Reverse Engineering Deals on Wall Street with Microsoft Excel, + Website A Step-by-Step Guide

by Allman, Keith A.

• ISBN13: 9780470242056
• ISBN10: 0470242051
• Edition: 1st
• Format: Paperback
• Copyright: 2008-11-24
• Publisher: Wiley

Summary

Modeling Structured Finance Cash Flows has attracted a nice audience by teaching the process of structure finance on Wall Street to those who need to learn the craft. Reverse Engineering Deals on Wall Street with Microsoft Excel looks at the problem through a new window - namely, how do you reverse engineer deal terms in a competitor's deal sheet or prospectus so you can understand or do similar deals yourself. The process of reverse engineering is an essential Wall Street business practice, which Allman demystifies using Microsoft Excel as a calculation worksheet. While Modeling Structured Finance Cash Flows showed the reader how to structure a deal from scratch, Reverse Engineers goes from deal sheet or prospectus and walks a user through the process of reverse engineering a deal. It is done step by step with textual excerpts from the prospectus and how that directly transfers to a model. The book would be done with the same detailed and rich instruction as Allman's first book, including Model Builder-type exercises, and working models for any reversed deals.

Author Biography

Keith A. Allman is a capital markets professional with a specialization in analytics and modeling. He is currently the principal trainer and founder of Enstruct, a quantitative finance training company, as well as a Managing Director with NSM Capital Management. Prior to this, Allman was a vice president at Citigroup's Global Corporate and Investment Bank. He has also worked for MBIA Corporation in their Quantitative Analytics division. Allman is the author of Modeling Structured Finance Cash Flows with Microsoft Excel, which is published by Wiley.

Table of Contents

Preface	p. ix
Acknowledgments	p. xiii
About the Author	p. xv
Introduction	p. 1
The Transaction	p. 2
The Documents	p. 2
The Process	p. 6
How This Book Works	p. 12
Determining Dates and Setting Up Timing	p. 15
Differences in Timing Approaches	p. 15
A First Look at the Prospectus	p. 16
Important Dates	p. 17
Transforming Dates and Timing from Words to a Model	p. 21
Model Builder 2.1: Reversing Dates and Timing	p. 21
Conclusion of Dates and Timing	p. 27
Creating Asset Cash Flow from Prospectus Data	p. 29
It's All in the Prospectus Supplement	p. 29
The Basics of Amortization	p. 32
Performance and the Prospectus Supplement	p. 33
Delinquency	p. 34
Loss	p. 35
Prepayment	p. 36
Recovery	p. 38
Creating Cash Flow	p. 38
A Complex Implementation	p. 39
Entering in the Raw Asset Information	p. 40
Entering in the Default and Prepayment Assumptions	p. 43
Interest Rates and Additional Asset Amortization Inputs	p. 47
Introducing VBA and Moving Data In and Out of the Model	p. 50
Loading Loan Performance Assumptions into VBA	p. 57
Global Functions	p. 60
Loan-Level Asset Amortization	p. 61
Setting Up Liability Assumptions, Paying Fees, and Distributing Interest	p. 81
Identifying the Offered Securities	p. 81
Transferring the Liability Information to a Consolidated Sheet	p. 84
The Liability Waterfall: A System of Priority	p. 87
Starting the Waterfall with Fees	p. 89
Interest: No Financing Is Free	p. 91
Continuing the Waterfall with Interest Paid to the Certificate Holders	p. 93
More on Waterfalls and Wall Street's Risk Parsing	p. 106
Mezzanine Interest	p. 106
Continuing the Waterfall: It Only Gets More Complicated	p. 114
Principal Repayment and the Shifting Nature of a Wall Street Deal	p. 115
The Deal State and Senior Principal	p. 116
Mezzanine Principal Returns	p. 142
The Mezzanine Certificates' Priority of Payments	p. 142
Number Games or Risk Parsing?	p. 147
Credit Enhancement Mechanisms to Mitigate Loss	p. 149
Excess Spread, Overcollateralization, and Credit Enhancement	p. 151
Auditing the Model	p. 173
Model Builder 7.1	p. 174
Conclusion of Example Transaction and Final Thoughts on Reverse Engineering	p. 187
Mortage Insurance and Servicer Advances	p. 187
Reverse Engineering in the Current and Future Market	p. 188
Appendix	p. 189
Automatic Range Naming	p. 189
About the CD-ROM	p. 193
Index	p. 197
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