1. DRAFT Asset-Backed Securities (ABS) Adam Parkin, CFA Director
A Confidential Presentation
Asset-Backed Securities (ABS)
Past, Present & Future
March 24, 2016
Presented By
Adam Parkin, CFA
Director
DRAFT

2. Prime Autos (Loan/Lease/Floorplan) Credit Cards Equipment
Many ABS To Choose From
Why ABS?
ABS are Not: MBS, CMBS or CLOs
Traditional/Common
Newer/Less Frequent ("Esoteric")
Prime Autos (Loan/Lease/Floorplan)
Cell Tower
Credit Cards
Aircraft
Equipment
Whole Business
Sub-Prime Auto
Container/Railcar
Fleet Lease
Single-Family Rental
Rental Car
Solar
Student Loan
Market Place Lending
Not All ABS are Created Equal

3. ABS are Many Things to Many People
Why ABS?
High Quality Investment Option
Issuers
Alternative Funding
Complements other funding sources
Access funding during market turmoil (e.g. autos)
Cost of Funds
"AAA-A" rating provides cheap financing relative to alternatives
Match Funding
Financing of otherwise illiquid assets
E.g. auto loans, equipment leases
Investors
Credit Quality
"AAA-A" rating
Stable performance within traditional asset space
Diversification
Exposure to consumer credit and/or specific assets
Senior interest in diversified pool of assets
Yield Pick-up
Enhanced returns relative to other fixed-income options
Important Funding for Businesses that Finance Taxpayers

4. How ABS Works? Cash flow generating assets: - Credit card portfolio
Why ABS?
Cash flow generating assets:
- Credit card portfolio
- Auto loans/leases
- Equipment loans
“AAA” Rated Securities:
Some non-"AAA"
SPV
Seller/
Servicer
Investors $ $
Credit Enhancement
Asset Liabilities
Cash Flows
Assets
AAA
Losses
Types of Structures
Pass-Through
Pay-Through
Payments are passed through to investors (monthly)
Notes amortize
e.g. Auto and equipment loans
Payments are retained by Seller until required for repayment of notes
Bullet maturity
e.g. Credit Cards
BBB
Non Rated

5. ABS – A Timeline 1980's 1990's 2000's 2010's 1st ABS
The Past †
1980's
1990's
2000's
2010's
1st ABS
Shelf Registration
CDO's
Sub-Prime/Synthetics
FINANCIAL CRISIS
Increased Regulation
Esoteric assets
† Source: SIFMA, US ABS Issuance and Outstanding ( )

6. Moody's ABS Historical Ratings Changes (1997-2015)
The Past
Not All ABS Are Equal
Consumer ABS Ratings Outperform Other ABS Asset Classes
† Source: Moody's Investors Service: Ratings Changes in the US Asset-Backed Securities Market: 2015 Second Quarter Update; excludes Home Equity

7. Moody's Historical ABS Impairment Performance
The Past
Structuring is No Substitute for Collateral
"There have been no impairments among Aaa- and Aa-rated U.S. auto loan ABS …impairment among US credit card ABS tranches that have carried a Aaa or Aa rating have been limited to one issuer (Heilig-Meyers) which filed for bankruptcy in 2000." – Moody's
The Case for Consumer ABS – Tried, Tested & Proven
† Source: Moody's Investors Service: Default & Loss Rates of Structured Finance Securities:
‡ Source: Moody's Investors Service

8. ~$200B in Issuance Annually
ABS Where Are We Now?
The Present
~$750B in ABS Outstanding
~$200B in Issuance Annually
† Source: SIFMA, US ABS Issuance and Outstanding ( )

9. ABS Spread Performance
The Present
Spreads at 52 Week Highs and at Levels Not Seen Since '08
Swap Curve Benchmark a Contributor to ABS Spread Widening
† Source: TD Securities (USA) LLC & Bloomberg

10. Company Risk - Volkswagen (VW) Case Study
The Present
Asset vs Corporate Risk
In September 2015, the US Environmental Protection Agency issued a notice of violation that Volkswagen (VW) had installed diesel engine software to circumvent the emission standards of the Clean Air Act.
In addition, Volkswagen faces a lawsuit filed by the US Department of justice seeking fines related to the deceptive practices.
Volkswagen has reported that the emissions issue could affect 11 million vehicles worldwide and has embarked on remedial measures to rectify the situation.
ABS Showed A High Degree Resiliency in the Case of Increased Company Specific Risk
† Source: TD Securities (USA) LLC & Bloomberg

11. Liquidity, Liquidity, Liquidity!!!
The Future
#1 Concern of Issuers & Investors
Introduction of TRACE Reporting
Potential To Significantly Change the Market Landscape
† Source: FINRA, ( )

12. Credit Risk – Credit Cards
The Future
Credit Card Metrics Remain Very Positive With Charge-Offs at Historic Lows
Credit Card ABS Appears Well Situated to Weather a Downturn
† Source: Moody's Investors Service: Global Structured Finance Collateral Performance Review

13. Credit Risk – Autos
The Future
Auto Performance Remains Stable and at Historical Lows
Prime Auto ABS Appears Well Situated to Weather a Downturn
† Source: Moody's Investors Service: US Prime Auto Loan ABS Credit Indices: January 2016

14. Other Areas of Consideration
The Future
Other Themes
Asset Class Developments
New Consumer Asset Class in '16
Cell phone equipment plans
Verizon, AT&T & Sprint
Expansion of foreign assets collateralized $US ABS
Attractive funding levels
Deep investor base
Alternative funding source
Regulation
Will continue to evolve and impact the ABS market
REG AB II
TLAC
BASEL III
TRACE
Creating significant barriers to entry for issuers

15. Questions? Thank You Name Contact Email Adam Parkin (212) 827.7119