Hansol Kim, md in FTI Consulting's structured finance practice, answers SCI's questions

Q: How and when did FTI Consulting become involved in the securitisation market?
A: FTI is a multi-disciplinary consulting firm that is well known in the restructuring world, which falls under our corporate finance group. But we also have robust and established practices in forensic and litigation, economic, strategic communications and technology consulting. I run the structured finance group within the corporate finance practice.

You might be surprised, but FTI has been involved in the securitisation market for quite a while. We've acted as back-up servicer in many of the whole business transactions. The interim-management service FTI offers is a natural fit for this role. Our transaction advisory services group has also been active in collateral due diligence for a wide range of securitisations.

FTI may not be a household name in the structured finance world yet, but is a good fit for the comprehensive services I want to offer. It made sense to me as a way to get involved in the post-financial crisis environment in not only tackling the legacy asset overhang, but also facilitating the re-emergence of the securitisation market.

The multi-disciplinary nature of the firm means we can pull together, from 3700-plus professionals, the right resources for all the different complexities involved in dealing with today's volatile market conditions as well as evolving regulatory environment.

Q: What are your key areas of focus today?
A: What we offer can be broadly divided into risk management and valuation. On the risk management side, we've provided analytical support to prop desks and funds acquiring portfolios of secured and unsecured receivables, M&A advisory to major institutions in acquiring asset management platforms and oversight in various liquidating trust situations - just to name a few. But I'm really excited about some of the newer opportunities in which FTI is playing a control party role in new deals and funding structures.

The control party is essentially a risk management entity built into the transaction structure. The range of our responsibilities can be as wide as investors are willing to have us take on.

Looking back at the financial crisis, especially in the securitisation or structured transaction context, I think we all felt the need to have an independent entity either directly make credit decisions or cause decisions to be made in a timely manner. Monolines played this role in certain sectors, but they are now gone from the non-muni market. There's definitely a void that needs to be filled.

In this role, FTI can deal with different aspects of the securitisation - ranging from fairly benign events, such as additional note issuance, to more serious events such as defaults and servicer replacement. We also formulate strategies and recommendations to investors in those areas outside our purview.

Obviously, in these areas, investors have the ultimate say, but half the battle is letting them know what their options are and what the related consequences might be. I think FTI can add most value in more complicated transactions, which contain flexible or complicated structures and/or asset substitutions.

On the valuation front, we're doing work on both legacy and new deals. On the legacy side, we do periodic valuation work for government entities, trustees overseeing bankrupt REITs, investors looking to make hard decisions on their exit strategy and others with exposure to legacy assets.

Work on new deals is mainly in relation to banks disposing of non-core assets. With all the forthcoming regulatory changes and increased capital requirements, banks recognise that the cost of holding certain assets will rise, which makes them a fairly motivated seller.

There's plenty of private equity and hedge fund money chasing these assets and, once acquired, they need to be marked properly. CFOs and others signing off on their valuations are more than ever concerned about making sure that there's a proper valuation protocol in place and there are logical and market-based assumptions behind these assets.

Q: How do you differentiate yourself from your competitors?
A: FTI is unique in that it combines the flexibility of a small firm with the breadth and depth of a larger one. We have such a diverse group of professionals, including turnaround specialists, forensic accountants, former SEC and FTC professionals, Nobel laureates, economists and former chief executives.

We can quickly bring the right combination of these specialists together to focus on a particular project at hand, yet we have the corporate heft to provide long-term stability, having been around for 30 years. It would be difficult for smaller shops to take on the control party role, for instance, because rating agencies and investors need to know that the adviser will be there for the long haul.

Q: What major development do you need/expect from the market in the future?
A: I think we'll continue to see more banks de-leveraging, resulting in more assets trading hands. Sellers, in my opinion, are more reasonable in terms of price expectations these days and there are plenty of buyers waiting in the wings.

So far, US banks have generally done a better job at this than their European counterparts. I'd say we're not even close to half way through tackling the overhang on banks' balance sheets.

Ultimately, assets trading hands can be viewed as a precursor to the broader securitisation market rebooting, even though the US RMBS market continues to lag. In order for this important sector to gain traction, we need clarity and actual implementation of Dodd-Frank, which does not appear imminent.

But, at some point, securitisation take-outs should become more common in order for buyers to refinance the assets or monetise them. Securitisation is the next logical step - it certainly seems like a good source of permanent financing, doesn't it?

CS