Securitizations
Securitization is the financial process by which illiquid assets, such as loans or receivables, are pooled and sold to investors in the form of securities. The assets are transferred to a special purpose vehicle (SPV) that is designed to be bankruptcy-remote and to issue notes backed by the pool’s cash flows. The SPV isolates the assets from the originator’s balance sheet, which can help transfer credit risk and free up capital.
Key participants include the originator or sponsor, the SPV, a servicer who collects payments, a trustee, rating
Assets commonly securitized include residential and commercial mortgages (RMBS and CMBS), auto loans, credit card receivables,
Risks include credit and default risk, prepayment and extension risk, liquidity risk, and structural or legal
Related concepts include asset-backed securities (ABS) generally and synthetic securitizations; structured vehicles like CDOs provide broader