The world's local bank
Asset securitization is the process whereby interests in financial assets (for example, loans) are packaged, underwritten and sold in the form of asset backed securities. A securitization involves the sale of assets from a seller to a special purpose vehicle known as a “conduit”. The conduit buys financial assets from banks and/or other corporations, paying for the assets by issuing commercial paper. Two types of conduits exist:
A multi-seller conduit, which has the ability to buy assets from a wide range of financial and non-financial corporations.
A single seller conduit, which only buys financial assets from one seller.
Some conduits are made up of a single asset class. Others have multiple asset classes. The exact composition can vary over time, as long as the asset quality does not erode the conduit’s credit rating. Typically, conduits only acquire assets that are highly rated by rating agency.
Key Features
-
Discounted instrument
-
Issued in bearer form
-
Negotiable (typically can be sold in the secondary market at prevailing market conditions)
-
Range of maturities
- Can only be purchased by qualified investors
