collateralized bond obligation

Collateralized Bond Obligation

A type of asset-backed security (ABS), also called a bond-backed security. It refers to a security issued with assets that are not cash at the present time but can be converted into cash in the future, namely loan receivables, real estate, and installment loans, as collateral.

It is a system already common in developed countries and is issued for the purpose of preventing insolvency risk. For example, if an automobile company has secured accounts receivable by selling cars on installment but cannot raise funds on its own at the moment, it transfers these accounts receivable to a special purpose company and issues collateralized bond obligations accordingly.

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Topics: Asset-Backed Securities
Up: Asset-Backed Securities
Category: Wiki/Economy