Question

In a securitization, a truly independent issuing trust is important to seller of the assets in...

In a securitization, a truly independent issuing trust is important to seller of the assets in order to achieve…

Maturity matching of new liabilities to the now separated assets

Bankruptcy remoteness of the assets versus the firm selling the assets to the trust

Lower credit ratings for the liabilities of the issuing trust

Both A and B

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Answer #1

Answer: Bankruptcy remoteness of the assets versus the firm selling the assets to the trust

Explanation:

  • For securitization transaction, special purpose vehicle (SPV) is created in a way to make it bankruptcy remote. It implies that assets transferred to SPV are independent of company indebtedness level. Even if the issuing company becomes insolvent, SPV remains unaffected.
  • SPV is unlikely to face insolvency on its own as it does not hold any debt. SPV are formed as trusts. Although it can be formed as other forms as well. But trust is most common and convenient.
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