An originate-to-sell model when dealing with below investment grade companies is considered an attractive alternative for FIs, which have specialized credit monitoring skills, as compared with keeping the loans in their portfolio.

Question

Quizplus · Accepted Answer

An originate-to-sell model allows FIs to transfer the credit risk of below investment grade loans to other investors, which can be an attractive alternative for FIs with specialized credit monitoring skills. This allows FIs to generate fee income from originating the loans and they do not have to bear the risk of holding the loans in their portfolio.

An Originate-To-Sell Model When Dealing with Below Investment Grade Companies