Securitization Process

[Hermz29]

Hi David

I came across two view points under different authors which has caused some confusion. Choudhry asserts that assets are sold directly to the SPV which are the issuers, however, Ashcraft states that mortgages are sold to the Arranger also known as Issuer, who then sells to the SPV. Can you shed some light on this.

 

[brian.field]

The authors could be a bit more precise, in my opinion. I look at it this way:

The arranger is the entity that is "arranging" the deal. It is most often the investment bank that is leading or underwriting the deal. The arranger is not the SPV. The SPV doesn't actually exist until the deal closes. However, before a deal closes, someone can be purchasing assets that are expexted to go into the SPV (a CDO manager, for example) and these assets are warehoused with the arranger / underwriter most often, until the deal closes at which time the assets are sold into the SPV. Prior to deal closing, it could be said that the assets are "sold" to or purchased by the arranger and when the deal closes, the arranger sells the assets to the SPV.

The SPVis the entity that actually "issues" securities backed by the securitization assets so the SPV is the issuer. However, the underwriter/arranger is bringing the issue to market, so some could say the arranger is issuing the deal but this is imprecise usage.

 

[Hermz29]

Thanks so much Brian! You have indeed cleared the issue! Much appreciated.

 

[emilioalzamora1]

Above this undoubtedly great explanation by my friend @brian.field, I just wanna point towards the graphics @David Harper CFA FRM has compiled in the study materials about each respective entity in the securitisation process/chain. Best explanation I have seen so far!