medium · Asset-Backed Securities asset-nuances
A DFP trust has a 'Rapid Amortization Trigger' tied to the manufacturer's credit rating.
If the manufacturer is downgraded to 'Default' (D), but the dealer pool continues to pay 100% of its obligations, what occurs?
- The trust simply continues to revolve as normal because the dealer collateral pool keeps performing well
- The dealers are formally notified that their outstanding obligations are cancelled and no longer owed to the trust
- The trustee must immediately liquidate the entire pool of receivables to an outside third party within 48 hours of default
- Rapid amortization is triggered, and principal collections are sent to bondholders, effectively winding down the trust.
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