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Introduction to Securitisation
Test your knowledge
1. Which of the following definitions best describes securitisation?
A financing technique in which debt is secured by a priority claim on a pool of loans that remain on the originator's balance sheet and investors have dual recourse to the issuer and the collateral pool in the event of default
A financing technique in which assets or receivables that generate cash flows are purchased by a special purpose vehicle (SPV) that simultaneously issues securities that are sold to investors
Any financing technique in which investors are granted a security interest over specified assets
2. Which of the following best describes the role of the servicer in a securitisation?
Purchases the securities initially and ensures that they are placed with investors
Ensures that the underlying receivables are collected and administered
Monitors covenants and rights in the securities on behalf of investors
3. In a securitisation, the excess spread is:
The difference between the total value of the collateral asset held by the SPV and the nominal value of the securities issued by the SPV
The difference between what the SPV earns on the collateral and what it promises to pay to investors in the securities that it issues
Insurance purchased by the SPV from a third party
4. What is the main objective of ensuring that the special purpose vehicle (SPV) in a securitisation is insolvency remote?
Ensuring that the collateral in the SPV does not suffer any defaults
Ensuring that the originator of the collateral and the SPV will be treated as the same entity in the event of insolvency of the originator
Protecting investors in the securitisation from claims that may be made by creditors of the originator of the collateral, should the originator become insolvent
5. A collateralised loan obligation (CLO) is a securitisation in which:
Multiple classes or tranches of securities are issued, each linked to a different pool of collateral assets
Multiple classes or tranches of securities are issued, each linked to the same pool of collateral assets but with a different priority of claim over those assets
A single class or tranche of securities is issued, but each security is linked to multiple pools of collateral assets
answers
2,2,2,3,2
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