COllateralized loan

[shanlane]

Hello,

What exactly is a collateralized loan? It is mentioned as a source of funding for Icelandic banks and I was wondering what the difference was between a secured loan vs a collateralized loan.

Thanks!

Shannon

 

[David Harper CFA FRM]

Hi Shannon,

I just don't know of a difference; i.e., there may be a difference but I don't know it. In my experience, a loan is secured by collateral. As a matter of connotation, it seems to me that loans or lines of credit (LOC) are often called "secured," whereas if it's an asset backed security (e.g., CDO) is it called "collateralized."

For some reason, when the obligation/note is secured by a financial claim or securitized pool of assets (CDO, CLO, CBO) it seems like that is called "collateralized," so i am wondering if there is a semantic/connotation difference: physical or direct collateral (i.e., a corporation issuing a bond secured by its physical assets) tending to be called "secured;" versus secondary securities secured by primary securities tending to be called "collateralized." But that is pure speculation, I really have no basis for a distinction (including in Basel's usage, it seems to me that Basel refers interchangeably to secured exposures and collateralized exposures). Thanks,

 

[shanlane]

Interesting.

Thanks!

Shannon

 

[LeChiffre]

hmm, are you sure the article wasnt referring to CLO's rather than collaterized (as in secured) loans themselves?

 

[Aleksander Hansen]

I think there is a slight difference pertaining to how and to what extent one can force-sale in the case of default, and the extent of the limited liability for secured and collateralized issues. That is, the legal obligation to repay, and what can be claimed [just the collateral or what is secured], e.g. whether or not one can lay claim on all assets or just a more narrowly defined set of assets.

I remember reading through some SEC rules and stumbling upon something to that extent some time ago, but then again, the rules as written by the SEC can be annoyingly confusing and ambiguous in and of themselves [until it is settled by a law suit, where the judiciary decrees what it actually says/means].

 

[ShaktiRathore]

I agree with David, that there might be semantic differences but there is almost no difference between collateralize and secured loan by looking at their definitions. The borrower takes loan from creditor and secures it by providing collateral(property,car,stocks, etc.). Thus loan is now secured by the borrower by providing the collateral. The loan is called secured loan(as loan is now secured by collateral) or a collateralize loan (as loan is backed by collateral).

thanks