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; 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 [1] [3] all their material risks, including prepayments, fluctuations in the asset portfolio, and the risk of interest rate variations.