Introduction to Securitization

CHAPTER 2

Issuer Motivation for Securitizing Assets and the Goals of Structuring

In this chapter, we explain the economic motivation for nonfinan-cial and financial institutions to employ securitization. One of the reasons is to reduce funding costs. (Later, in Chapter 14, we examine this often-cited reason within the context of several economic theories regarding a firm’s capital structure.) The reason cited for being able to reduce funding costs is because the issuer has the ability to structure the cash flows generated by a pool of assets to create securities that are more attractive to a wide range of institutional investors. The creation of securities from a pool of assets is referred to as structuring a transaction. In the last section, of this chapter we explain the goals of structuring.