Securitization is the process of pooling and repackaging illiquid financial assets like receivables, loans, or leases into marketable securities that can be sold to investors. The assets are originated by a company and sold to a special purpose vehicle (SPV) that issues securities to fund the purchase. The SPV contracts the originator to administer the assets, using cash flows to repay investors while passing surpluses back to the originator. Credit enhancement through mechanisms like over-collateralization or insurance protects investors against losses on the underlying assets. Key parties include originators, SPVs, investors, obligors, rating agencies, administrators, and structurers. Common securitization instruments are pass-through certificates,

1. Securitization

2. Definition:
Securitization is the process of pooling and
repackaging of homogeneous illiquid
financial assets into marketable securities
that can be sold to investors.

3. Process of Securitization:
Assets are originated through receivables, leases,
housing loans or any other form of debt by a
company and funded on its balance sheet.
Once suitably large portfolio of assets is
originated, the assets are analysed and as a
portfolio and then sold to a third party.
The administration of assets is subcontracted to
the originator by the SPV.
The SPV issues tradable securities to fund the
purchase of assets.

4. Contd….
The SPV agrees to pay any surpluses which, may
arise during its funding of assets, back to the
originator.
As cash flow arise on the assets, these are used by
the SPV to repay funds to the investors in the
securities.

5. Credit Enhancement:
Credit Enhancement refers to the various
means that attempt to buffer the investors
against losses on the assets collateralising
their investment.
Often required to secure high credit rating
and for low cost of funding.

6. Types of Credit Enhancement:
External Credit Enhancement:
Insurance
Third Party Guarantee
Letter of Credit

7. Contd..
Internal Credit Enhancement:
Credit Trenching
Over- Collaterisation
Cash Collateral
Spread Account

8. Parties to Securitisation:
Originator
SPV(Special Purpose Vehicle)
Investors
Obligor
Rating Agency
Administrator or Servicer
Agent & Trustee
Structurer

9. Asset Characteristics:
Series of Cash Flow
Security
Distributed Risk
Homogeneity
No Executory Clauses
Independence from the Originator

10. Instruments of Securitisation:
Pass Through Certificate’s (PTCs)
Pay Through Security
Stripped Security

11. Types of Securities:
Asset Backed Securities.
Mortgage Backed Securities.

12. Thank You...