Assets securitizations

This article explains asset securitization and shows how companies can use it to gain direct and indirect benefits. More importantly, this article demonstrates that securitization can enable certain companies to achieve a genuine reduction in financing costs by providing access to lower cost capital market funding. This article also explores potential innovative uses of this financing technique. 

Asset securitization is] becoming one of the dominant means of capital formation in the United States." ... 

Not only is asset securitization one of the most important financing vehicles in the United States, but its use is rapidly expanding worldwide. What is this innovative approach to financing that has taken the country, and begun to take the world, by storm ... 

This article explains asset securitization and its unique benefits. The article begins by describing the asset securitization process and then continues to show how companies directly and indirectly benefit from securitization. Most importantly, the article explains why securitization enables many companies to raise funds at a lower cost than through traditional financing. The discussion then turns to the differences between securitization and factoring, an antecedent financing technique. 

For an introduction to the fundamental principles of asset securitization, as well as the underlying legal and business considerations, see Steven L. Schwarcz, Structured Finance, A Guide To The Principles Of Asset Securitization (Practising Law Inst. 2d ed. 1993). 

The indirect benefits of securitization will often more than compensate for its indirect costs. One of the most important indirect benefits is that asset securitization provides a source of off balance sheet funding. Because a securitization is usually viewed, for accounting purposes, as a sale of assets and not as financing, the originator does not record the transaction as a liability on its balance sheet. Such... 

Frank J. Fabozzi, Ph.D., CFA, CPA is the Frederick Frank Adjunct Professor of Finance in the School of Management at Yale University. Prior to joining the Yale faculty, he was a Visiting Professor of Finance in the Sloan School at MIT. Professor Fabozzi is a Fellow of the International Center for Finance at Yale University and the editor of the Journal of Portfolio Management. He earned a doctorate in economics from the City University of New York in 1972. In 1994 he received an honorary doctorate of Humane Letters from Nova Southeastern University and in 2002 was inducted into the Fixed Income Analysts Society s Hall of Fame. He is the honorary advisor to the Chinese Asset Securitization Web site. 

Morris, D. 1990. Asset Securitization Principles and Practices. New York Executive Enterprise. 

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