JACC Jayhawk Acceptance Corp. Message Board

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Non-Tech : JACC Jayhawk Acceptance Corp.

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To: yin li who wrote (21)	2/12/1997 7:49:00 PM
From: Tyler Burke	of 35

Here's the basic way a securitization works: JACC has auto loan receivables of say $120. JACC will transfer (via a sale) all of these loans to a new corporation, the special purposes vehicle. The new corporation is establihed as a separate company such that JACC's creditors can not touch its assets. After all, the new corp has bought the receivables from JACC. In order to get the funds to pay JACC, the new corp issues debt of $100 which is secured (hence, securitization) by $120 of receivables. Thus, the debt is "over-secured" because the face of the debt is $100 but it is backed up by assets of $120. This enables the new corp to borrow at substantially lower rates than if JACC has borrowed directly because the creditor's aren't subject to the risk that JACC may go bankrupt. The remaining $20 is usually contributed by JACC. Obviously, I have simplified this a great deal. There are several other nuances but this is the basics of securitizing assets. All the press release was saying is that holders of new corp's debt have nothing to worry about. It was not expressing an opinion on JACC as a whole.

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