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
QUESTION 1 Discuss the role and contribution of the procurement function in an organisation. QUESTION 2 Discuss the main objectives of purchasing negotiations. Compare

Q. Determine Cost of redeemable Debt? Cost of redeemable Debt: - Usually a company issues a debt which is redeemable subsequent to a certain period during its life-time. Such a

a.) A bond of Rs. 1000 value carries a coupon rate of 10% and has a maturity period of 6 years. Interest is payable semi-annually. If the required rate of return is 12%, calculate

Ask question Open Quick Links Quick Links Page Landmarks Content Outline Keyboard Shortcuts Global Menu Top Frame Tabs My UMass Amherst Tab 1 of 2 (active tab) Help & Resource

Fixed Costs The costs a rigid incurs doing business that do not change in relation to production. Rent, for example, is a fixed cost because it remains constant whether product

Margin Trading: Suppose an investor wants to buy 100 Reliance Energy shares, whose market price is Rs.500. This transaction requires Rs.50,000 but the investor has only Rs.30,0

Analysis of the financial statements and accounting policies of "Panera" Bread company, in APA format, containing: Financial Statements -Discuss the main financial statemen

Primary Market In an economy, at a given point of time, there will be people/entities called savers the surplus units, whose current income exceeds their current expenditure whi

In the efficient markets, whether it is security, equity or fixed-income markets it is believed that the investors use some type of passive strategy in

Failure of mergers and takeovers Failure of mergers and takeovers Poor strategic plan will result in slow or failed integration. Integra