IP Royalty Securitization-Questions & Answers

What does "securitization" mean?

"Securitization" is a technique for isolating income-producing assets from bankruptcy risk by transferring them to bankruptcy-remote special purpose vehicles ("SPVs"), which then issue debt securities payable from the cash flows generated by the assets. These securities achieve ratings, which are de-linked from the rating (or lack thereof) of the transferor company or institution. Different series of securities backed by the assets may be issued to respond to investor demand for different maturities (e.g., fast pay/slow pay) and credit qualities (e.g., senior/subordinated). Through internal structuring or third-party credit support, the marketed securities are generally rated between BBB/Baa and AAA/Aaa, although the highest ratings are usually achievable only through wrapping the securities with financial guarantees.