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CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features

Compared with a securitization in which the originator issues bonds directly against the same receivables, using an SPE most likely allows the ABS to:

Using an SPE lets the ABS be rated mainly on the quality of the asset pool and the deal structure, not on the originator's credit standing. This can produce a higher rating and a lower funding cost than the originator could obtain by issuing debt directly.

  1. Abe rated based on the credit quality of the originator rather than of the asset pool
  2. Bbe rated based mainly on the asset pool and structure, potentially enabling a lower funding costCorrect
  3. Cremain on the originator's balance sheet as a liability of the originator

Explanation

Because the SPE isolates the assets, ratings depend chiefly on the pool quality and credit enhancement, not the originator. A weaker originator can therefore often obtain cheaper funding. The other options describe the opposite of what the structure does.

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