Pass-through certificate

A pass-through certificate

James Chen (2022). [https://www.investopedia.com/terms/p/passthroughcertificate.asp "Pass-Through Certificate: What it Means, How it Works"], Investopedia

is an instrument that evidences ownership in an underlying pool of assets,

serving to signify the transfer of interest in favor of the holder.

An equipment trust certificate is a specific case.

In creating such a pass-through structure, the underlying assets are "bundled" into a pass-through securityYann Le Fur, et. al. (2022). [http://www.vernimmen.com/Practice/Glossary/definition/Pass%20through.html "Pass through"], vernimmen.com (also known as a "pay-through security"),

where the principal and interest payments are "passed through" to certificate holders.

Troy Segal (2020). [https://www.investopedia.com/terms/p/passthroughsecurity.asp "Understanding Pass-Through Securities and Their Risks"], Investopedia

Here, a servicing intermediary collects the monthly payments from issuers and passes them through to the security holders; this for a fee.

Pass-throughs are the basic structure on which securitizations are built; see mortgage-backed security, asset-backed security and collateralized debt obligation.

The advantage of these structures is that they serve as a means of diversifying the asset pool and/or increasing the demand for, and size of the offering.

At the same time, the investor in a pass-through transaction acquires these rights subject to all their material risks, including prepayments, fluctuations in the asset portfolio, and the risk of interest rate variations.