Securitization: One Pool of Loans, Wearing Different Credit Ratings
Securitization pools ordinary loans into a legally separate vehicle and slices the cash flows into tranches — senior, mezzanine, equity — that get paid in a fixed order.
Securitization pools ordinary loans into a legally separate vehicle and slices the cash flows into tranches — senior, mezzanine, equity — that get paid in a fixed order. The same pool of loans can back a AAA-rated slice and a junk-rated slice at once, because the rating describes the slice's place in the payment order, not the loans underneath it. What securitization actually is, why that structure worked exactly as designed for decades before 2008 broke the one assumption it depended on, and what changed in the rules afterward — with paired Indian and international examples throughout.
Surya · 7 min read