The concept, characteristics and elements of structured financing

(1) What is structured Financing

The so-called structured financing is a way of financing in the capital market. This method does not raise funds by issuing bonds, but obtains financing by issuing asset-backed securities to sell future cash flow recoverables. In most cases, the issuer of an asset-backed security is the originator of the underlying assets of the security.

These assets cover a wide range of types, including commercial real estate mortgage-backed securities, asset-backed securities, commercial lease contract securities, residential mortgage-backed securities and any other recoverable Cash flow financial instruments. In recent years, some new and popular types of structured financing securities have emerged, whose underlying assets are structured financing securities and various corporate bonds.

(2) Characteristics of structured financing

Because structured financing securities are based on They are issued based on the mechanism of "asset's future cash flow", so they are generally called asset-backed securities. From an accounting perspective, the issuance of structured financing securities is different from the issuance of bonds by governments, companies or other organizations at all levels to raise funds.

Specifically, financing through the issuance of structured financing securities has the following five characteristics:

1 .The issuance of securities is through a special institution, that is, SPV or SPE;

2. The accounting treatment of the issuance of structured financing securities is the sale of assets rather than debt. Financing;

3. Structured financing securities must provide investors with "servicing" of underlying assets;

4. The credit of structured financing securities mainly depends on the credit of the underlying mortgage assets;

5. There is always a need for structured financing securities Credit enhancement.

(3) Elements of structured financing

From the United StatesIn terms of the development history of China's structured financing market, eight major factors play a very important role. These elements often complement each other, and the development of one element will promote the development of other elements. What is important is that these eight elements should go hand in hand and develop together.

1. A sound legal system

For each securitization transaction, a sound legal system should be established legal system to protect the legitimate interests of investors in basic assets. Most importantly, the law must protect investors' rights to recover the cash flows from the underlying assets of the security when the sponsor/seller becomes insolvent. Therefore, for securitization transactions, it is necessary to establish a special purpose entity with good credit standing and which will not go bankrupt.

From an economic perspective, the purpose of establishing a special purpose entity is: first, to purchase all loans originated and sold by lenders; second, to issue securities to Provide financing for the origination of basic loans. A special purpose entity has no assets other than loans from lenders and no liabilities other than those related to issued securities. In addition, a sound legal system should be established to clearly define the responsibilities and obligations of issuers, trustees, loan managers and servicers.

2. Clear cash flow analysis