1. Asset are originated through receivables, leases, housing loans or any other form of debt a company and funded on its balance sheet. The company is normally referred to as a originator.
2. Once a suitably large portfolio of assets has been originated, the assets are analysed as portfolio and then sold or assigned to a third party, which is normally a special vehicle company (SPV) formed for die specific purpose of funding the assets. It issues d and purchases receivables from the originator. The Spy is owned by a trust/the originator
3. The administration of the asset is then subcontracted back to the originator by the Spy II responsible for collecting interest and principal payments on the loans in the underlying of assets and transfer to the Spy.
4. The Spy issues tradable securities to fund the purchase of assets. The performance of t securities is directly linked to the performance of the assets and there is no recourse than (in the event of breach of contract) back to the originator.
5. The investors purchase the securities because they are satisfied that the securities would paid in full and on time from the cash flows available in the asset pool. The proceeds of the sale of a critics are used to pay the originator.
6. The Spy agrees to pay any surpluses which, may arise during its funding of the assets, to the originator. Thus, the originator, for all practical purposes, retains its existing rela ship with the borrowers and all of the economies of funding the assets.
7. As cash flow arise on the assets, these are used by the Spy to repay funds to the invest the securities.