Securitization in Canada

Although securitization has been around for a while, it has recently grown in popularity to the point that is has now become "the finance tool of choice for an ever-broadening array of Canadian issuers." The Canadian securitization market has increased from around $2 billion in issued notes in the early 1990s to almost $50 billion at the end of the century.

Update: "In 2000, the overall Canadian ABS market grew to $79.4 billion, a 20% increase from the $66.4 billion outstanding at the end of 1999....The three largest asset classes that were securitized in the term ABS market in 2000 were personal lines of credit, commercial mortgages, and credit card receivables". Source - Securitizations 2000 Year-End Review, DBRS, BUSREF HG4028.A84L65 2001

The purpose of this brief guide is to lead you to resources related to securitization. The major Canadian studies available in our collection in print form are listed below for your convenience. Additional books on the subject are also provided, along with the suggested subject heading that will lead you to more. Articles may be easily found by using databases such as ProQuest. In that database, for example, one can locate the interesting piece on "Bowie bonds" (securities backed by revenues from future sales of David Bowie's early albums) that appeared in Fortune ("On the Frontier of Creative Finance", April 28, 1997). As well, one can find older studies such as "The Securitization of Practically Everything", Institutional Investor, May, 1985. For web resources, a good place to begin is with http://www.securitization.net. There one will find links to such useful studies as the one done by Standard & Poor's - Canadian Legal Criteria in Structured Finance Transactions and another by Scotia Capital - A Securitization Primer (both are also available in print form in the Business Library). For those of you approaching the subject for the first time, here are a couple of definitions:

"Securitization is an ugly and somewhat nebulous term that refers to at least two distinct innovations in financial markets that first became notable in the 1980s. In its first and more literal usage, the term refers to the transformation of nonmarketed assets into marketable assets, securities. Assets - primarily consumer loans like home mortgage loans, auto loans and credit card receivables - that had traditionally been held in commercial and savings bank portfolios increasingly are packaged into securities for resale on the secondary market. In its second variant, securitization refers to a shift in the way firms borrow funds: firms that had traditionally borrowed from banks increasingly have relied upon securities sold on financial markets. This trend includes the steady growth of the US commercial paper market, and the explosive growth in the 1980s of euronote facilities and the original issue junk bond market". The New Palgrave Dictionary of Money & Finance, Vol.3 (BUSREF HG 151.N48 1992).

"The securitization of assets is broadly defined as the process by which loans, consumer installment contracts, leases, receivables, and other relatively illiquid assets with common features are packaged into interest bearing securities with marketable investment characteristics". see Bhattacharya below.

"In essence, securitization is the open market selling of financial instruments backed by asset cash flow or asset value. It is characterized by (1) the pooling of assets or asset cash flow, and division of the benefits among investors on a pro rata basis, by systematic risk assessment, and (2) its offering form as a security(rather than, for example, as a loan or a group of receivables)." see Lederman below.

DBRS Industry Studies on Securitization in Canada
(in reverse chronological order)

The First Decade of Securitizations in Canada- 1989-1999: An Evaluation of Virtually Every Issue Which Came to Canada in the Past Decade Bus stack oversize HG 4028.A84S375 1999

Farm Machinery and Construction Machinery Securitizations: A Review of Securitization Issues Floated Through the 1990s to Date Bus stack oversize HD 9486.C22S37 1999

Securitization in Canada: A Summary of Most Securitization Issues Completed in Canada 1990-1996
Bus stack oversize HG 4028.A84S378 1997

Securitizations: 1996 Performance Data Bus stack oversize HG 4028.A84N45 1996

Securitizations: 1995 Performance Data Bus stack oversize HG 4028.A84N45 1995

Securitizations: 1994 Performance Data Bus stack oversize HG 4028.A84N45 1994

DBRS Industry Studies on Conduits in Canada

Question and Answer Format re Conduits in Canada - An Update
Bus stack oversize HG 4028.A84S372 1999
Here are two sample questions and answers from the many provided in the study above:
1) Q. What is a conduit?
A. A conduit is a single-purpose Trust which buys financial assets from banks or other corporations, paying for the receivable by issuing commercial paper and long and medium term debt. The debt can be structured as senior or junior. Certain Trusts may hold segregated pools of receivables from more than one Seller, and these pools either revolve or amortize.
2) Q. What are the four main product lines which are securitized in a typical conduit in Canada?
A. (a) Loans, (b) Leases, (c) Trade recivables, and (d) All types of mortgages. Several types of loans have been securitized,including corporate loans, credit cards, auto loans, and consumer loans (conditional sales contracts and leases). Mortgages are usually conventional residential and NHA residential.

The Conduits in Canada: Multi-Seller. Single Seller. Criteria and Principles Used in Rating. Evaluation of Each Conduit in the Marketplace Bus oversize HG 4028.A84S37 1999.

The Conduits in Canada: Multi-Seller. Single Seller. Criteria and Principles Used in Rating. Evaluation of Each Conduit in the Marketplace Bus oversize HG 4028.A84S37 1998

Selected Books
To locate additional books on securitization, use the heading - Asset-Based Financing

Bhattacharya, Anand K and Fabozzi, Frank J. Eds. Asset-Backed Securities.
BUS stack HG 4028.A84A87 1996.

Chew, Donald. The New Corporate Finance: Where Theory Meets Practice.
BUS stack HG 4011.N44 1999.
See "Securitization: A Low-Cost Sweetener With Lemons" by Claire A. Hill, p. 403.

Clarke, Peter S. Asset-Based Lending: The Complete Guide to Originating, Evaluating, and Managing Asset-Based Loans, Leasing, and Factoring.
BUS stack HG 4028.A84C57 1996.

Fabozzi, Frank J Ed.Handbook of Structured Financial Products.
BUS stack HG4028.A84H366 1998.

Fabozzi, Frank J. Ed. Issuer Perspectives on Securitization.
BUS stack HG 4028.A84.I78 1999.

Henderson, John and Scott, Jonathan P. Securitization.
BUS stack HG 4028.A84H46 1988.

Kendall, Leon T. & Michael Fishman, eds. A Primer on Securitization
BUS stack HG 4028.A84P75. 1996.

Lederman, Jess Ed. The Handbook of Asset-Backed Securities.
BUS stack HG 4028.A84H36 1990.

Walmsley, Julian The New Financial Instruments: An Investor's Guide.
BUS stack HG 4521.W184 1988.

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