medium · Asset-Backed Securities asset-nuances
In a revolving trade receivables facility, the 'dilution rate' averages 3% per month (returns and credits).
If the dilution trigger is set at 5%, and a manufacturer experiences a sudden 6% dilution in one month due to a product recall, what is the most likely structural consequence?
- The advance rate is automatically increased to cover the funding gap.
- The ineligible receivables bucket is instead reduced to offset the dilution spike.
- The seller must immediately repurchase the diluted receivables from the trust at par.
- The facility enters early amortization, and collections are used to pay down debt.
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