a review of the offering documents.  We concentrate on the offering circular (and in certain circumstances indenture and other relevant agreements) to identify idiosyncratic features requiring further consideration and to validate modeling assumptions to ensure conformity to actual practice. This process involves the legal and structural deconstruction of each asset and is closely aligned with the statistical analysis.  Overlying structures such as funds or tranched variants are also reviewed. We have seasoned lawyers and structurers to help interpret cash flow waterfalls, cash flow shortfalls, carve-outs, event triggers, enforceability issues and other structural features requiring specialist attention. It is our intention to have a holistic approach when analyzing a RMBS.

The underlying asset review would include amongst other features:

· Principal and interest waterfalls (including default waterfalls);

· Credit Enhancement (including pool crossovers);

· Basic swap arrangements;

· Call options;

· Type of CDS contract (for synthetic) – PAUG, Implied Writedown, Rating Downgrade and Interest Caps.

The overlying structural review, which is applicable where a fund or CDO structure is in place would include amongst other features:

· Principal and interest waterfalls (including default waterfalls);

· Tranching / credit enhancement;

· Collateral quality tests;

· Market value triggers / downgrade protection;

· Collateral auction or tranche calls held by the issuer;

· Hedging and day count convention mismatches;

· Reinivestment criteria;

· Substitution criteria;

· Substitution mechanics / pricing (including net asset value and exit pricing);

· Hidden Arbitrages.