Professional Documents
Culture Documents
Securitization
Securitization
Securitization
Securitization
Securitization is the issuance of marketable securities backed by the expected cash flows from specific assets (receivables)
Parties to an issue
Originator SPV Special purpose Vehicle Obligors
The initial owner of the loans. Sells them to the SPV Set up specifically for transaction. Purchases assets from Originator. Company/Trust/ Mutual Fund The loan customers. Pay cashflows that are securitised
Investors
SPV
Sale of asset 6 7 Purchase consideration 4 Rating
Investors
8 Subscription to securities
Rating Agency
5
Arranger
Contracts Ongoing cash flows Initial cash flows
Structurer
Types of Securitization
MBS (Mortgage based securitization ) ABS (Asset based securitization)
Benefits to Originator
Off balance sheet financing Regulatory capital relief Improvement of RoCE Multiple alternative sources of funding Conversion of illiquid assets into liquid securities Systemically solves ALM problems in the sector - mismatch due to difference in tenor and characteristics of assets (mostly fixed rate and up to 30 years) and liabilities
Benefits to Investor
Enjoys low cost operations and servicing due to economies of scale of the originator Credit risk is minimized
Exposure on rated, low-risk housing loans Expertise of originators helps maintain quality of underlying assets Credit enhancement possible
Receivables are sufficient to meet the payments promised by the SPV Safeguards exist to provide for shortfalls in cash from receivables
Investors have clear legal claims on the income from receivables and have adequate protection in the case of delinquency.
First deal in India between Citibank and GIC Mutual Fund, in 1990 for Rs. 160 million. Securitisation of cash flow of high value customers of Rajasthan State Industrial and Development Corporation in 1994-95, structured by SBI cap. Securitisation of overdue payments of UP government to HUDCO by issue of tax-free bonds worth Rs. 500 million Securitisation of Sales Tax deferrals by Government Of Maharashtra in August 2001 for Rs. 1500 million with a green shoe option of Rs. 75 million. First deal in power sector by Karnataka Electricity Board for receivables worth Rs. 1940 million and placed them with HUDCO. Mega securitisation deal of Jet Airways for Rs. 16000 million through offshore SPVs. Data indicate that ICICI had securitised assets to the tune of Rs. 27500 million in its books at end March 1999.
Some of the companies that have been Involved in this are Ashok Leyland finance Cholamandalam investment & finance Esanda finance Sakthi finance Tata finance SRF finance
Thank you