Securitize

AAA

DEFINITION of 'Securitize'

A pooled group of financial assets that together create a new security, which is then marketed and sold to investors. The value and cash flows of the new security are based off of the underlying value and cash flows of the assets used in the securitization process. Companies will securitize illiquid assets into liquid assets in order to increase their overall liquidity and generate immediate proceeds from their assets.

INVESTOPEDIA EXPLAINS 'Securitize'

A company (the originator) begins the securitization process by gathering a series of financial assets, such as accounts receivables (AR). These assets are then sold or transferred to an issuer, or special purpose vehicle (SPV), which is used to manage the assets and legally protect the company from the assets' obligations. The SPV will then sell the securities, which are backed by the assets held in the SPV, to investors. The cash flows generated by the underlying assets are then transferred to the investors who purchased the asset-backed securities (ABS).

The originator will have received some proceeds from the securitization, which can be used for its ongoing operations or other business uses. During the securitization process, the SPV will often get a rating agency to assign the assets a rating based on the ability of the assets to meet the principal and interest payments on the new securities being sold by the SPV. The SPV may also use credit enhancements to lower the risks of the securities being sold off to make them more attractive to investors.

RELATED TERMS
  1. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  2. Special Purpose Vehicle/Entity ...

    1. Also referred to as a "bankruptcy-remote entity" whose operations ...
  3. Structured Investment Vehicle - ...

    A pool of investment assets that attempts to profit from credit ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. Operating Cash Flow Ratio

    A measure of how well current liabilities are covered by the ...
  6. Origination

    The process of creating a home loan or mortgage. During the origination ...
Related Articles
  1. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  2. Insurance

    Investing In Securitized Products

    Securitized assets are customizable and have a wide range of yields, making them an attractive asset class.
  3. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  4. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  5. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  6. Markets

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  7. Options & Futures

    Should You Refinance Your Mortgage When Interest Rates Drop?

    Refinancing is a great way for many homeowners to improve their financial situation - but beware of the downsides.
  8. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  9. Investing

    What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security.A typical example of securitization is a mortgage-backed ...
  10. Fundamental Analysis

    Why are OTC (over-the-counter) transactions controversial?

    Learn more about over-the-counter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center