2.17 Collateralized Financing Entity
ASC 810-10 — Glossary
Collateralized Financing Entity
A variable interest entity that holds financial assets, issues beneficial interests in those financial assets, and has
no more than nominal equity. The beneficial interests have contractual recourse only to the related assets of
the collateralized financing entity and are classified as financial liabilities. A collateralized financing entity may
hold nonfinancial assets temporarily as a result of default by the debtor on the underlying debt instruments
held as assets by the collateralized financing entity or in an effort to restructure the debt instruments held
as assets by the collateralized financing entity. A collateralized financing entity also may hold other financial
assets and financial liabilities that are incidental to the operations of the collateralized financing entity and have
carrying values that approximate fair value (for example, cash, broker receivables, or broker payables).
A collateralized financing entity (CFE) is an asset-backed financing or
securitization entity typically with no substantive business purpose other than to
issue beneficial interests in the financial assets it holds. Most securitization
entities and other asset-backed financing vehicles, such as collateralized loan
obligation entities (CLOs) and collateralized debt obligation entities(CDOs) are
CFEs. These entities are typically VIEs because their capital structure
qualitatively demonstrates that there is insufficient equity investment at risk. See
Sections E.1 and E.2 for consolidation considerations related to
securitization structures and collateralized investment vehicles (CIVs),
respectively. CLOs and CDOs are examples of entities that are referred to in this
Roadmap as CIVs. Some reporting entities that consolidate a CFE elect to carry all
of the financial assets and financial liabilities at fair value. Note that the FASB
has provided a measurement alternative for consolidated CFEs (see Sections 10.1.3 and 10.2.2).