Business and Personal Finance Dictionary

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• ASSET-BACKED SECURITY (ABS)
  
  A "fixed income" security that pays its coupon and principal from a specific revenue stream and has a specific asset as collateral. Collateral has included accounts receivable for aircraft, automobile and r.v. loans, credit card receivables, health club contracts, lottery winnings, mortgages, real property, and taxi medalions. Sources of revenue have included payments on various loans, credit card payments, mortgage payemts, rent, royalities, lotter payments, mortgage debt service, and rent from real estate. An Asset-Backed Bond may or may not have an issuer's or guarantor's full faith and credit behind it. A special case is an Asset-Backed Bond (q.v.). The revenue stream and collateral may support more than one "class", "piece", or "tranche", just a corporation's assets may support shares and bonds. Thus, the ABS, whose value depends on the underlying revenue stream and collateral, is a Derivative Product in the same sense that financial economists have long recognized that corporate shares and bonds are Derivatives, whose prices depend on the underlying asset value and cash flow.
  
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