medium · Asset-Backed Securities asset-nuances
A DFP trust has $1,000,000,000 of Class A notes and $200,000,000 of Class B notes.
During rapid amortization, if the trust collects $150,000,000 in principal in month 1, how is this distributed in a standard 'Sequential Pay' DFP structure?
- Class B receives the first $150,000,000 to 'de-leverage' the structure as losses rise.
- The entire $150,000,000 is paid to Class A, reducing its balance to $850,000,000.
- The $150,000,000 is held in a reserve account until all vehicles in the pool are sold.
- The $150,000,000 is shared pro-rata:125,000,000 to Class A and $25,000,000 to Class B.
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