Asset-backed note is a generic term for a class of debt instruments that offer a rate of interest to investors, in exchange for the use of their capital for some period of time.
The easiest way to get the sense of these, is to think of them in terms of what they are not. We’ll compare them to bonds, since bonds are the debt instrument that most people have heard of.
When a corporation or a municipality issues a bond, they are trying to fund some sort of project which will make money. In the case of a corporation, it could be a specific project, or the business in general (e.g. GM could be launching a new line of cars, or it could be undergoing a general expansion of all of its existing lines of cars). Municipalities issue bonds to do things which will either lead to tax revenues (e.g. schools) or fees (e.g. toll roads).
In both instances, some operation is going to be occurring which will generate the proceeds to pay interest and ultimately pay off the bonds by returning the original capital to the bond holders (who are essentially the lenders in the transaction).
By contrast, the revenue stream associated with interest and repayment for an asset-backed note doesn’t come from the operation of a business or tax/fee producing government activity, but the productive capacity of the asset being financed by the bond or note.
For instance, an oil well or movie rights might generate royalty payments for many years after the actual work is done. An office building or a pool of rental houses might generate rents for many years after construction or acquisition, with minimal need for the owner of the asset to do anything other than some basic maintenance and administration.
So the concept is that an asset or portfolio of assets is generating a return of some type just by virtue of its natural characteristics, and that asset or portfolio is put into a structure where multiple investors can provide the funding to purchase or create the core investments. When that happens, one of the ways to give each of the investors a proportional stake is by issuing notes against the whole.