What is securitisation?

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

  • What is securitisation?
  • Securitisation is a financing technique
  • Areas of law relevant to securitisation
  • EU Securitisation Regulation
  • Securitisation Regulation
  • Brexit—onshoring of the EU Securitisation Regulation
  • Types of securitisation
  • Parties in a securitisation
  • Why does an originator securitise its assets?
  • Why do investors buy securitised notes?
  • More...

What is securitisation?

Securitisation is a financing technique

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 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.

For more information on SPVs, see Practice Note: The insolvency remote SPV in structured finance.

The notes issued on a securitisation are often listed on a stock exchange and rated by one or more credit rating agencies.

The generic term for the notes created on securitisation is 'asset backed securities' or ABS. Repackagings and collateralised debt obligations (CDOs) use securitisation techniques but by market convention are considered separate from securitisations. For more information on CDOs, see Practice Note: Collateralised debt obligations.

Areas of law relevant to securitisation

Whilst considered

Popular documents