Clean Energy Finance Forum

This is the process of combining financial assets into a pool and then selling portions of that combined pool on the secondary market to institutional investors, such as pension funds. The resulting asset (i.e., mortgage-backed securities) generally requires a credit rating from a rating agency assessing the risk associated with it. By allowing the original investor in a project to sell the resulting asset on the secondary market, securitization increases initial lenders’ willingness to provide low-cost capital. This is particularly true if the resulting securities receive a high credit rating because the asset will be worth more on the secondary market.