Asset-Backed Commercial Paper (ABCP) refers to short-term debt instruments issued by financial institutions, which are backed by physical assets such as receivables, leases, or loans.
An asset-backed security (ABS) is a financial instrument that represents a claim on the cash flows generated by a pool of underlying assets, such as mortgages, car loans, or credit-card receivables.
Capital structure refers to the balance between a company's assets and liabilities, the nature of its assets, and the composition of its borrowings. It is also commonly used in the context of a company's debt-equity ratio and the mix of debt classes in structured finance instruments.
A CDO is a structured finance instrument consisting of a bond or note backed by a pool of fixed-income assets, with varying levels of credit risk allocated to different tranches.
A Collateralized Loan Obligation (CLO) is a complex financial tool that repackages pools of loans, often corporate loans, into different classes of securities to be sold to investors. CLOs provide high returns for investors with an appetite for risk while offering a source of financing for companies.
A financial instrument where the payoff is linked to the credit rating or payment performance of the underlying asset, involving various structures such as unfunded and funded derivatives.
Monoline insurers provide guarantees to bond issuers to enhance their creditworthiness. After being highly active in the mid-2000s, particularly in complex structured finance instruments, they faced significant losses due to the subprime lending disaster of 2007.
Plain vanilla refers to financial instruments in their simplest, most straightforward form without any exotic features or complexities.
A Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE) is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company allows separation of the parent organization from financial risk.
Structured finance refers to the creation of complex debt instruments through methods such as securitization or the incorporation of derivatives to existing instruments. It involves asset pooling, tranching of liabilities, and the creation of special purpose vehicles to mitigate risk.
A tranche is a portion or slice of a larger sum of money or a security with differing risk-return profiles used in financial operations such as loans, funding, and securitizations.
