Glossary

A - B - C - E - I - J - L - M - O - P - R - S - T - U - Y
A
ABS

See "Asset backed security".

Acceleration

In revolving assets securitization and future flows securitization, is the underlying covenant by which the repayment of principal (amortisation) to the investors will became immediately due upon the happening of certain events such as a fall in the degree of over-collateralisation, under-performance events, etc.

Agent Bank

The bank which takes on the role of the administration of the loan on behalf of the participants to a securitization transaction.

Amortisation

Repayment of the principal of a debt in periodic instalments as opposite to a Bullet or Balloon repayment structure.

Arranger

The financial institution (bank or other) which agrees to structure a securitization transaction.

Asset backed commercial paper (ABCP)

An asset backed security issued in the form of commercial paper.

Asset backed security (ABS)

Security issued under a securitization transaction where payment is secured against a pool of assets. May take the form of a pass-through, a pay-through or a cash flow bond. In the United States it is common to distinguish between ABS and mortgage back securities (MBS). In the other markets (and in this glossary, too) the word ABS may cover all classes of securitesed instruments. Asset class The typology of financial assets that support payments on the asset backed securities. Typical asset class are mortgage loans, trade receivables, credit card balances, consumer loans, lease receivables, automobile loans.

B
Balloon

An instalment repayment structure for a securitization transaction under which the final redemption of securities or the final repayment instalment is set at a greater amount than that of earlier redemptions or instalments.

Base rate

It is the basis rate used by a financial institution to price the interest rate it charges for different types of loan typically priced as certain percentage (or certain number of basis point) other the basis rate.

Bullet

A principal repayment structure which repays the entire principal on the maturity date.

C
Cap counterparty

The financial institution that, in a securitization transaction, provides a cap contract. A cap is a derivative contract in which the cap purchaser, on return of a premium, will receive by the cap counterparty periodic payments on the excess of the interest rate charged at an agreed basis rate on a notional principal amount over an agreed strike rate. In this way, the purchaser acquires the insurance that, on the borrowed amount, he will not have to pay more than some maximum interest rate.

Cash collateral account

A type of external credit enhancement in which the SPV borrows the required credit enhancement amount, usually from a commercial bank, and that can be reinvested.

Cash flow bond

Securitised notes issued as bonds, instead of pass through or pay through certificates. Examples are collateralised mortgage obligation bonds, collateralised loan obligation bonds, etc.

Collateralised bond obbligation (CBO)

Cash flow bond issued against a pool of bond assets or other securities.

Collateralised loan obbligation (CLO)

Cash flow bond issued against a pool of bank loan assets.

Collateralised mortgage obbligation (CMO)

Cash flow bond which comprises several classes of bond issued against a pool of mortgage assets.

Collateral invested account

Type of external credit enhancement, similar to a subordinated tranche, wich is either purchased on a negotiated basis by a single third-party credit enhancer or securitised as a private placement and sold to several investors.

Credit enhancement

One or more initiatives taken by the originator in a securitization structure to enhance the security, credit or the rating of the securitised instrument. Credit enhancement can be internal (subordination, overcollateralisation, yield spread, excess spread, reserve fund), or external (surety bonds, third party guarantee, letter of credit, cash collateral account, collateral invested account).

top

E
Excess spread

The amount of interest payments earned on the underlying assets less bondholder payments and expenses. The excess spread is the profit of the originator and can be used to cover current-period losses or paid into a reserve fund to increase credit enhancement.

I
Issuer

The entity which, in a securitization transaction, raises funds by issuing securities: tipically, the issuer is the SPV (special purpose vehicle).

J
Junior securities

Securities subordinated to senior class securities in order of priority of repayment.

L
Lead manager

Institution (bank or other) wich sets up and executes the securitization transaction. The lead manager also brings together the originator, the credit enhancer provider, the investors and other parties to a deal.

Letter of credit

A promise by a financial institution (typically a bank) to pay amounts to a beneficiary. In a securitization transaction it is the obligation, provided by a bank in exchange of a fee, to stand by with cash to reimburse up to the required credit enhancement amount.

Liquidity facility

A facility designed to provide the borrower with the liquidity he needs to meet short-term cash requirements.

Listing

It is the process of gaining a quotation on a Stock Exchange by compiling with the requirements of the Listing Rules.

top

M
Maturity

The point at which a debt became due and payable in full. In the case of a security the maturity will be the redemption date assuming non early redemption date.

Mezzanine debt

High yielding unsecured securities ranking between secured debt and equity in terms of priority of payments.

Multiple tranche transaction

A securitization transaction where the SPV issues several classes of securities such as senior and junior securities.

O
Originator

The institution (bank or other) which, in a securitization transaction, generates the receivables that back the finance raised.

Overcollateralisation

Type of internal credit enhancement where the face amount of the financial asset pool is larger than the security it backs.

P
Pass-through

securitization structure where the SPV makes payments, or rather, passes payments to the investors, on the same periods, and subject to the same fluctuations, as they are in the actual receivables. This means that the actual amount collected every month is passed through to investors, after deducting fees.

Pay through

securitization structure in which the amortisation profile on pay-through securities needs not to be directly linked to principal receipts from the pool of receivables. In this case the SPV does not strictly pay the investors only when the receivables are collected but keeps paying on the stipulated dates irrespective of the collection dates.

Paying agent

Institution (bank or other) which acts as agent of the issuer of securities on the purpose of effecting interest and principal payments to investors.

Pfandbriefe

German traditional secondary market mortgage product. It is similar to the US concept of pass-through.

Placement

A sale of securities. The placement can be private or public.

Principal

The face value of a security or the amount lent by a lender to a borrower.

Priority

The order in which the debt is repaid.

top

R
Rating agency

The institutions which assign credit rating to debt obligations on the basis of investigation and analysis of the transaction and the issuer characteristics.

Reserve fund

Account used to hold back a part of the excess spread as a form of credit enhancement for the transaction.

Revolving credit

A credit facility where amounts repaid to the lender may subsequently be redrawn by the borrower.

S
Senior securities

Class of securities which have priority for repayment purposes.

Servicer

The entity which carries out the day-to day collection and enforcement of the receivables which back the finance raised in the securitization transaction. In many case the originator itself also performs the role of the servicer.

Special purpose vehicle (SPV)

The entity specifically established to fulfil a set of functions or to undertake particular transactions. In a securitization transaction it is the entity which would hold the legal rights over the assets transferred by the originator.

SPV

See "Special purpose vehicle".

Subordination

A type of internal credit support characterised by a senior class of securities and one or more subordinated classes which payment is contingent upon repayment on full of the obligations on the senior notes. In case of default, any loss is absorbed by the subordinated securities. In this way the senior class is unaffected unless the total losses exceed the amount of subordinated tranche.

Swap counterparty

The entity which provides the swap contract against interest rate risk.

top

T
Third party guarantee

A type of credit enhancement in which a third party (usually a rated insurance company or the seller or the parent company) promises to reimburse a trust for losses up to a maximum stated dollar amount. The third party can also agree to pay on advance principal and interests.

Total net balance

Total face value of the portfolio of assets that back the securities issued.

Total amount issued

Total face value of different tranche of securities issued.

Trustee

Institution (bank or other) which administers the securitization transaction, manages the inflow and outflow of moneys and does all acts needed for protecting the investors rights.

U
Underwriter

A financial institution which serves as an intermediary between an issuer and investors in an ABS offering.

Y
Yield Spread

Type of internal credit enhancement given by the difference between the coupon on the underlying assets and the security coupon.

top