Key Concepts in Securitisation & its Benefits

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True Sale Criteria:

•Any transfer of assets by the originator to an SPV must comply with the true sale criteria

•The underlying assets must be isolated form the originator – even in receivership or bankruptcy situations

•The originator must transfer all rights and obligations in the underlying assets to the SPV

•The originator must not hold any equity stake, directly or indirectly, in an SPV

•The SPV must not have any recourse to the originator for losses arising from the assets apart for any credit enhancement provided by the originator at the start of the securitisation transaction

Special Purpose Vehicle:

•An SPV must have independent directors or trustees

•It must be bankruptcy remote

•It is responsible to ensure that its assets are managed properly and in the best interest of the bond holders

•The SPV and the bonds issued must not carry the same name as the originator or be similarly identified with the same

•It must maintain proper accounts and records to enable complete and accurate view of its balance sheets as well as its income statements

•It must comply with all regulatory reporting requirements

Benefits of ABS

Originator

•Additional source of cheaper funding 

•Reduce asset/liability mismatch 

•Monetised illiquid assets 

•Locking in profits 

•Transfer risks 

•Off-balance sheet  

Investor

•Portfolio diversification

•High quality asset

•Not exposed to the credit risk of the originators

•Potential higher rate of returns