In securitization, when no assets are acquired and the collateral is fixed for the life of the asset, the type of structure is called as:

Correct option is D

In securitization, a self-liquidating structure refers to a type of arrangement where the collateral backing the securitized asset is fixed for the life of the asset. This means that the asset remains the same throughout the duration of the securities issued and is "self-liquidating" because the principal is paid down over time with scheduled payments that cover both interest and principal.

This structure is typically used when the cash flows from the underlying assets (such as loans, mortgages, etc.) are expected to pay off the security in full, leaving no further need for the reallocation of new assets. It contrasts with a revolving structure, where assets can be replaced or added as they mature or are paid off.

Information Booster

• Self-Liquidating Structure:
  • The securities are supported by a set of assets that are paid down over time, reducing the outstanding amount as payments are received.
  • Example: Mortgage-backed securities (MBS) where mortgage loans are paid off by homeowners over the life of the security.
• Commonly Used in:
  • Long-term asset-backed securities, such as mortgage-backed securities and auto loan-backed securities, where there is a clear, predictable cash flow pattern over time.

Additional Knowledge

(a) Revolving structure:
In a revolving structure, the underlying assets can be replaced or replenished as they are paid off. This is common in credit card or home equity line of credit (HELOC) securitizations, where new assets are constantly added to replace those that have matured.

(b) Amortized structure:
In an amortized structure, the underlying asset pays down principal and interest in a fixed schedule. While this is similar to a self-liquidating structure, it generally implies a structured approach to paying down debt over time, but does not necessarily indicate that the collateral is fixed for the life of the asset.

(c) Collateralized structure:
This is a general term for securitizations where specific assets back the security. While collateralized structures are key to securitization, this term does not specifically describe a situation where the collateral remains fixed for the life of the asset, as it is used broadly to describe different types of asset-backed securities.