Underlying
LexInter | December 11, 2008 | 0 Comments

Underlying

Support to which a derivative product is backed. In a securitization transaction, the underlying designates the assets that are transferred to the SVP, which will issue securities backed by these assets.

The backing of the derivative to an underlying asset means that the securitization transaction is in fact conceived as a fragmentation of the ownership of that asset. The financial rights concerning this asset are in fact in a typical securitization transaction completely absorbed by the receivable. Debt is indeed calculated with an optimistic valuation, if not an overvaluation of the asset, based on the idea that the value of the asset is destined to increase.

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