What is securitisation?
Securitisation is a way of raising finance secured on identifiable cashflows from a particular set of assets. Almost any assets that generate a predictable income stream can be securitised.
A "whole business securitisation" is a term used to describe a securitisation where the cashflows derive from the entire range of operating revenues generated by a whole business (or a segregated part of a larger business). These have been used by a wide variety of businesses to raise finance i.e. Welcome Break, Road Chef, Westminster Healthcare, London City Airport, the Tussauds Group and many pub companies.
There is no formula that determines whether a business is suitable for securitisation. However, in whole business securitisations the businesses in question produced stable, predictable cashflows.
Ratings agencies determine whether they believe that the income levels generated from the assets can be maintained, by stress-testing the ability of the company to continue to generate revenues through different economic and market dynamics.
In order to protect the quality of the assets in the business, a securitised company generally agrees or "covenants" to maintain the assets to a certain standard, and not to sell the assets without consent. In addition, the Company generally agrees to use the cashflows generated by the assets in the first instance to pay the interest on the debt as well as to meet the repayment obligations.