The term of a securitization is the period of time over which the underlying assets are pooled and the cash flows from those assets are used to pay off the securities issued by the securitization. In Australian English, the term of a securitization is sometimes referred to as the "maturity" or the "tenor".
The term of a securitization is important because it determines how long investors will have to wait to receive their money back. For example, a securitization with a term of 5 years will mature in 5 years, and investors will receive their money back at that time.
There are a number of factors that can affect the term of a securitization, including the type of underlying assets, the credit quality of the underlying assets, and the risk appetite of the investors.
Some of the applications of the term of a securitization include:
- Managing liquidity: The term of a securitization can be used to manage liquidity. For example, an issuer may issue a securitization with a short term if it needs to raise cash quickly. An issuer may issue a securitization with a long term if it wants to lock in a long-term source of funding.
- Managing interest rate risk: The term of a securitization can be used to manage interest rate risk. For example, an issuer may issue a securitization with a floating-rate term if it wants to hedge against rising interest rates. An issuer may issue a securitization with a fixed-rate term if it wants to lock in a fixed interest rate.
- Creating new products: The term of a securitization can be used to create new securitization products that meet the needs of different investors. For example, an issuer may issue a securitization with a term that matches the term of the underlying assets.
It is important to note that the term of a securitization is not the only factor that determines the liquidity or interest rate risk of a securitization. Other factors, such as the credit quality of the underlying assets, also play a role.