Description
Securitization This process involves pooling financial assets and converting them into tradable securities. By securitizing assets, the originator can transfer the credit risk and cash flows associated with those assets to investors who purchase the securities. Tranching Tranching refers to the division of the securitized assets into different classes or tranches, each with its own risk and return characteristics. The tranches are structured in a way that allows investors to choose their desired risk exposure and return profile .Credit Enhancement: Credit enhancement mechanisms are used to increase the credit quality of the structured securities and reduce the risk of default. These mechanisms may include overcollateralization, cash reserves, credit guarantees, or insuranc Special Purpose Vehicles (SPVs): SPVs are legal entities created to hold and manage the securitized assets. They are bankruptcy-remote entities designed to isolate the assets from the originator’s financial risk.