The payment structure of securitisation: a signalling device of quality
by Mari L. Robertson
International Journal of Financial Markets and Derivatives (IJFMD), Vol. 4, No. 2, 2015

Abstract: This paper develops a signalling model of asset-backed security issuance to analyse the role of the principal paydown structure as a signal of the value of the securities offered to investors. A securitising firm has an information advantage over an investor about asset value. It is shown that a high-type firm can separate from a low-type counterpart with a sequential paydown structure that repays principal based on the priority of the securities rather than in proportion to the amount invested in the securities under a pro rata paydown structure. The model offers an explanation for how many securitisation deals in consumer markets are structured, and the predictions from the model offer suggestions for the design of future securitisation transactions given the recent experience in credit markets.

Online publication date: Fri, 19-Jun-2015

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