Protecting investors through ‘skin in the game’
Despite the complex name, securitization is a simple concept. Securitization is taking an illiquid pool of assets and converting them to liquid securities. Securitization got a bad rap in the wake of the GFC, but in Australia, there are important differences to the “sub-prime” market in the USA. This video explains the basics of this widely misunderstood asset class.
Key facts about securitization in Australia:
- The seller (originator) of an asset backed security must have ‘skin in the game’,
- The originators in Australia are major banks and Authorised Deposit-taking Institutions (ADIs),
- Securities can be backed by mortgages, credit cards, personal loans, or auto loans,
- In the event of default, the originator takes losses before the security holder,
- These securities generally attract a yield premium of up to 100 basis points over comparable corporate bonds,
- Losses in the USA pre-GFC peaked at ~12% due to fraud and poor lending practices. In Australia, long-term losses average less than a quarter of a percent,
- Due to the credit protections, no bond holder has ever incurred a loss in Australia.
About Gryphon Capital Investments
Gryphon Capital Investments are secured credit fixed income specialists. Learn More
1 stock mentioned
Steven has more than 24 years’ experience across a broad range of areas, including debt capital markets, securitisation, funds management and structured finance.