Page 67 - FINAL CFA SLIDES DECEMBER 2018 DAY 14
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LOS 53.b: Describe securitization, including the
parties involved in the process and the roles Session Unit 15:
they play., p. 75 53. Introduction To Asset-Backed Securities
Fred still collects on behalf of SPE,
keeps agreed service fees and pays
over Principal and interest to SPE!
Its core business is to sell cars not to
finance cars –has it? Fred can use $1billion to lend
some more, it it tried to raise new
tanties D or E, investors will be subject to
the financial risks of Fred but not
anymore!
Sell loan
Portfolio to SPE
SPE can set up a waterfall structure or
tranches with different maturities and
risk categories to sell to different SPE –separate entity! Sells shares!
types of investors!
Sell Asset (Mortgaged)
Backed Securities (ABS or MBS)
to investors Use proceeds to replenish
capital or pay FMC
(or Bank as it were)
The credit rating of the ABS securities may be higher than that of
bonds issued by Fred -thus, cost to fund the loans using the ABS
structure is lower than if Fred tried issuing its own corporate bonds.
