A warehouse facility is a short-term financing facility that is used to hold the underlying assets of a securitisation until they can be securitised. A warehouse facility is sometimes referred to as a "securitisation facility".
The warehouse facility is typically provided by a bank or other financial institution. The bank will lend the issuer the money to purchase the underlying assets, and the issuer will then use the proceeds of the securitisation to repay the loan.
Warehouse facilities are used to provide liquidity to the securitisation process. Without a warehouse facility, the issuer would have to wait until all of the underlying assets were securitised before they could receive the proceeds of the securitisation. This would make it difficult for the issuer to finance the purchase of the underlying assets.
Here are some of the applications of warehouse facilities in securitisation:
- To provide liquidity to the securitisation process: Warehouse facilities provide liquidity to the securitisation process by allowing the issuer to purchase the underlying assets before they are securitised.
- To reduce the cost of securitisation: Warehouse facilities can reduce the cost of securitisation by allowing the issuer to obtain financing at a lower interest rate than they would be able to obtain if they had to wait until all of the underlying assets were securitised.
- To improve the credit rating of the securitisation: Warehouse facilities can improve the credit rating of the securitisation by providing a buffer between the issuer and the underlying assets. This means that if the issuer defaults on the loan, the underlying assets will still be available to repay the securitisation.
Warehouse facilities are a valuable tool for securitisation. They provide liquidity to the securitisation process, reduce the cost of securitisation, and improve the credit rating of the securitisation.