- sale of a specific loan by a lender such as a syndicated loan.
- reasons:
- to realise capital or take advantage of new lending opportunities;
- change the dynamics of its loan portfolio ie diversifying its portfolio;
- reduce its capital requirements (ie banks have to maintain a certain percentage of capital to cover for its existing loan obligations);
- may wish to crystalise a loss on the loan where the borrower runs into difficulties (ie a distressed debt where there is an active market).
- to insulate payments on the issued debentures from the claims of entities, including the transferor/originator of the assets, that are either unrated or have credit ratings lower than the desired credit rating on the debentures
- transfer of property such as a portfolio of receivables eg. residential loans, credit card debt, aircraft leases and other types of receivables to be used to generate cash flow in a securitisation transaction (such as by the issue of debentures).
- reasons:
- to legally isolate the underlying assets from the insolvency of the transferor/originator of those assets, enabling purchasers of the debentures to consider the creditworthiness of the underlying assets independent of the creditworthiness of the transferor/originator.
- to insulate payments on the issued debentures from the claims of entities, including the transferor/originator of the assets, that are either unrated or have credit ratings lower than the desired credit rating on the debentures.
- reasons:
William A.J. Higgs PhD