• External credit enhancement is very popular and very easy to understand.
• It’s very easy for the investors to analyze.
• If one of these firms is insuring the bonds, the rating agency doesn't even look at the transaction.
  • It looks at financial statements of the entity insuring the bonds.
• It's a very simple analysis.
  • If you're dealing with an AAA-rated insurer, the bonds must be AAA.
• That's not to say that there couldn't be some cash-flow anomalies for the investor, though.

--  D.L. Auxier, Partner of Ernst & Young LLP in Memphis, TN

1996 - SOA - Asset-Backed Securities, Society of Actuaries - 25p