Synthetic securitisations

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

  • Synthetic securitisations
  • What is a securitisation?
  • What is a synthetic securitisation?
  • Balance sheet synthetic securitisation
  • Arbitrage synthetic securitisation
  • Market data
  • Why do parties enter into synthetic securitisations?
  • What is the difference between a true sale securitisation and a synthetic securitisation?
  • How do you document a synthetic securitisation?
  • Credit derivatives
  • More...

Synthetic securitisations

What is a securitisation?

Securitisation is a technique used to finance the ownership or sale of types of assets that would otherwise be difficult to finance/sell (ie 'illiquid' assets such as bilateral loans and mortgage and other loans to natural persons). In its most common and basic form securitisation is a financing technique that consists in the sale of large pools of such cash-generating assets by a bank or other financial institution (the originator) to a special purpose vehicle (SPV). The SPV pays for the assets by issuing interest-bearing securities (also known as 'bonds' or 'notes') into the capital markets which have the benefit of security over those assets and/or the cashflows generated by them (known as 'receivables'). The cashflows generated by the receivables are used to pay interest and repay principal on the securities, and investors can generally only look to the receivables for repayment. Typically the bonds or notes are divided into different classes. The differing classes (or 'tranches') carry different priorities as to payment of principal and interest and carry different payments of interest, with the most risky assets typically paying higher rates of interest and the less risky assets, typically have the right to priority of payment. In many cases, the originator will bear the risk of the most risky tranches and investors will bear the risk of the less

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