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. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  4. Operating Cash Flow Ratio

    A measure of how well current liabilities are covered by the ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  6. Origination

    The process of creating a home loan or mortgage. During the origination ...
RELATED FAQS
  1. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  2. What are some examples of smart beta ETFs that use passive and active management?

    There are a number of smart beta exchange-traded funds (ETFs) that use passive and active management, including the WisdomTree ... Read Full Answer >>
  3. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  4. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
  5. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
  6. Does the Volcker Rule prevent commercial banks from offering shares of hedge funds ...

    The Volcker Rule does not prevent commercial banks from offering trading services in hedge or private equity funds to their ... Read Full Answer >>
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. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  10. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.

You May Also Like

Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!