Overcollateralization

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Overcollateralization

The practice or process of placing an asset as collateral on a loan where the value of the asset exceeds the value of the loan. For example, a person could pledge a farm (worth $10 million) on a loan for $5 million. Usually, however, the value of the asset only exceeds the value of the loan by 10-20%. Overcollateralization reduces the risk for the lender and improves the borrower's creditworthiness. It is used most commonly when a bond issuer wishes to improve its credit rating.

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Prepayment penalties are pledged to overcollateralize Ocwen's securities to reduce the impact of runoff.

Key trends in subprime

On an annualized basis, such surplus loan repayments overcollateralize bond debt service by a minimum of 1.

Fitch Rates Iowa Finance Auth's Series 2017 Revolving Fund Bonds 'AAA'; Outlook Stable

On an annual basis, as calculated by Fitch, aggregate pledged cash flows excluding carry-forward surpluses overcollateralize bond debt service by a minimum of 2.

Fitch Rates N.J. Environmental Infra Trust SRF Bonds 'AAA'; Outlook Stable

5 million, which would overcollateralize the bonds' $4.

Fitch Rates Yountville Finance Authority, CA's LRBs 'A+'; Outlook Stable

Under the SRF program's cash flow structure, pledged loan repayments significantly overcollateralize the SRF bonds allowing the program to withstand 100% loan repayment defaults over the first, middle and last four years (incorporating a 90% loan recovery assumption by Fitch).

Fitch Affirms Arkansas Development Finance Authority's SRF Revs at 'AAA'

However, over the past few years, the agency has begun to transition to a cash flow/hybrid model, where federal capitalization grant moneys are used to fund loans that will overcollateralize debt service instead of solely funding sizable reserve funds that are used to cure loan defaults.

Fitch Rates Rhode Island's $65.8MM Clean Water Rev SRFs 'AAA'; Outlook Stable

Under this model federal capitalization grant moneys are used to fund loans that will overcollateralize debt service instead of solely funding sizable reserve funds that are used to cure loan defaults.

Fitch Rates Rhode Island's $34MM Drinking Water Rev SRFs 'AAA'; Outlook Stable

That's because the conduit overcollateralizes the paper, providing the first margin of safety to the investor.

Turning A/R into cash: Facing a recession and credit crunch, receivables managers are exploring new ways to cash in on one of their biggest assets. Securitization of trade receivables is starting to flourish

By pledging all loan repayments to debt service, the program's structure significantly overcollateralizes the SRF bonds.

Fitch Affirms Maryland Revolving Loan Fund Revs (2008 Indenture) at 'AAA'; Outlook Stable

By making loans to each borrower from bond proceeds and SRF federal capitalization moneys, including the SRF's required state matching funds, and pledging all loan repayments to debt service, the authority's program structure overcollateralizes the SRF bonds.