External Credit Enhancement

They include insurance, third party guarantee and letter of credit.

Insurance

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.

Third-Party Guarantee

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:

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