Fixed-Income Securitization

Asset-backed securities (ABS) are securities backed by and repaid from a pooled group of loans or receivables. Creating securities that are repaid from particular types of loans or receivables transfers risk, provides flexibility to issuers and investors, and efficiently allocates capital. In a securitization, cash flows from a designated pool of assets are redistributed by a special purpose issuer to pay interest and principal to investors in a predetermined manner. Thus, ABS transactions create an entire new subordination structure on the designated pool of assets. Securitization takes place around the world — in the Americas, Asia, and Europe. This first of three Fixed-Income Learning Modules describes the benefits of securitization, the securitization process, and typical securitization structures.