The Handbook of Financial Instruments

Chapter 17 Non-Real Estate Asset-Backed Securities

Frank J. Fabozzi, Ph.D., CFA

Adjunct Professor of Finance School of Management Yale University

Thomas A. Zimmerman

Executive Director Head, ABS Research UBS Warburg

Asset-backed securities are securities backed by loans or receivables. The securitization of residential mortgage loans is by far the largest type of asset that has been securitized and these securities are covered in Chapters 14 and 15. The collateral includes standard residential mortgage loans, home equity loans, and manufactured housing loans. Securities backed by commercial mortgage loans, commercial mortgage-backed securities (CMBS), are covered in Chapter 16. For asset-backed securities not backed by real estate, the largest sector is securities backed by credit card receivables, covered in Chapter 18.

In this chapter, we discuss the basic features of asset-backed securities and the credit risks associated with investing in them. We then look at several types of asset-backed securities not backed by real estate or credit card receivables.

FEATURES OF AN ABS

Before we discuss the major types of asset-backed securities, let’s first look at the general features of the underlying collateral and the structure.

Credit Enhancement

All asset-backed securities are credit enhanced. This means that support is provided for one or more of the bondholders in the structure. Credit enhancement levels are determined relative to a target rating desired by the issuer for a security ...