Overcollateralization in Corporate Securitization

This paper examines the amount of assets sold to the special purpose vehicle (SPV) in the course of corporate asset-backed securitization and its impact on the originator’s working capital management. Originators generally over-collateralize the vehicle as a way to enhance the rating of the securities issued. We find that credit risk of the originator, cash availability by the originator and macroeconomic conditions significantly affect the level of overcollateralization. Furthermore, true sale treatment of ABS transaction are positively linked to overcollateralization. Finally, we provide insights into the impact of ABS on working capital management. Our results suggest that ABS initiation and the use of overcollateralization both improve working capital ratios of the originating firm, in particular receivables and cash conversion cycles.