Cash collateral is cash that is deposited with a securitisation vehicle to secure the payment of interest and principal on the securities that are issued by the vehicle. The cash collateral is typically held in an account that is managed by a third-party custodian.
The cash collateral is used to protect investors in the event that the borrowers default on their loans. If the borrowers default, the securitisation vehicle can use the cash collateral to pay the investors. Cash collateral is an important part of securitisation. It helps to protect investors in the event of a default by the borrowers.