Synthetic Securitisation

a securitisation where the securitised assets are not sold by the originator but instead the originator contractually agrees with the investors that, if the originator suffers a loss on the securitised assets, the investors will pay to the originator a cash amount to compensate it for the loss suffered as a result of that default so long as the loss falls between the attachment point and the detachment point. Because the securitised assets are not sold but remain on the balance sheet of the originator, synthetic securitisations are sometimes called on-balance-sheet securitisations. This latter expression is how they are referred to, for example, in the EU Securitisation Regulation. Synthetic securitisation do not raise funds for the originator but operate as a form of credit insurance. This is why, in the context of synthetic securitisations, the originator is usually better referred to as the protection buyer and the investor as the protection seller. Technical note the obligation of a protection seller to pay an amount to a protection buyer is not triggered by the occurrence of a loss but the occurrence of one of the credit events listed in the contract creating the synthetic securitisation. The mechanisms for triggering a payment, the amount of that payment and the timing of that payment are usually quite complex.