November 2016
The "Devil's Dictionary" is a quick-reference guide for commercial lenders and other restructuring professionals. In this series, we highlight many of the buzz words found in the Dictionary and used in today's bankruptcy arena.

SECURITIZATION: Refers broadly to the practice of transforming financial assets, such as accounts, notes, and mortgages, into securities, either as a debt offering or as a “true sale.” The investment banks and credit rating agencies “tranch” the securities from AAA downward with each descending class being subordinate in certain respects to the class above it. Real estate-related securities are referred to as CMBS or Commercial Mortgage Backed Securities. Care is taken to make the securitization vehicle and the entities that transfer loans into it “bankruptcy remote.”

The basic securitization document is a Pooling & Servicing Agreement (often referred to as the “PSA”) establishing a trust for the benefit of the investors. The loans are administered by a Trustee, a Master Servicer, and a Special Servicer. The Special Servicer will be the one representing the securitization trust when the loan becomes troubled in some way. Some think this arrangement will create complications similar to those that cropped up in the old RTC days, but the real complexity will probably derive instead from the Byzantine loan structures being created with layers of senior debt, subordinate debt, preferred equity, etc.

See also Commercial Mortgage Backed Securities, Intercreditor Agreement, Mezzanine Debt, REMIC, Special (or Single) Purpose Bankruptcy Remote Entity.

"The Devil's Dictionary" is an excellent reference tool that reflects the collective wisdom of its four authors, Brett Anders, Jim Bird, David Ferguson, and Dan Flanigan, who have a combined total of more than 110 years working in the forefront of real estate and other commercial finance, loan enforcement, financial restructuring and bankruptcy law.