Role of special purpose vehicle, Financial Management

The financial institutions that originate the loans sell a pool of cashflow-producing assets to a specially created third party that is called a Special-Purpose Vehicle (SPV). The SPV is designed to insulate investors from the credit risk of the originating financial institution. The SPV then sells the pooled loans to a trust, which issues interest bearing securities that can achieve a credit rating separate from the financial institution that originates the loan. The typically higher credit rating is given because the securities that are used to fund the securitization rely solely on the cash flow created by the assets and not on the payment promise of the issuer. Monthly payments from the underlying assets - loans or receivables - typically consist of principal and interest, with principal being scheduled or unscheduled. The cash flows produced by the underlying assets can be allocated to investors in different ways. Cash flows can be directly passed through to investors after administrative fees are subtracted, thus creating a "passthrough" security; alternatively, cash flows can be carved up according to specified rules and market demand, thus creating "structured securities."                           

Posted Date: 9/8/2012 7:10:42 AM | Location : United States







Related Discussions:- Role of special purpose vehicle, Assignment Help, Ask Question on Role of special purpose vehicle, Get Answer, Expert's Help, Role of special purpose vehicle Discussions

Write discussion on Role of special purpose vehicle
Your posts are moderated
Related Questions
Advantage of mutual funds Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following

In multiple correlation equations we are often interested in finding out how much of the variation in the dependent variable is explained by one independent variable if all the oth

1) Is foreign exchange risk systematic? What are the implications of your answer regarding corporate hedging policy with respect to foreign exchange risk? In your answers make sure

State a process for benchmarking 1.  Gain senior management commitment to establish benchmarking as a process within the organisation and educate stakeholders and staff about t

a) Ethics can be a rather prejudiced matter; whether it is ethical to market products directly at children depends on several factors: The age of the children being targeted

Public Financial Statements of a Company The final exercise is the valuation of a publicly held company's equity. You must base your valuation on the company's public financia

Are there any legal factors which could restrict a corporation in its effort to pay cash dividends to common stockholders?  Explain. A firm might be legally restricted as to the

Credit rating agencies carry out credit rating. Companies appoint these agencies to assign credit rating for their corporate issues. The rating agencies may condu

A computer products store stocks color graphics monitors, and the daily demand is normally distributed with a mean of 1.6 monitors and a standard deviation of 0.4 monitor. The lead

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer of petroleum and