securitisation

Suppose a business has a future income stream (for example a leasing company will have income coming in from the leases; a bank will have income coming in as the interest on loans to customers).

What securitisation is, is issuing securities (and therefore raising a ‘lump sum’ now) and the people buying the securities get the income from the leases, or interest, or whatever.

It is a way of converting the future income into a lump sum now.

(David Bowie – the singer – did this. He issued bonds and the bondholders then got the future income from his music. So instead of him getting the future income each year, he got a much bigger amount immediately from the sale of the bonds.)