RSM430H1 Lecture Notes - Lecture 11: Special Purpose Entity, Credit Enhancement, Legal Personality
Document Summary
Assets generally illiquid on stand alone basis but become marketable once they have been packaged in an abs form. Securitization is process of pooling assets into packages of securities i. ii. Transfer of assets from seller to special purpose vehicle. Spv issues debt (bonds or cp) to fund purchase of assets. Timely payment when due of interest and principal to note holders from cash flow generated by the transferred assets and the structural enhancements that are built into the transaction. Trust is entity that is issuer of securities into capital markets. Original seller of assets cannot access cash flows on underlying assets once they have been sold into trust. Sales of assets into spv is true sale. If people stop paying credit card, investor cannot ask rbc for payment. Investor cannot go past spv to originator if spv goes bankrupt. Seller of the assets that will be re-packaged into marketable security.
