Introduction to Securitization

TRADITIONAL SECURITIZATION AND ABCP

ABCP has emerged over time as an independent class of short-term ABS by itself. Though the basic legal structure and principles of structured finance used are similar, there are some very basic differences between ABS (also, to distinguish from CP, called term securitization) and ABCP:

• Conduit investments are revolving and fluctuating, whereas ABS mostly has a fixed pool size.

• ABS collateral type is mostly homogenous with ABCP conduits buying a variety of assets.

• In ABS, it is common to see maturity matching, or to see short-term assets such as card receivables funded by issuing long-term paper. Conduits do the contrary—they might fund long-term assets by issuing short-term paper, which they do on a continuous basis. The liquidity support of the sponsoring bank allows them to play with the mismatches.

• There is no scheduled amortization of the assets held by conduits.

• Unlike term securitizations, ABCP conduits are going concerns with no fixed winding up date.