Using Securitization as a Corporate Funding Tool

For companies looking to raise funds, securitization is an alternative to directly issued corporate bonds with two primary advantages: First, securitized bonds can attain a better credit rating than that of company-issued bonds, which means lower interest rates on the debt. Second, through the sale of company assets to legally distinct special purpose entities (SPEs), securitization transfers risk from the company to bondholders. “Securitization is the process of creating securities backed by a pool of loans or receivables.” Financial institutions use their mortgage loans to create mortgage-backed securities (MBS); their retail...