An organization with a portfolio of homogeneous assets—such as issued loans or leasing agreements—transfers them to a specially created structure that issues bonds backed by receipts from these assets. Investors receive payments from the borrowers' payment flow.
The economic benefit for the originator is to convert an illiquid portfolio into cash immediately, without waiting for repayment, and free up capital for new operations. For investors, it provides access to a payment flow that would otherwise be unavailable.
Separation of assets from the originator is a key element of the structure: the issue is backed by the portfolio itself, not the overall condition of the company. Issues are typically divided into tranches of different seniority: junior tranches absorb losses first, while senior tranches are protected by them and therefore have higher ratings and lower yields.
Risk is concentrated in the quality of the underlying portfolio and transparency of its composition. The complexity of the structure makes valuation difficult, so when considering such an issue on the primary market, focus should be on the characteristics of the assets themselves, not just the tranche rating.