Robin Hood Finance Limited

benefits - How it works

A pool of assets is identified, and sold to a Special Purpose Vehicle. This SPV is there to “ring fence” the assets.

The pool of assets is analysed according to rating agency principles, usually involving tranching. (Tranche is the French for slice) This is where, say, 100 in assets is analysed into separate tranches with different orders of priority of payments. In a company, this would be called senior debt, subordinated debt and equity. In securitisation, there are many more potential levels of rating from AAA down to CCC, plus D for defaulted. Part of the skill in securitising is to set these tranches in the most efficient proportions.

One analogy is with dairy products: the milk turns into various products with various degrees of fat content, from skimmed milk to butter.