medium · Asset-Backed Securities asset-nuances
A hospital system securitizes its receivables via a revolving facility. The net realizable value (NRV) of the pool is $39 million and the trust uses a 75% advance rate.
If the hospital experiences a deterioration in its revenue cycle, causing days-in-AR to rise significantly and the net collection ratio to fall, what is the most likely structural consequence?
- The facility will trigger early amortization as performance thresholds are breached.
- The advance rate will automatically increase to provide the hospital with more liquidity.
- The trust will begin to write down the senior bonds to reflect the lower NRV.
- The 'True Sale' status will be revoked, and the assets will return to the hospital's balance sheet.
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