Pay Through Security (PTS)

The PTS structure overcomes the single maturity limitations of the pass through certificates. Its structure permits the issuer to restructure receivables flow to offer a range of investment maturities to the investors associated with different yields and risks. The issuer of assets-backed debt are thus Creed from the limitations imposed by the pass through structure which simply provides a conduit for sale of ownership interest in the receivables. By contrast, in a PTS structure the issuer typically owns the receivables and simply sells the debt that is backed by the assets, As a result, the issuer of debt is free to restructure the cash flow from the receivable into payments on several debt tranches with varying maturities.

A key difference between PTC and PTS is the mechanics of principal repayment process. In PTC, each investor receives a pro rata distribution of any principal and interest payment made by the borrower, Because these self-amortising assets, a pass through, however, does not occur until the final asset in the pool is retired. This results in large difference between average life and final maturity as well as a great deal of uncertainty with regard to the timing of the rerum of the principal. The PTS structure. on the other hand, substrates a sequential requirement of bonds for the pro-rata principal return process found in PTS through. Cash flows generated by rendering collateral is used to retire bonds. Only one class of bonds at a time receives principal payments go first to the fastest pay trance in the sequence then becomes the exclusive recipients of principal. This sequence continue till the last tranches of bonds is retired.

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