Securitization Conduit

A Special Purpose Vehicle (SPV) , with a remote chance of bankruptcy, that a bank forms. The Conduit purchases or originates loans and finances them with various sorts of Asset Backed Securities. The underlying loans provide the collateral for the ABS´s. Typically, the sponsoring bank guarantees the payments of the ABS´s, which the security holders demand. The guarantee may come from a standby letter of credit or from the bank´s purchase of the Conduit´s junior securities. In return for its guarantees, the bank receives the residual coupon spread of the underlying securities over that of the conduit´s securities.