Securitisation—financial assets for securitisation
Securitisation—financial assets for securitisation

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Securitisation—financial assets for securitisation
  • Cash-generating asset types
  • Asset due diligence
  • Rating agency criteria

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Brexit planning and impact—financial services, Brexit—impact on finance transactions—Key issues for securitisation transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

Cash-generating asset types

Overview

In principle, any cash-generating asset can be securitised. Even an art collection could be securitised on the assumption it can be sold to generate cash (indeed, the city of Detroit considered doing just that with the Detroit Institute of Art's collection).

Securitisations however tend to relate to a pool of more conventional assets that embed a debt payment obligation (such as loans) and/or which otherwise generate predictable cash-flows (such as a mature stable business). In other words, securitsations tend to be backed by financial assets.

Typical financial assets that are regularly securitised are examined in outline in the following sections, and include:

  1. residential mortgage loans

  2. commercial mortgage loans

  3. credit cards and other unsecured consumer loans

  4. auto loans, and

  5. trade receivables

Examples of more exotic securitisations have included:

  1. F1 (Formula One) rights

  2. cinema revenue

  3. royalty payments, and

  4. weather risk

Securitisation Regulation

In September 2015, the European Commission published the Action Plan on Building a Capital Markets Union. The Action Plan proposed