Pass Through Certificates

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Pass through certificate is an instrument with cash flows derived from the cash flow of another underlying instrument or loan. Most commonly, they have been issued by foreign banks like Citibank on the basis of their car loan or mortgage/housing loan portfolio. The issuer is a special purpose vehicle which just receives money from a multitude of (may be several hundreds or thousands) underlying loans and passes the money to the holders of the PTCs. This process is called securitization. Legally speaking PTCs are promissory notes and therefore tradable freely with no stamp duty payable on transfer. Most PTCs have 2-3 year maturity because the issuance stamp duty rate of 0.75% makes shorter duration PTCs unviable.

Some corporates have also issued zero coupon like debentures. The best example is Tata Steel's Secured Premium Notes (SPNs). These debentures had 4 bullet payments of principal and interest combined after a wait period of 4 years

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