External Credit Enhancement
They include insurance, third party guarantee and letter of credit.
Full insurance is provided against losses on the assets. This tantamounts to a 100 per cent of a transaction's principal and interest payments. The issuer of the insurance looks initial premium or other support to cover credit losses.
This method involves a limited/full guarantee by a third party to cover that may arise on the non-performance of the collateral.
Letter of Credit
For structures with credit ratings below the level sought for the issue, a third provides a letter-of credit for a nominal amount. This may provide either full or partial cover issuer's obligation.
Internet Credit Enhancement
Such form of credit enhancement comprise the following: