hard · Asset-Backed Securities asset-nuances

If a Dealer Floorplan trust enters early amortization due to manufacturer insolvency, how are principal collections typically allocated among the Seller's Interest and the various series of investor notes?

1. Principal is distributed to the Seller's Interest first to provide liquidity to the bankruptcy estate, subject to the automatic stay.
2. Principal is allocated strictly pro-rata between the Seller's Interest and the various Investor Interests until the Seller's Interest reaches zero.
3. Collections are shared pro-rata among all series, including the Seller's Interest, to preserve the trust's required minimum 5% seller's interest floor.
4. All principal collections are allocated to Investor Interests until they are retired in full, while the Seller's Interest receives 0 principal.

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