Asset-Backed Security (ABS)

A debt security under which payments of principal and interest are made to the holders from revenue generated by an underlying pool of assets such as mortgages, credit card receivables, commercial loans or other loans, derivatives, or a combination of these. The underlying assets are pledged to the holders of the securities as collateral ( www.practicallaw.com/3-382-3343) for the payment by the issuer of principal and interest on the securities. Asset-backed securities are most commonly issued by a special purpose entity ( www.practicallaw.com/7-382-3826) (SPE) as part of a securitization ( www.practicallaw.com/5-383-8310) or structured finance transaction. Note that this term is used generally to refer to all classes of asset-backed securities, including MBS ( www.practicallaw.com/2-384-8495) , CLOs ( www.practicallaw.com/6-382-3346) and CDOs ( www.practicallaw.com/0-384-9599) .

For general information on ABS and securitization, see Practice Note, Securitization: US Overview ( www.practicallaw.com/5-501-7050) .

For information on the regulation of securitization and ABS in the US, see Practice Note, Summary of the Dodd-Frank Act: Securitization ( www.practicallaw.com/9-502-8508) .

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