The impact of COVID-19 on securitisations in Asia

Securitisation is one of the most important debt funding and risk management channels for corporates and financial institutions in Asia. The key feature of asset-backed securitisation (“ABS”) bonds is that their interest and principal payments rely on the income received and receipts collected by the underlying assets. Such underlying assets include credit card receivables, auto loan receivables and residential mortgage loans which have been sold by the originators. Hence, it is important that the securitisation capital structure is able to withstand any stress period during the transaction tenor. In particular, the senior notes, i.e. the “AAA” rated tranche, must be able to be fully repaid by the legal final maturity.