SECURITIZATION OF DEBT

Presented by NISHANTH H MBA, RYMEC

BALLARI.

Contents

Meaning and Definition  Features Special Purpose Vehicle(SPV) Types

Meaning of Securitization of Debt

Securitization means the conversion or future cash in-flows of any person into tradable security which then may be sold in the market. The cash inflow from financial assets such as mortgage loans, automobile loans, trade receivables , credit card receivables, fare collection become the security against which borrowing are raised. In fact even individuals can take the help of securitization instrument for better economic efficiency.

Definition of securitization of Debt

According to Oxford Dictionary,

“Securitization means to convert an asset(specially a loan) into marketable securities for the purpose of raising cash or funds”.

Features of Securitization of Debt

Marketability  Merchantable Quality Wide Distribution Homogeneity  Commoditization Integration and Differentiation

Special Purpose Vehicle (SPV) The entity that intermediates between

the originator of the receivables and the end investors is known as ‘Special Purpose Vehicle’.

  The function of the SPV in a securitization

transaction could stretch from being a pure conduit or intermediary vehicle, to a more active role in re-shaping the cash flows arising from the assets transferred to it, which in turn would depend on the end objectives of the securitization exercise

Now a days it can be used interchangeably with the following names1. Special Purpose Vehicle (SPV)2. Special Purpose Entity (SPE)3. Special purpose trust(SPT)4. Special Purpose Company (SPC)

Securities Issued by Special Purpose Vehicle/Entity

Mortgage-Backed securities (MBS), which are backed by mortgage. 

Asset-Backed Securities(ABS) which are backed by consumer debt; 

Collateralized Debt Obligation (CDO), which are the mostly backed by corporate bonds or other corporate debt.

Types Of Securitisable Assets

Mortgage-Backed securities (MBS)  Assets-Backed securities (ABS) Collateralized Debt Obligations

(CDO)

Mortgage-Backed Securities (MBS)

Assets-Backed Securities (ABS)

Asset-Backed Securities or ABS, are bonds created from various types of consumer debt. When consumer borrow money –whether by taking out a home –equity or auto loan, or by running a balance on a credit card – their loans become assets on the books of the entity extended the credit- a bank, an auto finance company or a consumer finance company....

Collateralized Debt Obligation(CDO)

Collateralized debt obligation is securitized interest in pools of –generally non-mortgage –assets. Assets – called collateral-usually comprise loans or debt instrument. A CDO may be called a collateralized loan obligation or collateralized bond obligation.......

THANK YOU!!