A type of securitization that transforms certain types of assets (real assets/ physical assets, etc.) into marketable/ negotiable financial assets (securities, known as asset-backed securities, ABSs), so that the issuer can tap into capital markets and secure funding that is not usually available through conventional credit facilities. Examples of securitized assets include real estate, oil and gas reserves, leasable assets, and the like (see: real estate asset-backed securitization).

Asset-backed securities (ABSs) are created when an entity sells its loans or other debts to an issuer (such as a financial institution) that then pools them together and packages them into a portfolio that will be offered for sale in the market. Securitization involves pooling assets for issuance of ABS representing these assets.

The securitization process may involve issuance of asset-backed securities by a special purpose vehicle (SPV) (including foreign corporations operating in the business of asset-backed securitization) using securitization assets transferred from the entity (known as an originator) as the underlying assets. The SPV receives payment of the principal and interest or dividends with respect to the asset-backed securities out of the earnings generated from the underlying assets.

It may also involve a series of activities conducted for issuance of asset-backed securities by a trust entity using securitization assets received in trust from the originator as the underlying assets, and payment of the proceeds of the asset-backed securities out of the earnings or loans, etc. The trust receives payment of the principal and interest or dividends with respect to the asset-backed securities out of the earnings generated from the underlying assets.

The trust may acquire securitization assets by transfer from the originator, using the funds received in trust through issuance of asset-backed securities. The trust receives payment of the principal and interest or dividends with respect to the asset-backed securities out of the earnings generated from the underlying assets. The securitization assets may also be transferred or entrusted to the special purpose vehicle by another special purpose company or trust entity.