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

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