Asset-Backed Security (ABS) Instrument and Market Features

How covered bonds keep loans on the bank's balance sheet yet give investors two layers of protection, how securitizations use overcollateralization, excess spread and subordination to absorb losses, how credit card and solar ABS pay investors over their life, and how CDOs and CLOs use an active collateral manager to run a leveraged pool of loans.

1. 1. Covered bonds: dual recourse and a dynamic poolA covered bond is senior bank debt backed by a ringfenced pool of loans that stays on the bank's balance sheet, so investors have a claim on the pool and, behind it, on the bank itself.Free13 min
2. 2. Credit enhancement: OC, excess spread and tranchingSecuritizations protect bondholders from defaults in the pool with extra collateral, extra interest and a loss waterfall in which junior tranches are wiped out before senior ones lose anything.Video · 6 min15 min
3. 3. Integrated cases: who is paid, and when, in a tranched ABSIn a senior/subordinated ABS, defaults first cut the cash the pool can pay, and the cut lands on the residual and then the most junior notes; separately, the order of principal repayment decides which class feels a slowdown or a surge in borrower payments.17 min
4. 4. Amortizing vs non-amortizing collateral: credit card ABSAuto loans repay principal every month, so auto ABS shrink from day one; credit card balances do not amortize, so credit card ABS reinvest repaid principal during a revolving period and only start returning it to investors afterwards.14 min
5. 5. Solar ABSSolar ABS securitize the payments homeowners make on solar loans or leases; prime borrowers, payments that replace an energy bill and layers of credit enhancement keep default risk low, and the green use of proceeds attracts ESG investors.11 min
6. 6. CDOs: managed pools and leveraged equityA CDO is a securitization of a diversified, actively managed pool of debt; its equity holders are effectively borrowing from the debt tranches and earn the gap between what the collateral yields and what the tranches cost.13 min
7. 7. CLOs: capital structure, tests and the managerA CLO funds a diversified pool of senior secured loans with AAA-to-BB debt and an unrated equity tranche, and coverage tests force cash toward the senior tranche whenever the collateral weakens.14 min