medium · Asset-Backed Securities asset-nuances

If truck resale prices collapse by 50%, which portion of the capital stack is most likely to experience a principal loss?

1. The residual/equity piece and the most junior rated tranches, due to residual value shortfalls.
2. The AAA senior bonds absorb losses first, since finance leases carry no enhancement.
3. No principal loss occurs at all, because finance leases make up the pool's majority at 60%.
4. The entire pool absorbs the loss equally, with total losses spread pro-rata across every rated bond tranche.

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