Asset Securitisation

This refers to the process where a company has financial asets and converts them into cash (that is it has the assets on the balance sheets and converts them to cash).

Basically this works through initially a loan that is secured, such as the mortgage lender advancing funds secured against the house.

Now the lender would normally then hold the asset which is the loan until the mortgage was redeemed, however this does meant that lender has their resouces tied up, which can be a constraint on their operations.

Tehrefore asset securitisation is a process that lets the lender release the money that they have locked up, and are transferred to a trust company which is called a special purpose vehicle.

This then issues a bond in turn which is secured on the back of the receivables, and so it does start to get quite complicated at this point.

Nevertheless this is quite an important option and way of doing things, and so is worth looking into and finding out about and understanding.

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