secured bond vs securitized bond

From the glossary. Any differece? Secured bonds Bonds secured by assets or financial guarantees pledged to ensure debt repayment in case of default. Securitized bonds Bonds created from a process that involves moving assets into a special legal entity, which then uses the assets as guarantees to secure a bond issue.

A covered bond is a debt obligation backed by a segregated pool of assets called a “cover pool”. Covered bonds are similar to securitized bonds but offer bondholders additional protection if the financial institution defaults. A financial institution that sponsors securitized bonds transfers the assets backing the bonds to a SPV. If the financial institution defaults, investors who hold bonds in the financial institution have no recourse against the SPV and its pool of assets because the SPV is a bankruptcy-remote vehicle; the only recourse they have is against the financial institution itself. In contrast, in the case of covered bonds, the pool of assets remains on the financial institution’s balance sheet. In the event of default, bondholders have recourse against both the financial institution and the cover pool. Thus, the cover pool serves as collateral. If the assets that are included in the cover pool become non-performing (i.e., the assets are not generating the promised cash flows), the issuer must replace them with performing assets. Therefore, covered bonds usually carry lower credit risks and offer lower yields than otherwise similar securitized bonds.

I thought holders of a securitized bond have recourse against the SPV if the sponsor defaults, isn’t that the whole point of SPV?

Legally, probably not much.

In practice,

  • Secured bonds usually refer to bonds issued by an entity that owns the collateral pledged against those bonds; e.g., a company issues bonds and pledges their manufacturing plant as collateral.
  • Securitized bonds usually refer to bonds issued by an entity that owns an indirect interest in the collateral pledged against those bonds; e.g., a company issues mortgage-backed securities, when the company owns mortgages on the underlying properties, but doesn’t own the properties themselves.

So secured bond and covered bond is basically the same thing? Since they both own the collateral assets.


Covered bonds are closer to securitized bonds, but with additional protections.

okay, im really confused. but hu cares i’ll just gonna remember dat covered bond is the most secured, secured bond is the least secured.