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CMA Final · Strategic Financial Management · Securitization

Which of the following best describes the role of a Special Purpose Vehicle (SPV) in a securitization transaction?

The SPV buys the receivables pool from the originator and issues securities backed by those assets to investors. It is a separate, bankruptcy-remote entity, so investors depend on the asset cash flows rather than on the originator's credit standing.

  1. AIt acquires the receivables from the originator and issues securities backed by them to investorsCorrect
  2. BIt guarantees all the payments to investors from its own capital reserves
  3. CIt originates the loans and services them for the borrowers
  4. DIt rates the pass-through certificates before they are listed

Explanation

In securitization the originator sells a pool of receivables to an SPV, which is bankruptcy-remote and funds the purchase by issuing securities to investors. The SPV does not originate loans, and credit rating is done by rating agencies. It generally has no capital of its own to guarantee the payments, so option B is wrong.

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