Asset Backed Financing
Refers to an instance where the asset to be financed is held
under a special purpose vehicle and against which direct financing
is raised from financiers or financial instruments are issued
to investors to finance the purchase of such asset.
The special purpose vehicle in turn leases the asset for usage
of identified corporation which has to make recurrent payments
for such usage. Aircraft financing and ship financing are often
quoted examples where the interests in an aircraft to be financed
is housed under a special purpose vehicle.
To raise funding for such purchase, the special purpose vehicle
raise direct financing or through issuance of securities. Financiers
or holders of securities issued by special purpose vehicle shall
have access to foreclose or liquidate the underlying asset should
the user of such asset reneges or defaults in making timely repayments.
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