Optimization of Refinancing and funding securitization viola-funding January 17, 2024

Optimization of Refinancing and funding securitization

Securitization of refinancing and funding is one of the most important tools of the financial market. Properly regulated and supervised, it can play be successfully used in redistributing risk and supplementing the corporate refinancing system. It may play a special role for companies with difficult access to capital.

The first issue of mortgage-backed securities was carried out back in the 1970s by Lewis Ranieri, who worked at the investment bank Salomon Brothers (USA).

Do you want to use innovative financial instruments for your business?

Viola Funding Limited offers professional services in project finance, financial modeling, and investment engineering.

Securitization of refinancing and funding: basic principles and instruments

Securitization of refinancing and funding means exchange of assets for securities as used in financial markets.

The purpose of any securitization mechanism is to obtain financing by replacing illiquid assets, such as loans or future income, with funds obtained from the issue of securities.

Selling of assets on the capital market in the form of securities, most often bonds. This issue is called Asset-Backed.

With the presence of refinances, the purchase of assets with funds from the issue of securities, and receives a bonus from the initiator for taking over the risk.

The securitization of refinancing and funding process covers any corporate financing by issuing securities.

Financial instruments of securitization

During the late 1990s, MBS transactions were divided into RMBS (Residential Mortgage-Backed Securities) based on mortgage loans for individuals.

In 1985, the first issuances secured by receivables other than mortgage loans began through ABS (Asset-Backed Securitization). The most popular assets transferred include auto loans, consumer loans, student loans, Whole Business Securitization (WBS), and loans to the SME sector.

They are often assumed to be one type of ABS. A characteristic feature of a CDO is the presence of an SPV in the transaction.

It is consisting in securitization of future insurance receivables, in particular those related to events such as natural disasters, terrorist attacks, war and so on.

Innovations in corporate refinancing

Securitization in corporate refinancing has come a long and difficult path, from the successful development of innovative instruments (WBS, ILS) to the collapse as a result of the mortgage crisis (2007-2010).

Modern examples of the innovative use of securitization that combines the interests of the issuer (risk reduction) and the investor (portfolio diversification) inspire the wider use of this mechanism. In any case, the securitization mechanism is considered one of the most important financial innovations of the 20th century, the skillful use of which can become a powerful impetus for business development.

The collapse in the securitization market put a stop to the development of new risk-transfer instruments, but this did not mean a complete cessation of the improvement of these instruments.

Securitization of refinancing and funding a tool associated with many applications, and an integral parts in banking, finance, funding optimization, and even insurance, paves way for business opportunities.

An SPV raises funds for a loan from issuing securities.

The WBS differs from the classic ABS transaction and from the secured loan in two main respects.

Unlike ABS, they are not based on a specific asset, but on the cash flow generated by the company, as well as on all resources, including intangible resources of the company.

In some bankruptcy law systems (including the United Kingdom), when a company initiates bankruptcy proceedings, the creditor enters the company and can manage it in his favor without a court order to satisfy his financial claims. As a result, the collateral property is divided mainly between angel investors who decide to purchase WBS bonds.

WBS transactions open up wide opportunities for the monetization of future cash flows.

For the bank, WBS also means minimizing the risk, thanks to which they become an alternative source of financing for some companies and investment projects.

Project finance and investment consulting from Viola funding Limited includes:

• From €50 million and more.
• Investments up to 90% of the project cost.
• Loan term from 10 to 20 years.

To consider the issue of financing your project, send us the completed application form and project presentation by e-mail.

eMAIL:[email protected]

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