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Introduction to Securitization by VINOD KOTHARI, FRANK J. FABOZZI

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FUTURE REVENUES SECURITIZATION

While traditional asset-backed transactions relate to assets that exist, future flows transactions relate to assets expected to exist. There is a source, a business or an infrastructure, from which the asset will arise. The business or infrastructure in question will have to be worked upon to generate the income; in other words, the income has not been originated and set apart such that repayment of the securities is a self-liquidating exercise. On the other hand, future flows is close to corporate funding in that there needs to be a performance on the assets or infrastructure to see the cash flow with which the securities will be paid.

What Future Flows Are Securitizable

The essential premise in a future flow securitization is if a framework exists that will give rise to cash flows in the future, the cash flow from such framework is a candidate for securitization. If the framework itself does not exist, the investors would be taking exposure in a dream; their rights would probably be worse than for secured lending. For example, if the cow exists, but not the milk, the milk can be securitized, as whoever owns the cow would be able to milk it. If both the milk and cow do not exist, it is not a proper candidate for securitization.
Thus, revenues from air ticket sales, electricity sale, telephone rentals, and export receivables from natural resources have been the subject of future flows securitization. However, in an apparent overdrive, sometimes, ...

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