Isn't it the same point when companies issue covered bonds? I thought one of the key benefits of MBS was that it alleviated the monitoring costs investors were facing. By seggregating the assets in seperate legal entities the debtholders opportunity for monitoring the assets increases. This is as far as I have read one of the main key drivers why the enterprise value increases, when securitizing.
"Gorton and Souleles (2005) argue that a key source to value in securitization is by
using carefully constructed SPEs to reduce expected bankruptcy costs. There are usually
two separate SPEs created, and it is important not only that the sale of financial assets
from a finance company such as GMAC be regarded as a “ true sale,” but that the SPEs be
constructed so as to be “ bankruptcy remote.” The activities of the SPE are normally
severely restricted at the time of its organization, so that the SPE substitutes for
extremely restrictive covenants. In this way, enforcement costs and assignment costs are
minimized for lenders investing in the securitized assets. Gorton and Souleles find that
securitization is most advantageous when the firm originating the financial assets is
deemed to be risky and/or considered to face large bankruptcy costs."
Dont know if it is of any help..
Posted on Jan 28, 2006, 1:57 PM from IP address 85.233.233.28