Some issuers use structured finance products as a way to raise more capital at a better price than might be possible through other mechanisms. By issuing different securities with different underlying assets serving as collateral, different rights and privileges, or subordinated differently, an issuer may be able to borrow more cheaply (and receive a higher credit rating for a specific security) for a specific purpose than it might be able to by issuing a traditional ―plain vanilla‖ corporate bond.
As originally envisaged, however, rather than being designed to raise capital for an issuer (typically a corporation of any type), some structured finance products such as RMBSs were designed primarily to diversify the risk held on the balance sheet of an issuer (which is often, but not necessarily, a financial institution).
This risk is often held in the form of long-term loans or other debt instruments, and rather than offering investors a share in the cash-flow of the issuer as an enterprise, the issuer offers investors a share in the cash-flow of the enterprise’s own assets, taking advantage of the differing risk preferences and investment time horizons of different investors.