Securitizations of “New Asset” Classes

Abstract

Securitization was applied first to mortgage loans and later to credit card receivables. Since then, many new asset classes have been securitized, some more successfully than others. The key to success is whether the asset class can be commoditized, i.e., whether its cash flows are stable and predictable and relate to a service provided en masse to the public. A rated new-asset transaction is based on either a pool of amortizing receivables or a future flow of operating income from the active use of transaction assets. Within the future-flow category exists a degree of operating and market risk not found in an amortizing receivable deal. The rating analysis of a new-asset transaction can be challenging because of the lack of precedent. The complexity, the structural difficulty, and the uniqueness of a particular transaction suggest that its rating may not always be much higher than that of the issuer.