Securitising a Loan Portfolio for an Originator
The book is performing and growing. The balance sheet funding it is not growing at the same rate.
The situation
The originator lends — to small businesses, against invoices, against equipment, against property, or to consumers — and the book performs. Growth is constrained not by demand or by credit quality but by funding: every new loan consumes balance sheet, and the balance sheet is finite.
The available answers each have a ceiling. A bank facility is negotiated on the originator's own credit rather than the book's, is capped, and comes with covenants that constrain the business. Selling loans one by one to individual buyers is a bilateral negotiation each time, with diligence repeated per transaction. Raising equity solves funding by giving away the economics of the business.
Securitisation is the structural answer: sell a defined pool of loans to a vehicle that exists only to hold them, and let that vehicle raise money from investors against the pool's own cash flows. The originator recycles capital into new lending, and investors get exposure to a diversified pool of credit rather than to the originator itself.
The vehicle we would recommend, and why
A true-sale securitisation into a ring-fenced compartment, issuing notes — usually tranched — against the pool's cash flows.
The pool is sold to the compartment in a true sale: the loans leave the originator's balance sheet and become the compartment's assets. The compartment issues notes to investors and uses the proceeds to pay the purchase price. Collections from the borrowers flow through a defined waterfall to service the notes. Because the compartment is bankruptcy-remote and ring-fenced, investors are exposed to the pool rather than to the originator's solvency — and that separation is the whole point of the exercise.
True sale is the structural feature that carries the most weight and receives the most scrutiny. A transfer that a court could later re-characterise as secured lending would pull the assets back into the originator's estate on an insolvency, which is exactly the risk investors are paying to avoid. It is settled with legal opinions in the relevant jurisdictions rather than asserted, and it shapes how the sale is documented and how the servicing is arranged.
Tranching is how the pool's risk is distributed to different appetites. A senior tranche is paid first and absorbs losses last; a junior tranche absorbs first losses and is compensated for it. Credit enhancement — subordination, overcollateralisation, a reserve account funded at issuance, or an excess-spread mechanism — is what allows a senior note to carry materially lower risk than the raw pool. Originators are commonly expected to retain a share of the risk, which aligns incentives and, for EU-facing transactions, is a regulatory requirement.
Servicing usually stays with the originator, because the originator has the borrower relationships and the collection systems. That has to be documented properly: what the servicer must do, how it is monitored, what reporting it produces, and what happens if it fails or becomes insolvent. A back-up servicing arrangement is standard for exactly that scenario.
Jurisdiction logic
The loans sit under the law that governs them, and that does not change. The issuing jurisdiction is a separate choice, driven by the investors and by whether the transaction needs to work inside the EU framework.
An EU-settled compartment is the usual answer for European originators and European investors. The securitisation framework there is purpose-built for this: statutory compartments, an established route to true-sale opinions, and settlement through the international depositaries so the notes book at any European custodian. Where the transaction is EU-facing, the applicable retention and transparency requirements have to be designed in from the start rather than retrofitted.
The offshore route appears where the originator and the investors are both outside Europe and the pool's own law is not European. It is a shorter path in those circumstances precisely because the EU-specific obligations do not apply — which is a reason to choose it deliberately, not a reason to choose it by default.
Timeline
What the weeks look like
- Weeks 1–2
Mandate and vehicle selection
Define the pool and its eligibility criteria, the target investors, and the tranche structure the transaction needs.
- Weeks 2–4
Jurisdiction and structure
Select the issuing jurisdiction, design the waterfall, the credit enhancement and the retention, and settle the servicing arrangement.
- Weeks 3–8
Documentation and approvals
Sale and servicing documentation drafted, true-sale opinions obtained, pool data prepared and reviewed, onboarding completed.
- Weeks 7–10
ISIN, settlement and custody onboarding
One ISIN per tranche, settlement eligibility obtained, and the notes presented to the custodians the target investors use.
- Weeks 9–12
Launch and first subscription
Notes issued, pool transferred, purchase price paid, and the first collection and reporting period begins.
Typically eight to twelve weeks for a first transaction. Pool data quality is the single largest variable: a book with clean, complete, consistently structured loan-level data moves quickly, and one without it does not.
What you need to bring
The five things that decide whether the timeline holds
Loan-level pool data
Complete records for every loan — balance, rate, term, arrears status, collateral, borrower type. Gaps here delay everything downstream.
Historic performance data
Default, delinquency, prepayment and recovery history over enough time and enough cycles for investors to size the credit enhancement.
Origination and underwriting policy
The written credit criteria the pool was originated under, which is what eligibility criteria are drawn from.
Servicing capability
Systems, procedures and reporting, plus a realistic view of what a back-up servicer would need in order to step in.
Onboarding documentation
KYC and AML on the originator and its principals, plus corporate authority for the sale and confirmation the loans are free of competing security.
The transaction does not change the lending business. It changes what funds it — from the originator's balance sheet to the cash flows the loans already produce.
Frequently asked questions
How large does a loan book need to be?
There is no regulatory minimum. There is a practical one, and it comes from diversification rather than from any threshold: a pool needs enough loans, spread across enough borrowers, for the historic loss data to say something statistically meaningful about the future. A concentrated pool of a few large exposures is a credit transaction dressed as a securitisation, and investors will price and diligence it accordingly. The right size is the one that makes the transaction work for the intended investors and can be repeated.
Does the originator have to keep servicing the loans?
Not as a matter of structure, but it is the norm, because the originator has the borrower relationships and the systems. What matters is that the servicing role is documented as a role — with defined obligations, monitoring and reporting — and that a back-up arrangement exists for the case where the servicer fails. Borrowers usually experience no change: they continue to pay the same party in the same way.
What is a true sale, and why does it matter so much?
A true sale is a transfer of the loans that would survive the originator's insolvency — the assets belong to the compartment, not to the originator's estate. It matters because it is the entire basis on which investors take pool risk rather than originator risk. If a court could re-characterise the transfer as a secured loan, the assets would be pulled back into the insolvency and the bankruptcy remoteness would be illusory. It is established with legal opinions in each relevant jurisdiction, and it shapes how the sale and the servicing are documented.
Can more loans be added after the notes are issued?
Yes, where the transaction is designed for it. A revolving structure lets collections be used to buy further eligible loans during a defined period instead of repaying principal immediately, which suits a lender originating continuously. It requires eligibility criteria strict enough that the pool cannot drift, and triggers that stop the revolving period if performance deteriorates. Building this in at the outset is straightforward; adding it to a live amortising transaction is not.
Related situations
Real-estate income note
Rental or development income turned into an ISIN-bearing note, secured on the underlying assets.
ReadFamily office: a private-equity or private-credit feeder note
A private-equity or private-credit commitment wrapped as an ISIN-bearing feeder note co-investors can hold at their own bank.
ReadDescribe the situation, get a structure back
Tell the structuring team what the strategy is and who it is meant to reach. You will get a vehicle, a jurisdiction and a timeline — and the reasoning behind each.