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I dont think company can use it.
Securitization was used by banks to sell their financial assets (mortgages) and transfer the risk of mortgage default to another person. This allowed banks to raise funds to issue further bonds or mortgages.
The credit rating on these securitised assets reflected the selling banks rating and not the real risk of mortgage default, and thats what led to the credit crunch.
Hope that helps.
umair:
Thanks for answering, but please don’t answer in the Ask the Tutor Forum (but please do in the other P4 forum 🙂 ).
asmaa:
umair’s answer is correct, except that although it is usually banks it does not have to be.
For example (and this is actually a good illustration of what securitisation it), the singer David Bowie was earning income from sales of his records and plays on the radio. He securitised it by forming a company and selling the shares. As a result, the shareholders now get the income from his records. He no longer gets it, but instead got a lot of money from the issue of the shares.
He turned his future income into a big capital receipt, by issuing shares that were backed by the income.
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