Asset Backed Securities

Asset securitization is the process by which loans or other credit exposures are pooled and reconstituted into securities with one or more classes or positions that may be sold.

It generally involves a multi-step process in which an institution transfers illiquid on-balance-sheet assets, such as loans, leases, or other assets, to a particular purpose wholly owned subsidiary, which, in turn, transfers them to a trust. The trust then issues securities, certificates, notes, or interests to investors.

Corporations regularly find themselves with current assets representing customers’ debt purchasing goods or services, hence classified as receivables. These are likely home equity loans, auto loans, credit card receivables, student loans, home improvement loans, trade receivables, or equipment leasing on operating assets, such as planes and ships.