Title refers to the ownership of the underlying assets that are being securitised. In Australian English, title is sometimes referred to as "ownership" or "legal ownership".
The title to the underlying assets is important because it determines who has the right to receive the cash flows from the assets. In a securitisation, the title to the underlying assets is transferred to a special purpose vehicle (SPV). The SPV then issues securities to investors, and the investors own a share in the SPV. The cash flows from the underlying assets are used to pay the interest and principal on the securities.
There are a number of different ways to perfect title to the underlying assets in a securitisation. The most common way is to register the transfer of title to the SPV on the relevant land title register or other registry. In some cases, it may also be necessary to obtain a court order to perfect title.
The perfection of title is important because it protects the investors in the securitisation from the risk that the underlying assets will be sold or transferred to another party. If the title to the underlying assets is not perfected, the investors in the securitisation may not be able to enforce their rights to the cash flows from the assets.
Here are some of the applications of title in securitisation:
- To protect investors: The perfection of title protects investors in a securitisation from the risk that the underlying assets will be sold or transferred to another party.
- To manage credit risk: The perfection of title can be used to manage credit risk. For example, an issuer may require that the underlying assets be registered in the name of the SPV before the securitisation is issued. This will help to protect the securitisation from losses if the underlying assets are sold or transferred to another party without the consent of the investors.
- To create new products: The perfection of title 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 different type of underlying asset, such as receivables or intellectual property. The perfection of title will need to be adapted to the specific type of underlying asset.
It is important to note that the perfection of title is not without risk. If the title to the underlying assets is not perfected correctly, the investors in the securitisation may not be able to enforce their rights to the cash flows from the assets.
Title is sometimes referred to as "ownership" or "legal ownership".