rkmoon
New member
Securitisation of assets is an addition to the existing channels for recycling of funds by business entities.
What is securitisation? It is a process through which the future income or receivables (the money that is to become due in future) of an organisation, are transformed and sold as debt instruments (such as bonds with a fixed rate of return). In respect of banks, a part of their loan portfolio can be packed together and off-loaded in the form the debt instruments (called pass-through certificate) to the prospective investors with the provision that the inflow of cash in the form of recoveries shall be distributed amongt the investors. This allows the securitising organisation/bank to get funds upfront, which can be put to more productive use in the business.
Intermediaries in the securitisation transaction There are various entities involved in the securitisation transaction which include the Originator (the party/bank which has a pool of assets which it can offer for securitisation and is in need of immediate cash). Special Purpose Vehicle (SPV - the entity that will own the assets once they are securitised), usually, in the form of a trust. It is necessary that the assets should be held by the SPV as this would ensure that the investors’ interest is secure even if the originator goes bankrupt. The servicer is an entity that manages the asset portfolio and ensures that payments are made in time. The credit enhancer can be any party which provides a reassurance to the investors that it will pay in the event of a default. This could take the form of a bank guarantee also. The other parties include he credit rating agencies, the credit enhancement providers and the investors.
Process of Securitisation
• Original lender (bank or FI) selects and then sells various types of loans to another institution (which may promote a subsidiary for this purpose called Special Purpose Vehicle, which is a sort of Trust);
• The special purpose vehicle- SPV (called issuer also) makes the payment to the original lender for the loans purchased under the arrangement;
• These loans are converted into a pool of securities like debentures (called Pass Through Certificates) by SPV.
• These PTCs are then sold to individual or institutional investors, who are willing to make investments;
• The original lender may keep on getting recoveries from the original borrowers;
• He passes on these recoveries to the SPV.
• The issuer in turn passes on these recoveries to the individual/institutional investors as per the arrangement made
:SugarwareZ-191: :SugarwareZ-191: :SugarwareZ-191:
What is securitisation? It is a process through which the future income or receivables (the money that is to become due in future) of an organisation, are transformed and sold as debt instruments (such as bonds with a fixed rate of return). In respect of banks, a part of their loan portfolio can be packed together and off-loaded in the form the debt instruments (called pass-through certificate) to the prospective investors with the provision that the inflow of cash in the form of recoveries shall be distributed amongt the investors. This allows the securitising organisation/bank to get funds upfront, which can be put to more productive use in the business.
Intermediaries in the securitisation transaction There are various entities involved in the securitisation transaction which include the Originator (the party/bank which has a pool of assets which it can offer for securitisation and is in need of immediate cash). Special Purpose Vehicle (SPV - the entity that will own the assets once they are securitised), usually, in the form of a trust. It is necessary that the assets should be held by the SPV as this would ensure that the investors’ interest is secure even if the originator goes bankrupt. The servicer is an entity that manages the asset portfolio and ensures that payments are made in time. The credit enhancer can be any party which provides a reassurance to the investors that it will pay in the event of a default. This could take the form of a bank guarantee also. The other parties include he credit rating agencies, the credit enhancement providers and the investors.
Process of Securitisation
• Original lender (bank or FI) selects and then sells various types of loans to another institution (which may promote a subsidiary for this purpose called Special Purpose Vehicle, which is a sort of Trust);
• The special purpose vehicle- SPV (called issuer also) makes the payment to the original lender for the loans purchased under the arrangement;
• These loans are converted into a pool of securities like debentures (called Pass Through Certificates) by SPV.
• These PTCs are then sold to individual or institutional investors, who are willing to make investments;
• The original lender may keep on getting recoveries from the original borrowers;
• He passes on these recoveries to the SPV.
• The issuer in turn passes on these recoveries to the individual/institutional investors as per the arrangement made
:SugarwareZ-191: :SugarwareZ-191: :SugarwareZ-191: