Lender's guide to the securitization of state lottery winnings and litigation settlement payments

The securitization of state lottery winnings and litigation settlement payments is a small but growing sector of the asset-backed securitization market. A discussion of some of the principal issues relating to the securitization of state lottery winnings and litigation settlement payments is presented. In the typical state lottery winnings securitization, an originator either purchases state lottery prizes from individual lottery winners or makes loans to individuals secured by a pledge of their state lottery prizes. Most state lottery prize securitizations have been structured as sales. The loan structure is used to avoid transfer taxes in certain states. Some of the issues connected with the securitization of lottery winnings and litigation settlement payments include tax issues, the non-assignability issue, substantive consolidation and rating agency issues.