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CMA Final · Strategic Financial Management · Securitization

In a securitisation transaction in India, a bank sells a pool of auto loans to a special purpose vehicle (SPV), which issues pass-through certificates (PTCs) to investors. Which statement about the role of the SPV is correct?

The SPV purchases the receivables from the originator and finances the purchase by issuing securities such as pass-through certificates, which are serviced from the pool's cash flows. It is not a lender to borrowers, a guarantor from own capital, or a deposit taker.

  1. AIt buys the receivables from the originator and funds the purchase by issuing securities backed by the poolCorrect
  2. BIt originates the loans directly to borrowers and keeps them on its own books
  3. CIt guarantees the full principal and interest on the PTCs from its own capital
  4. DIt collects deposits from the public to pay investors

Explanation

The SPV is a bankruptcy-remote entity that acquires the receivables from the originator and raises funds by issuing PTCs or other securities backed by the pool. It does not originate loans, and investor payments come from pool cash flows rather than a guarantee from the SPV's own capital. It also does not take deposits.

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