I'm trying to learn more about the basics of Securitized Products, and after reviewing a high level process of how a pool of assets is securitized and sold to investors, I still don't understand why the loan pool is sold into a Trust from a Special Purpose Vehicle.
For some context, I've added the timeline I'm working with below and bolded the step I'm stuck on:
Consumer -- cashflows from loan made to consumer --> Company
Company -- Loans from company (Loan Pool) --> SPV
SPV -- Loan Pool --> Trust
Trust -- Cashflows (principal + interest) from Loan Pool --> Securities
Securities -- Cashflows from Securities --> Investors
I understand the SPV is bankruptcy remote, and a separate entity from the issuer, but I don't see how the Trust fits into this picture.
The trust manages the loan payments and handles distributions to investors to make sure the process is handled properly.
You posted this question long, loooooong time ago.... I hope you're still alive?
Still - I found this thread on WSO when googling "SPV vs trust"
I wonder if you have figured it out because I'm also interested in SPV & trust structures?
(in my context - mostly for Project Finance)
The trust owns the SPV, which issues the securities. The SPV cannot be owned by the sponsor/originator since it has to be bankruptcy remote, a trust is created that isn’t affiliated with the sponsor.
This is wrong sorry.
You are right the issuer SPV has to be Bk remote, but otherwise you are off base. It is very common for the transaction sponsor to own the equity in the issuer if the SPV is a LLC / own the trust certificates if the issuer is a trust.
The issuer SPV is "the trust"
You are thinking of an orphan trust structure, which is indeed used for some asset classes, but is the minority.
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