Securitisation - a brief summary
Securitisation is a method of raising funds. It involves grouping together assets – for example pubs or other real estate – and issuing tradable securities against these assets in return for funds. A company may securitise all or part of its assets.
Assets involved in securitisations typically generate stable, predictable levels of cash and the asset’s ability to generate cash throughout different business and economic cycles is tested by ratings agencies such as Standard & Poor’s (S&P).
In order to preserve the quality of the assets in a securitisation, the company agrees to spend a minimum amount on maintaining the assets. The company may also agree to other conditions – for example, not to sell any assets in a securitisation without agreement first. Cash generated from the assets must be used first and foremost to pay interest and meet debt repayment obligations.