Asset Securitization Assets Split

Asset securitization is a method of issuing securities collateralized by thecash-flow generating assets. Securitization is primarily used for funding orrisk management purposes and it represents a substantial and established partof US and global capital markets. Recently, the development of securitizationmoved to European and Asian markets and over the last few years, non-USasset-backed market experienced a dramatic growth. Currently, assetsecuritization is a very active market with continuous introduction ofinnovative methods and fast expansion of securitization into new sectors.Securitization process can be summarized in the following way. The assets arepooled and transferred into a securitization trust (which usually called aspecial purpose vehicle -SPV). Securitization trust issues securities toinvestors. Payment on securities depends on the cash flows generated by thepooled assets. Separation of the original owner from the assets ensures that theinvestors in asset-backed securities are not exposed to a credit deterioration ofthe original owner. Securitization trust is structured as an entity that can notbecome the subject of a bankruptcy case. With various types of creditenhancement the rating on the senior tranches can exceed the rating of theoriginal owner. Asset-backed securities differ from other kinds of corporatebonds in the sense that capital raised is based only on the specific pool ofassets and not on the general paying ability of the company.My goal is to give an explanation how asset division helps assetsecuritization transfer risk and why asset securitization is such a popularstructuring method for funding. The foreword of this article gives its readersthe basic process of asset-backed securitization and tells that the most importantpart of securitization is using asset division theory to keep the securities fromthe bankruptcy of originators. SectionⅠexplains what is asset division and theclassification of asset division. SectionⅡdescribes how asset division stop therisk of originators' bankruptcy from the securities. It is the most important partof this paper. It tells why the asset division is the sound theory for the structureof securitization and why guarantee can't take place of asset division in securitization. SectionⅢdiscusses how to establish special purpose vehicle andwhat "true sale" is in securitization. The last part of this article is sectionⅣ. Itwill tell the readers how to put securitization into reality in China, and the soundmethod to establish SPV and transfer the asset.