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Corporate Banking >> Structured Finance >> Securitisation

Securitisation
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Credit (EPC) Contract Financing | Investment Monetisation Securitisation Definition and intent Securitization & structured finance advisory solutions Asset Backed Securitisation Future Flow securitisation securitisation is a process through which illiquid financial assets are pooled and repackaged into marketable securities. Generally, the assets to be securitised are transferred by the asset owner (the originator or transferor) to a "bankruptcy remote" special purpose vehicle (SPV) as the asset purchaser. The SPV issues securities to public or private investors, which are backed (i.e. secured) by cash flows generated by the assets securitised and sometimes even by the underlying assets themselves. The net proceeds received from the issuance of the securities are used to pay the transferor for the assets acquired by the SPV. The intent of securitisation is to ensure that repayment of the securities issued to investors is dependent upon the securitised assets and therefore will not be affected by the insolvency of any other party including the entity securitising the assets. Most securitisation issues are rated by one or more accredited rating agencies. The rating applies to the securities that are issued to investors. securitisation involves isolation of specific risks, evaluation of the same, allocating the risks to various participants in the transaction (based on who is best equipped to handle the respective risks), mitigating some of the risks through appropriate credit protection mechanisms and pricing the residual risk borne by the originator. It has emerged as an efficient and cost-effective resource raising mechanism which integrates the apparently illiquid underlying assets with the capital markets. Benefits to the originator From an originator's perspective, the main advantages of securitisation include the ability to raise finance at a relatively low cost, partial or total removal of assets from its balance sheet, diversification of funding sources, access to the capital markets for unrated entities and access to liquidity. Thus, it serves as an effective balance sheet management tool for originators through which hidden values could be identified and unlocked, asset-liability mismatch, currency, commodity, interest rate risks, etc. could be hedged and an enhanced return on capital could be managed through the continuous churning of portfolio. Additionally, banks that raise funds through securitisation are able to rationalize their regulatory and sometimes economic capital requirements.
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Tweet Benefits to the investor Follow From an investor's perspective, securitisation offers an alternative on Linkedin investment medium, which, for a given rating level, usually offers a safer investment avenue and higher risk-adjusted returns compared to equivalent rated bank or corporate debt. Categories of securitisation securitisation can be classified into two categories: Asset backed securitisation, and Future flow securitisation Contact Us structured.finance@icicibank.com

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