Derivatives and capital markets products

Structure

Key features are:

1. •

   the originator (debtor company) assigns the receivables to a newly-created SPV

2. •

   the SPV only has a contractual relationship with the originator

3. •

   the SPV issues various tranches of bonds/notes to various capital markets investors (bondholders/noteholders). The rating of the bonds/notes may be increased by obtaining credit enhancement (eg letters of credit, credit default swaps or monoline insurance, though this is less common post-credit crunch)

4. •

   the money raised by the bond/note issuance is used by the SPV to purchase the receivables from the originator

5. •

   the SPV is designed to be insolvency remote (see Practice Note: The insolvency remote SPV in structured finance)

6. •

   derivatives may be used to manage risk (see Practice Note: Derivatives