Security ((See Chapter 22 of the Vernimmen))

“Collateral” (also called “security”) describes the characteristic of assets assigned/pledged by a borrower to a lender as a form of credit enhancement designed to reduce the risk attached to lending it some money. All securitization use some form of collateral (or security) to achieve a higher rating than normally achievable on an unsecured basis. Likewise, commodity trade financing makes an extensive use of collateralized facilities (E.g. commodity inventory financing, or reserve-based lending).