Securitization

Securitization is a procedure for raising finance by issuing securities backed by assets that generate stable cash flows.

There are three stages of a securitization transaction.

The first stage is the pooling of assets. The originator creates a specialized portfolio by placing cash-generating assets in it.

The second stage is the operation of SPV of the company with a pool of assets. The special purpose vehicle (SPV) buys a dedicated pool of assets from the originator, issues secured securities against them, and brings them to the financial market. As a result, the assets received by the SPV are separated from the financial condition of the originator, i.e. his financial problems will not be able to influence the rates of backed securities, which thereby become more reliable.

The third stage is income generation. The income distributed among investors comes in the form of cash flows from assets that serve as collateral for issued securities. These funds are transferred to investors, net of necessary costs in the form of commissions due to participants in the securitization process.

Among securitization securities, there are issues which are secured by mortgage loans Mortgage-backed security, MBS and issues secured by are other assets Asset-Backed Security, ABS .

The main difference between securitized issues and covered bonds is that they are not an obligation of the issuer (originator), since they are issued by SPVs that owns the originator’s asset pool.