Securitized

Securitization

The process by which a company packages its illiquid assets as a security. For example, when a company makes an initial public offering, it effectively packages the company's ownership into a certain number of stock certificates. Securities are backed by an asset, such as equity, or debt, such as a portion of a mortgage. Securitization allows a company access to greater funding to expand its operations or investments, or some other reason.

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securitized

Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue's proceeds.

Case Study Tobacco companies agreed in the late 1990s to provide states with billions of dollars in cash payments over many years. The huge monetary settlements came in response to lawsuits filed by the states for health-related expenses resulting from their citizens' tobacco use. Unwilling to wait for all the promised money, politicians in several states proposed issuing debt securities backed by the promised revenue streams. Promised cash flows from the settlement would be securitized with bonds sold to investors. Florida governor Jeb Bush proposed that his state sell half its $17.4 billion settlement to be received over many years for approximately $2.4 billion. Some financial analysts worried potential lawsuits could force tobacco companies into bankruptcy, in which case promised payment from the settlements would be at risk. Securitizing the settlement payments would transfer the risk from the states to investors who purchased the bonds. Buying the bonds that were backed by promised tobacco company payments would allow individual investors to participate in the settlements.