CA Final · Advanced Financial Management · Securitization
In a typical Indian securitization of a pool of vehicle loans, Sundaram Finance Ltd (the lender that originated the loans) sells the receivables to a separate entity formed only to hold them and issue securities to investors. What is this separate entity called?
The entity is the Special Purpose Vehicle (SPV). It is created solely to buy the receivables from the originator, hold them, and issue pass-through or other securities to investors, thereby isolating the assets from the originator's own insolvency risk.
- AOriginator
- BSpecial Purpose Vehicle (SPV)Correct
- CObligor
- DServicer
Explanation
The originator sells the receivables to a Special Purpose Vehicle, which is set up to hold the assets and issue securities to investors. The originator is the seller, the obligor is the borrower, and the servicer collects payments. Hence the SPV is the entity described.
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