Securitised

Securitised refers to the process of pooling various types of contractual debt, such as mortgages, auto loans, or credit card debt, and then selling these assets to third-party investors as securities. These securities are typically structured into different tranches, each with varying levels of risk and return. This process is known as securitisation. The underlying assets are transferred to a special purpose entity (SPE) or trust, which then issues the securities backed by the cash flows generated from these assets. Investors in securitised products receive payments derived from the principal and interest payments made by the original borrowers.

The primary aim of securitisation is to transform illiquid assets into liquid securities. This allows originators of the debt, such as banks, to remove these assets from their balance sheets, thereby freeing up capital and reducing their risk exposure. For investors, securitisation offers an opportunity to invest in a diversified pool of assets that might otherwise be inaccessible. However, the complexity of securitised products can make them difficult to understand and value, and the risks associated with them, particularly during periods of economic stress, can be significant. The performance of securitised securities is directly tied to the creditworthiness of the underlying borrowers and the structure of the securitisation itself.