hard · Asset-Backed Securities asset-nuances
A $200M Equipment Lease ABS is structured with a 'Residual Value' component representing 25% of the total pool balance.
If the AAA stress scenario assumes a 30% shortfall in realized residual values, what is the impact on the required credit enhancement for the senior bond?
- The residual risk is ignored if the leases are 'Full Payout' contracts.
- The sponsor must provide a letter of credit covering the 30% shortfall.
- The senior support must increase by 7.5% to cover the residual risk alone.
- The senior bond balance must be reduced by $50M at closing.
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