A form of credit enhancement in which a cash reserve is set up, in connection with a debt issue, from the proceeds of the securities issued, as a first loss protection to holders (the investors). The reserve is created immediately along with the issuance process by the servicing agent or a specialized cash management provider. The reserve account is used to reimburse an issuing trust for any credit losses up to the amount maintained as a reserve.

The amounts of reserve will be used to improve the credit quality of the issue by offering a loss protection mechanism to the holder of the securities against any credit risk associated with the issuer over the term of the issue. Any surpluses (unused funds in the reserve account) will be invested by the agent/ provider.

This type of credit enhancement represents an emergency cash (or monetary amounts) to be tapped into if the cash flows from the debt issue are insufficient to service the debt. Reserve accounts can take the form of: a cash reserve fund and an excess spread account.