NPL securitisation

According to Iain Balkwill, partner at Reed Smith LLP, an NPL securitisation "describes a financial structure whereby an owner of NPLs sell these to a special purpose orphan vehicle that funds such an acquisition by issuing debt securities into the capital markets. The vehicle will in turn appoint a servicing entity that will manage the NPLs on a daily basis with a fee structure that incentivises them to maximise recoveries on the underlying loans."

Securitisation reportedly falls into two categories: Primary Securitisation, which involves the seller (typically a bank) using this technology to remove NPLs from their balance sheet; and secondary Securitisation – which involves an acquirer in NPLs using securitisation as a form of leverage to maximise their internal rates of return.