Vertical Risk Retention (VRR)
Asset-Backed Securities glossary · Regulatory, Syndication & Live Deal Processing
Definition
Sponsor retains a 5% strip cutting horizontally across all tranches; one of the three permitted Dodd-Frank risk retention forms.
Vertical Risk Retention (VRR) in plain English
When a company packages loans and sells them to investors, regulators worry it might offload all the risk and stop caring about quality. So Dodd-Frank (a post-2008 U.S. law) makes the sponsor keep 'skin in the game' — at least 5% of the deal. Vertical Risk Retention is one way to do that: the sponsor keeps a 5% slice of EVERY layer of the deal, from safest to riskiest, so it shares a little of every outcome investors face. Picture cutting a tall layer cake and keeping one thin vertical sliver that runs through all the layers — you taste a bit of each, good or bad, just like everyone else.
Also called: VRR
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