Introduction to Securitization

SECURITIES ISSUED IN A SECURITIZATION

The term used to describe the securities issued by the SPV in a securitization are referred to as asset-backed notes, asset-backed bonds, or asset-backed obligations. When the security is short-term commercial paper, it is referred to as asset-backed commercial paper (or ABCP). As will be explained when we discuss the different types of securitization structures in later chapters, asset-backed securities can have different credit exposure and based on the credit priority, securities are described as senior notes and junior notes (subordinated notes).

In the prospectus for a securitization, the securities are actually referred to as certificates: pass-through certificates or pay-through certificates. The distinction between these two types of certificates is the nature of the claim that the certificate holder has on the cash flow generated by the asset pool. If the investor has a direct claim on all of the cash flow and the certificate holder has a proportionate share of the collateral’s cash flow, the term pass-through certificate (or beneficial interest certificate) is used. When there are rules that are used to allocate the collateral’s cash flow among different bond classes, the asset-backed securities are referred to as pay-through certificates.