CA Final · Advanced Financial Management · Securitization
In a typical Indian securitization of a pool of vehicle loans, the originator sells the receivables to an entity that is set up only to hold them and issue securities to investors. Which term describes this entity?
The entity is the Special Purpose Vehicle (SPV). It is created solely to acquire the receivables from the originator and issue securities to investors, so the assets are isolated from the originator's own financial risks. The servicer, obligor and rating agency perform different roles.
- ASpecial Purpose Vehicle (SPV)Correct
- BServicer
- CObligor
- DCredit rating agency
Explanation
The originator transfers the receivables to a Special Purpose Vehicle, which is a separate legal entity created only to hold the assets and issue securities. The servicer only collects payments, the obligor is the borrower, and the rating agency only assesses credit quality.
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