Credit enhancer

(1) Credit enhancement may take various forms, which are often combined within a same securitization transaction: irrevocable letter of credit covering part of the receivables, insurance covering the first part of the default risk, excess margin represented by the difference between payments received on transferred receivables and payments made on securities issued and intended to cover the losses from the transferred receivables, reserve account made up of deposits from the originator, overcollateralization, introduction of a tranche hierarchy, i.e. the issue of several tranches of securities having different levels of subordination, etc. (2) Outside the securitization field, credit enhancement also applies to debt issues, in the form of a standby letter of credit, insurance or a deposit of guaranteed securities. The objective is always to obtain a higher rating than would otherwise be attributed to the securities issued. (3) The entity which provides the credit enhancement (often specialized in this activity) is called credit enhancer or, in the case of an entity specialized in this activity,monoliner.