Primary yield and multitranche structure in securitization issues: Explicative factors. A review

Abstract

The reasons for the strong rise in the securitization phenomenon up until the start of the “subprime crisis” need to be analysed. According to many authors, they mainly stem from its offering the possibility of generating fixed yield securities with the highest rating and a low risk premium, thanks to the issues being structured in differentiated bond series, so that certain series absorb most of the risk, thus facilitating the safer or “senior” tranches having a higher rating. Accordingly, this paper reviews the literature on the factors underlying the generation of differentiated tranches in this type of issues and regarding the determining factors of the yield offered by securitization issues. It concludes that the search for more complete markets, along with the reducing of problems associated to the moral hazard, are the main reasons for the multi-tranche structuring. And given the strong influence of the number of tranches on the yield offered by the issues, the paper likewise concludes that the multitranche structures has been an efficient tool to place securitization issues with more competitive yields.