Pass-through certificate

A pass-through certificate^[1] 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 security^[2] (also known as a "pay-through security"), where the principal and interest payments are "passed through" to certificate holders.^[3] Here, a servicing intermediary collects the monthly payments from issuers and passes them through to the security holders 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 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^[1][3] all their material risks, including prepayments, fluctuations in the asset portfolio, and the risk of interest rate variations.

1. ^ ^{a b} James Chen (2022). "Pass-Through Certificate: What it Means, How it Works", Investopedia
2. ^ Yann Le Fur, et. al. (2022). "Pass through", vernimmen.com
3. ^ ^{a b} Troy Segal (2020). "Understanding Pass-Through Securities and Their Risks", Investopedia

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