13 (i.e., a bank or other financial institution) which removes the loans from its own balance sheet by selling the asset pool to an issuer1. The issuer divides the asset pool into what is known as tranches or note classes, that each have a different of risk and return profile. The level of seniority of each tranche defines tl ohses ea sl l. oTc ahtei osne noifo irni tvye sl et mv eel ni ts ruest uu ar nl l ys (di i. ev .i,dperdi ni nc itpoa jl uanni do r,i nmt eerzezsat npi na ye ma ne nd t ss )e nainodr tranches. The most senior tranches have the lowest risk as they are the first taol s roe cc oe mi v ee sa wr ei tthu rt nh eo lf ocwa epsi tt ael xapnedc ttehde rleatsut rtno mb ea kai lnl og ctaht ee md lloosws e- rsi. s Hk ol owwe v- reerw, tahrids ab ses ea tl lso. cTaht eedml oossst ejsu. nHi oorwtervaenrc, hi ne sr ec at ur rr yn tt hh ee yh ibgehneesfti tr if sr ko ma st ht heehy i gahr ee stth ee xfpi resctt et do roef tpurrinn cmi paakli nagn dt hienmt e rhei sgth -prai sykmheingths- raentdu rtnh ea saslel ot sc.aTt ihoen roufl el os sfsoers t ha reedri es tf er irbr ue dt i ot no ac os rtrhees pwo antdesr f taol l tphaey mr i sekn tl esvt reul cot fu rt eh.e Etarcahn cthr aen(ceh. ge . , r es ce eniivoers t ar acnrcehdei t breaitni ng gAtAhAa t- r( Ca tReAds) ). , Tshuec hc raesdMi t oroadt iyn’ sg, sS at ar ne dparrodv &i d ePdo obry’ s c(oSm& Pm)e, racni adl Fcirt ec hd i It nrvaetsi nt ogr sa gSeenr vc ii ce es (oFbilticgha )t .i oCnRsA. sT hp er ocvrieddei tf oqruwa al i rt dy ,- ol oroski imn gp lpy epr us pt , etchtei vceaspoanb itlhi tey carne dd ipt rqeupaal ri teyd on fe ds se bo tf the debtor to complete payments on its debt obligations, is reflected in the credit rwaot iunl gd. oTthhee ri wn ti rsoe dhuacvt ei opne rocf eCi vReAds t ha lel soewseedc ui sr si tui ee rs sa st oo rpeaaqcuhe ma na dn yc oi nmvpe lsetxo r( sD at hl eayt eatndalp., e2n0s2io0n). fTuhnedsse(ucusuriatlilzyathioolndiinngvetshteorsatfyepsitcatrlalyncrhanesg)es from banks, insurers 2 to hedge funds, openet hned re ids kf uy nt rdasn, ca hs se es t) . mA asnt ya lgi ze er sd aenx da mo pt hl ee ro fi nt ht eer ns eact ui orni tai zl ai nt ivoens tdoerssi g( nu si us apl rl yo vhi od leddi ni ng Figure 1.1. 1 This entity is a bankruptcy remove legal entity known as special purpose vehicle or special purpose entity. 2 Other market participants are for example legal advisors, auditors, servicers, trustees and liquidity providers. Chapter 1 - General Introduction
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