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Debt Instrument
All securitizations will involve a debt or credit financial instrument for investors to purchase. These instruments are typically notes or bonds and typically carry the following terms:
  • Borrower Name - Name of the legal entity required to make timely payments, typically an SPV
  • Principal Amount - Total amount raised and due by the Maturity Date
  • Rank - Unsecured or Secured by the borrower, and can be 1st, 2nd or further in line if secured
  • Interest Rate - Annual rate of return paid to investors
  • Maturity Date - Date on which the Principal Amount is due
  • Interest Payment Dates - Dates on which the interest payments are due
  • Interest Only Periods - Period of time in which only interest payments are made
  • Amortization Period - Period of time in which both interest and principal payments are made
  • Reinvestment Period - Period of time in which the originator can use cash flows from the defined asset pool within the designated SPV and continue to reinvest in underlying assets that will subsequently be contributed to the defined asset pool to replace underlying assets that have repaid
  • Eligibility Criteria - Specific criteria the originator must follow in order to contribute assets into the defined asset pool within the designated SPV
  • Concentration Limits - Specific limitations to prevent concentrated exposures within the defined asset pool to ensure sufficient diversification throughout the life of the transaction
  • Priority Waterfall - Specific order of priority in which cash flows are distributed from the defined asset pool, typically fees and expenses to required third parties, then servicing fees to the originator, then interest and principal to investors and then finally any amounts remaining back to the borrower
  • Events of Default - Various defined situations in which the debt instrument would be considered in default including non-payment of interest and principal, not maintaining a perfected security interest, etc.
  • Rapid Amortization Triggers - Various defined situation in which the debt instrument would begin to amortize according to a pre-determined frequency, typically in the event of underperformance in the defined asset pool
  • Covenants - Various restrictions and requirements imposed on both the borrower and the originator
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