A means of raising finance secured on the back of identifiable and predictable cash flows derived from a particular class of assets (such as rents, receivables (www.practicallaw.com/A36769), mortgages (www.practicallaw.com/A36463) or operating properties). Almost any assets that generate a predictable income stream can be securitised. Securitisations will normally take one of two forms.
In a basic "true sale" securitisation:
The owner of the assets (the originator) sells the assets which are to be securitised to a special purpose vehicle (www.practicallaw.com/4-107-7534) (SPV) which pays for them by issuing debt securities (www.practicallaw.com/0-207-6955) to investors on a fixed or floating rate basis.
The securities may be issued on a public stock exchange or privately.
The principal and interest payments on the debt are funded out of the cash flows generated by the underlying assets.
The SPV usually creates charges over the securitised assets to secure its obligation to repay the finance raised. This security is granted in favour of a security trustee (www.practicallaw.com/A36912) mainly for the benefit of the investors.
In a whole business securitisation, the cash flows derive not from the repayment of debt or other pre-contracted cash flows or receivables but from the entire range of operating revenues generated by a whole business and a secured loan structure is used.
For more on securitisation, see Practice note, Securitisation: overview (www.practicallaw.com/7-202-1177).