Affilate

In securitisation, an affiliate is a company that is owned or controlled by another company. For example, if Company A owns 50% of the shares of Company B, then Company B is an affiliate of Company A.

Affiliates are important in securitisation because they can be used to create special purpose vehicles (SPVs). SPVs are companies that are created specifically for the purpose of securitising assets. They are often used to isolate the assets being securitised from the risks of the parent company.

For example, a bank may create an SPV to securitise its mortgage loans. The SPV would then issue securities to investors, backed by the mortgage loans. The bank would no longer own the mortgage loans, but it would still receive payments from the SPV.

Using affiliates in this way can help to reduce the risk of securitisation for investors. If the parent company of the SPV defaults, the investors will still be able to receive payments from the SPV.

However, there are also some risks associated with using affiliates in securitisation. For example, if the parent company of the SPV is not financially sound, it may be unable to make payments to the SPV. This could lead to losses for investors.

Overall, affiliates can be a useful tool for securitisation, but they also come with some risks. Investors should carefully consider the risks and benefits of investing in securitizations that use affiliates.