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Orphan structure or Orphan SPV or orphaning are terms used in structured finance closely associated with creating SPVs ("Special Purpose Vehicles") for securitisation transactions where the notional equity of the SPV is deliberately handed over to an unconnected 3rd party who themselves have no control over the SPV; thus the SPV becomes an "orphan" whose equity is controlled by no one.
Securitization: SPEs are commonly used to securitize loans (or other receivables). [3] For example, a bank may wish to issue a mortgage-backed security whose payments come from a pool of loans. However, to ensure that the holders of the mortgage-backed securities have the first priority right to receive payments on the loans, these loans need ...
Advantages of securitization – Depository banks had incentive to "securitize" loans they originated—often in the form of CDO securities—because this removes the loans from their books. The transfer of these loans (along with related risk) to security-buying investors in return for cash frees up the banks' capital.
The SPV (securitization, credit derivatives, commodity derivative, commercial paper based temporary capital and funding sought for the running, merger activities of the company, external funding in the form of venture capitalists, angel investors etc. being a few of them) is "designed to insulate investors from the credit risk (availability as ...
A bank transfers risk in its loan portfolio by entering into a default swap with a ring-fenced special purpose vehicle (SPV). The SPV buys gilts (UK government bonds). The SPV sells 4 tranches of credit linked notes with a waterfall structure whereby: Tranche D absorbs the first 25% of losses on the portfolio, and is the most risky.
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans, or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt ...
Credit derivatives are fundamentally divided into two categories: funded credit derivatives and unfunded credit derivatives. An unfunded credit derivative is a bilateral contract between two counterparties, where each party is responsible for making its payments under the contract (i.e., payments of premiums and any cash or physical settlement amount) itself without recourse to other assets.
Collateralized loan obligations (CLOs) are a form of securitization where payments from multiple middle sized and large business loans are pooled together and passed on to different classes of owners in various tranches. A CLO is a type of collateralized debt obligation, or CDO.