medium · Asset-Backed Securities asset-nuances
A Whole Business Securitization (WBS) for a restaurant chain features a 2.0x DSCR rapid amortization trigger.
If same-store sales drop 15%, causing NOI to fall from $40M to $34M, while annual debt service is $18M, what is the consequence for the residual cash flow?
- Residual payments are suspended and all excess cash is used to pay down bond principal because the DSCR fell to 1.89x.
- The servicer must promptly sell 15% of the restaurant locations to restore the required 2.0x coverage ratio.
- The interest rate on the outstanding bonds automatically increases by 200 bp to compensate for higher credit risk.
- The bonds are automatically converted into equity ownership in the restaurant chain to reduce the overall debt service burden owed.
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