CONSULTING SERVICES:
CREDIT LOSS SNAPSHOT
AD&Co’s Credit Loss Snapshot provides a cost-effective and concise solution to firms that need to estimate the present value of expected cash flows and credit loss on their MBS holdings. The Snapshot harnesses the power of the LoanDynamics™ Model, AD&Co’s market leading credit model, to forecast losses under a base case home price scenario. This is a CUSIP based service that provides a series of analytical and descriptive deliverables at both the collateral and bond level.
Related Information:Credit Loss Snapshot definitions and outputs.
BREAKPOINT ANALYIS
The precipitous decline in the issuance and trading of RMBS and the continuing downward trend of home prices, has made it difficult for investors to value their holdings and understand the intrinsic value of future cashflows. To help investors better understand the value of their holdings, AD&Co has developed Breakpoint Analysis which combines the concepts of a dynamic continuous credit rating, stress risk analysis, and a probabilistic view of losses. Banks, GSE's or any market participant required to assess and manage market holdings on an ongoing basis will benefit from Breakpoint Analysis.
Related Information:Press Release: October 2, 2008 Andrew Davidson & Co., Inc. offers Breakpoint Analysis to Measure the Risk of Mortgage Portfolio Losses during Complicated Times.
The Breakpoint Method by Andrew Davidson & Co., Inc.
INTRINSIC VALUATION
The methodology employed by AD&Co to provide a Level Three fair value is predicated on a credit based Option Adjusted Spread (CrOAS) approach. This benefit of the CrOAS approach is that it incorporates the risks of prepayment, default and loss into a single analytical framework to yield a spread or price that embodies the full spectrum of economic risks associated with credit-sensitive RMBS. Because the CrOAS adjusts for both prepayment and credit risk, the calculated or assumed spread can really be thought of as a proxy for “technical” factors, e.g. financing and liquidity. The higher the assumed CrOAS, the more the intrinsic value of the bond has been compromised by the lack of financing and liquidity. The intrinsic value of an MBS is computed using a level of CrOAS that reflects normal technical conditions to a property established valuation benchmark.
Related Information:Intrinsic Valuation of MBS by Andrew Davidson & Co., Inc.
February 27th, 2009 -- AD&Co’s credit analytics support compliance with the US Treasury’s stress tests for banks under the Capital Assistance Program
VALUATION OF COMPLEX MBS/ABS
Using our sophisticated valuation methods, we help clients identify risks in their portfolio, determine the value of specific holdings or entire portfolios, estimate principal losses and impairment for accounting purposes and optimize risk and return of credit- sensitive assets. We work with clients to minimize losses of distressed assets in their portfolio and maximize value for BBB-bondholders in bankruptcy proceedings and for sellers in M&A transactions.
Our advanced practices for valuing credit-sensitive MBS include Default Adjusted Spread (DAS) and Expected Value (EV). We utilize proprietary analytic tools for forecasting risk measures such as price, yield, prepayments, option-adjusted spread, duration and convexity and are considerably skilled in analyzing historical performance data to forecast prepayments, defaults, delinquencies and loss severities. Analyzing deal structures and reverse-engineering deals in order to forecast cash flows are additional capabilities.
Our consultants have the analytic expertise to value complex MBS & ABS for which actively traded markets are non-existent or pricing information is not readily available.
ASSET/LIABILITY MANAGEMENT
We provide asset/liability management advice to banks, money managers, hedge funds, REITs and insurance companies. We advise clients on how to employ our advanced risk managment methods and prepayment models to identify and manage their balance sheet lisks under dynamic interest rate conditions.
By sharing our significant risk management and market analysis experience, we help clients to optimize their returns on equity, better manage their net interest income and duration gap and minimize their interest rate exposure.
CUSTOM MODELING
We create prepayment and default models to reflect the performance of virtually any portfolio of holdings. We also evaluate internal prepayment and default models to provide recommendations on how to improve forecasting performance.
Our consultants, econometricians and systems staff have a long history of modeling and implementing systems for a broad range of institutional investors, including banks, money managers, CBO issuers, hedge funds, insurance companies and servicers. We rigorously test and study loan performance data provided by our clients and use sophisticated econometric techniques to construct our custom models.
LITIGATION CONSULTING
Major law firms have sought our analysis in securities litigation. We have provided expert witness and consulting services to the SEC and other government agencies, primary Wall Street dealer firms and major investment firms.
Using independently developed proprietary models, we perform financial forensics on investment portfolios ranging in size from millions to billions of dollars in assets. Analyses include valuation of complex securities, the review of investment strategies and guidelines and how they were implemented and the examination of sales, trading and risk management/oversight practices.
With our assistance, clients have determined whether the valuations of individual securities and whole portfolios were reasonable, whether the underlying assumptions and analysis of derivative instruments were fair representations or misleading and whether the risk management policies and risk measures reported to investors were adequate.
