Liquidity facility
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
A committed credit line provided by a third party to cover timing mismatches between collections and bond payments.
Liquidity facility in plain English
A bond deal collects money from borrowers and passes it to investors, but the timing rarely lines up perfectly: investors are owed money on a fixed date, while borrower payments trickle in messily. A liquidity facility is a pre-arranged loan from an outside bank that plugs those short timing gaps, so investors get paid on schedule even if this month's collections are running a few days late. It covers timing problems, not real losses, so the money gets paid back once collections catch up. It's like a friend spotting you $20 for lunch because your paycheck lands tomorrow, not because you're actually broke.
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