Structured Finance and Securitization: A Discussion of Structuring Techniques | Insights | Venable LLP (2024)

FAQs

What is structured finance and securitization? ›

Securitization is a subset of structured finance that allows creditors to monetize certain assets by transferring them to a bankruptcy remote special-purpose vehicle, or SPV, which in turn either borrows from traditional lenders or issues securities backed by those assets.

Generally there are four basic elements to securitization: (1) Assets generating the cash ffow that are to be securitized (underlying asset), (2) Investors that invest in the cash ffows generated by the underlying asset, (3) An SPE that functions as the conduit linking the underlying asset and investors (often referred ...

Structured finance is a financial instrument available to large financial institutions or companies that have complex financing needs that cannot be ordinarily solved with conventional financing. It is used to manage risk and develop financial markets for complex emerging markets.

The two main legal documents in a securitization transaction are generally the indenture and the offering document.

The Top Banks for Structured Finance

The bulge bracket banks with large Balance Sheets tend to have the strongest groups here. Expect to see JP Morgan, Goldman Sachs, Bank of America, Citi, and Deutsche Bank near the top globally and in the U.S.

Structured Finance Salary. $42,000 is the 25th percentile. Salaries below this are outliers. $60,000 is the 75th percentile.

Securitization is the process in which certain types of assets are pooled so that they can be repackaged into interest-bearing securities. The interest and principal payments from the assets are passed through to the purchasers of the securities.

The issuer or SPV acts essentially as a shell corporation. The SPV then sells the securities, which are backed by the assets held in the SPV, to investors. Securitizing is not an inherently good or bad thing. It is simply a process that helps banks turn illiquid assets into liquid ones and frees up credit.

Thrifts securitize primarily residential mortgages through pass-throughs, pay- throughs, or mortgage-backed bonds. Commercial banks regularly originate and securitize auto loans, credit card receivables, trade receivables, mortgage loans, and more recently small business loans.

The name “structured” is explained by the fact that these financial transactions are composed of collateral-backed securities; think of asset-backed securities and mortgage-backed securities.

What is structuring finance? ›

Structured finance deals with financial lending instruments that work to mitigate serious risks related to complex assets. For most, traditional tools such as mortgages and small loans are sufficient.

What are some of the key purposes of structured finance? Risk Management. Bundling assets spreads risk among multiple investors and reduces the impact of defaults or market fluctuations.

Securitization – which is really a synonym for structured finance – finances car loans, credit card loans, home loans, equipment loans, small business loans, and more.

Securitization allows the original lender or creditor to remove assets from its balance sheets to underwrite additional loans. Investors profit as they earn a rate of return based on the associated principal and interest payments made on the underlying loans and obligations by the debtors or borrowers.

Securitization is the process in which certain types of assets are pooled so that they can be repackaged into interest-bearing securities. The interest and principal payments from the assets are passed through to the purchasers of the securities.

A securitized bond is collateralized, typically by a real asset like a house or an airplane. A structured product, meanwhile, is backed solely by the creditworthiness of the bank that issues it.