Lesson 3 of 5 · All lessons in this module
  1. What securitization is and the main structures
  2. Benefits for issuers, investors and markets
  3. The parties and the flow of funds
  4. The SPE: true sale and bankruptcy remoteness
  5. Tranching: who is paid first and who loses firstVideo lesson

Lesson 3 of 5 · 13 min

The parties and the flow of funds

A securitization has three main parties (seller, SPE and servicer), supporting third parties and two key documents, and money moves around them in a fixed sequence.

In short

  • Seller of the collateral (also depositor): originated the loans and sells them to the SPE.
  • SPE: buys the loans and issues the ABS; the prospectus calls it the issuer.
  • Servicer: administers the loans: collects payments, chases late payers, recovers and sells collateral. It may be the originator or another firm.
  • Third parties: accountants, lawyers, trustees, underwriters, rating agencies and sometimes financial guarantors.
  • Key documents beyond the indenture: the purchase agreement (seller's representations and warranties) and the prospectus (structure, payment priority, credit enhancements).

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