Securitization Structures and Techniques in Capital Financing: Benefits, Objectives, Asset Pools

Description

Securitization is a subset of structured finance that allows creditors to monetize certain assets by transferring them to a bankruptcy remote special purpose vehicle, or SPV, which in turn either borrows from traditional lenders or issues securities backed by those assets. Securitization transactions may be structured to retain both the assets and the indebtedness or to achieve balance sheet relief. Financing costs including discounts, interest, and fees also affect structuring decisions as well as industry and operational-specific considerations.

Securitization allows a company to monetize a pool of its assets by isolating the assets from the bankruptcy estate of the company originating them. The company assigns the selected assets to a bankruptcy remote "special purpose entity," which then obtains financing that is secured by the selected assets.

The main parties to a securitization transaction include the originator/sponsor, the servicer, the trustee/collateral agent, the issuer or borrower, the underwriter or administrative agent, and the investors or lender. The main legal documents are the assignment agreement, indenture or credit agreement, and if the debt is in the form of securities, the offering document. The indenture or credit agreement, as applicable, outlines the terms of the indebtedness incurred by the SPV and the rights and duties of the parties involved in the transaction.

Listen as our authoritative panel discusses securitization structures and the common issues that arise in these transactions.