A lien is a legal right that allows a creditor to take possession of an asset if the debtor defaults on a loan. In a securitisation transaction, the special purpose vehicle (SPV) will typically have a lien on the underlying assets. This means that if the borrowers default on their loans, the SPV can take possession of the underlying assets and sell them to repay the debt.
There are a number of different types of liens that can be used in securitisation transactions, including:
- Security interest: A security interest is a type of lien that gives the creditor the right to sell the asset if the debtor defaults on the loan.
- Assignment of rents: An assignment of rents is a type of lien that gives the creditor the right to collect the rents from the asset if the debtor defaults on the loan.
- Deed of trust: A deed of trust is a type of lien that gives the creditor the right to sell the asset if the debtor defaults on the loan.
The lien on the underlying assets is an important part of any securitisation transaction. It is the security that the investors in the securitisation have that the SPV will be able to repay the debt if the borrowers default on their loans. The type of lien that is used in a securitisation transaction will depend on the underlying assets and the risk profile of the transaction.
Here are some of the applications of liens in securitisation:
- To protect investors: The lien on the underlying assets protects the investors in the securitisation by ensuring that the SPV will be able to repay the debt if the borrowers default on their loans.
- To reduce risk: The lien on the underlying assets can reduce the risk of the securitisation by making it less likely that the borrowers will default on their loans.
- To improve liquidity: The lien on the underlying assets can improve the liquidity of the securitisation by making it easier for investors to sell their securities.
Lien can be a valuable tool for securitisation transactions. They can protect investors, reduce risk, and improve liquidity.