Asset Backed Financing

Refers to an instance where the asset to be financed is held under a special purpose vehicle and against which direct financing is raised from financiers or financial instruments are issued to investors to finance the purchase of such asset.

The special purpose vehicle in turn leases the asset for usage of identified corporation which has to make recurrent payments for such usage. Aircraft financing and ship financing are often quoted examples where the interests in an aircraft to be financed is housed under a special purpose vehicle.

To raise funding for such purchase, the special purpose vehicle raise direct financing or through issuance of securities. Financiers or holders of securities issued by special purpose vehicle shall have access to foreclose or liquidate the underlying asset should the user of such asset reneges or defaults in making timely repayments.