Reimbursements

Reimbursements are payments made by one party to another to compensate for a loss or expense. In the context of securitisation, reimbursements can be used to cover a variety of costs, including:

• • The costs of servicing the underlying assets.
  • The costs of default management.
  • The costs of insurance.

Reimbursements can be structured in a number of ways, including:

• Pro rata reimbursements: In a pro rata reimbursement arrangement, each investor shares in the costs of servicing the underlying assets and default management.
• Senior/subordinated reimbursements: In a senior/subordinated reimbursement arrangement, the senior tranches of securities are reimbursed first, followed by the subordinated tranches.
• Reimbursement triggers: Reimbursements can be triggered by a variety of events, such as a default on an underlying asset or a change in the credit rating of the securitisation.

Reimbursements can be an important part of a securitisation structure. They can help to protect investors from losses and ensure that the securitisation can continue to function effectively.

Here are some examples of how reimbursements are used in securitisation:

• Mortgage-backed securities: In a mortgage-backed security, the issuer typically makes a pro rata reimbursement to investors to cover the costs of servicing the underlying mortgages.
• Collateralized debt obligations: In a collateralized debt obligation, the issuer typically makes a senior/subordinated reimbursement to investors to cover the costs of servicing the underlying debt securities.

Reimbursements are an important consideration for investors in securitisation. Investors need to understand how reimbursements are structured and how they will be triggered in order to assess the risk of their investment.