CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features
Compared with a corporate bond issued directly by the originator, an ABS issued by a bankruptcy-remote special purpose entity most likely has credit quality that depends primarily on the:
An ABS from a bankruptcy-remote special purpose entity depends mainly on the quality of the securitized asset pool and its credit enhancements. Since the assets are legally isolated from the originator, the originator's other activities and market value matter much less for repayment.
- Acredit quality of the originator's other business activities
- Bquality of the securitized asset pool and the credit enhancementsCorrect
- Coriginator's equity market capitalization
Explanation
Because the assets are legally isolated, ABS investors rely on the pool's cash flows and credit enhancements such as subordination and overcollateralization. The originator's wider business and share price become less relevant to repayment.
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