The number of investors considering investing in asset-backed securities continues to grow. We are often asked to identify the benefits of ABS relative to other asset classes, particularly corporate bonds. The short list of benefits typically includes a pick up in rating, a pick up in spread and most importantly, a pick up in structure. In the event of bankruptcy of the seller, the assets in the SPV are solely for the benefit of the secured noteholders. This is the key to the ABS structure that isolates the event risk' that has plagued the corporate bond market.

The effectiveness of the ABS structure is made obvious with the fact that since the inception of the European ABS market, no European ABS has ever defaulted. Compare this to the corporate market that experienced a 2.3% default rate in 2000, based on the number of issues in a Standard & Poor's default study. Additionally, the stability in ratings exhibited in the European ABS market is enviable relative to the corporate market where downgrade drift is much more prevalent and upgrade drift less so.

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